issue-1996-09-12•Federal Register final rules — 1996-09-12
Federal Register final rules — 1996-09-12
issue-1996-09-12Federal Register final rules — 1996-09-12Regulation
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. 96-23394 Classification Reform; Implementation Standards
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48071-48072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23394]
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POSTAL SERVICE
39 CFR Part 111
Classification Reform; Implementation Standards
AGENCY: Postal Service.
ACTION: Final rule.
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SUMMARY: This final rule sets forth additional Domestic Mail Manual
(DMM) standards adopted by the Postal Service to implement the Decision
of the Governors of the United States Postal Service on the Recommended
Decision of the Postal Rate Commission on Nonprofit Standard Mail,
Nonprofit Enhanced Carrier Route Standard Mail, Nonprofit Periodicals,
and Within County Periodicals, Docket No. MC96-2, Classification Reform
II.
EFFECTIVE DATE: October 6, 1996.
FOR FURTHER INFORMATION CONTACT:
Leo F. Raymond, (202) 268-5199.
SUPPLEMENTARY INFORMATION: On April 4, 1996, pursuant to its authority
under 39 U.S.C. 3621, et seq., the Postal Service filed with the Postal
Rate Commission (PRC) a request for a recommended decision on several
mail classification reform proposals for nonprofit Periodicals and
Standard Mail (Classification Reform II). The PRC designated the filing
as Docket No. MC96-2. On April 11, 1996, the PRC published a notice of
the filing, with a description of the Postal Service's proposals, in
the Federal Register (61 FR 16129-16146). The PRC issued its Opinion
and Recommended Decision on Docket No. MC96-2 on July 19, 1996. In that
document, the PRC favorably recommended what the Postal Service had
proposed, with the exception of those provisions in the Classroom
Periodicals rate schedule; the PRC reopened the record in Docket No.
MC96-2 for further proceedings on that category of mail. On August 6,
1996, the Governors of the Postal Service accepted the Recommended
Decision and the Board of Governors set October 6, 1996, as the date on
which the provisions of Docket No. MC96-2 would take effect. A notice
of the Decision of the Governors was published on August 15, 1996 (61
FR 42464-42476).
The DMM standards that were proposed to take effect to implement
Docket No. MC96-2 were published for public comment in the Federal
Register on June 24, 1996 (61 FR 32606-32616). Because no comments were
received on the proposed rule, it was adopted without change as the
final rule, except as noted therein to reflect the absence of rate
provisions for Classroom Periodicals in the PRC's Recommended Decision
that was accepted and implemented by the Governors, and published on
August 15, 1996 (61 FR 42478-42489).
Because the PRC's Recommended Decision, as accepted and implemented
by the Governors, excluded rate changes for Classroom Periodicals that
had been proposed by the Postal Service, the rate schedule for
Classroom Periodicals was unchanged, retaining ZIP+4 Classroom rates.
Because of this difference from what the Postal Service had proposed in
its request and in the proposed rule, the August 15 final rule also
proposed standards for ZIP+4 Classroom rate mail that were different
from those published in DMM Issue 50. (In general, the Postal Service
proposed to establish eligibility standards for ZIP+4 Classroom rate
mail that parallel those for other automation rate Periodicals. Mail
preparation standards for ZIP+4 Classroom rate mail would be
essentially similar to those for upgradable mail in other classes,
except a ZIP+4 code would be required in the address. The Postal
Service anticipated minimal adverse impact from this proposal on the
mailing community, given the applicability of ZIP+4 rates to only
letter-size pieces and the likely absence of a significant volume of
letter-size mail in the Classroom Periodicals subclass.) Because those
specific standards were not part of the June 24 proposed rule, the
Postal Service accepted further comments on those standards from
interested parties for an additional 21 days (i.e., through September
5, 1996).
No comments were received on the proposed rule for ZIP+4 Classroom
Periodicals rate eligibility and mail preparation. Therefore, the
Postal Service adopts the corresponding DMM standards as the final
rule.
These relevant standards are shown below for the information of
readers, but are the same as the corresponding standards published in
the August 15 final rule.
All references to DMM sections shown in this rule are based on DMM
Issue 50 (July 1, 1996) as amended by the August 15 final rule.
List of Subjects in 39 CFR Part 111
Postal Service.
For the reasons discussed above, the Postal Service hereby adopts
the following amendments to the Domestic Mail Manual, which is
incorporated by reference in the Code of Federal Regulations (see 39
CFR part 111).
PART 111--[AMENDED]
1. The authority citation for 39 CFR part 111 continues to read as
follows:
Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 3001-
3011, 3201-3219, 3403-3406, 3621, 3626, 5001.
2. Revise the following sections of the Domestic Mail Manual as set
forth below:
C CHARACTERISTICS AND CONTENT
* * * * *
C800 Automation-Compatible Mail
C810 Letters and Cards
* * * * *
2.0 DIMENSIONS
* * * * *
[Revise the heading of 2.3 to read as follows:]
2.3 Maximum Weight
[Revise 2.3a to read as follows:]
Maximum weight limits are as follows:
a. 2.5 ounces: upgradable Presorted First-Class Mail, ZIP+4
Classroom Periodicals, and upgradable nonautomation Standard Mail.
* * * * *
C840 Barcoding Standards
* * * * *
2.0 BARCODE LOCATION--LETTER-SIZE PIECES
2.1 Barcode Clear Zone
[Amend 2.1 by revising the first sentence to read as follows:]
Each letter-size piece in an automation rate mailing, each piece of
ZIP+4 Classroom Periodicals, and each piece of upgradable Presorted
First-Class Mail or upgradable Standard Mail (A) must have a barcode
clear zone unless the piece bears a DPBC in the address book. * * *
* * * * *
E ELIGIBILITY
* * * * *
E200 Periodicals
* * * * *
E240 Automation Rates
1.0 BASIC STANDARDS
1.1 All Pieces
[Amend 1.1 by revising the introductory text to read as follows:]
[[Page 48072]]
Except for Classroom Periodicals under 3.0, all pieces in an
automation Periodicals mailing must:
* * * * *
[Revise the heading of 2.0 to read as follows:]
2.0 RATE APPLICATION--EXCEPT CLASSROOM PERIODICALS
* * * * *
[Add new 3.0 to read as follows:]
3.0 RATE APPLICATION--CLASSROOM PERIODICALS ONLY
3.1 ZIP+4 Rates
ZIP+4 Classroom Periodicals must meet the basic standards in 1.1a
through 1.1f and 1.2, except each piece must meet the physical
standards for letter-size mail in C810 and the standards for OCR
processing in C830, must bear the correct ZIP+4 code in the address,
and must have address elements in the standardized format placed in the
OCR read area, under A010. ZIP+4 rates apply to each letter-size piece
that is sorted under M810 into the corresponding qualifying groups:
a. Groups of 150 or more pieces in 5-digit or unique 3-digit trays
qualify for the 3/5 ZIP+4 rate.
b. Groups of fewer than 150 pieces in origin/entry 3-digit trays
and groups of 150 or more pieces in other 3-digit or AADC trays, and
all pieces in mixed AADC trays qualify for the Basic ZIP+4 rate.
3.2 Barcoded Rates
Barcoded Classroom Periodicals must meet the basic standards in
1.00 Barcoded rates apply to each letter-size piece that is sorted
under M810 into the corresponding qualifying groups:
a. Groups of 150 or more pieces in 5-digit trays qualify for the 5-
Digit Barcoded rate.
b. Groups of 150 or more pieces in unique 3-digit trays qualify for
the 3-Digit Barcoded rate.
c. Pieces for unique 3-digit destination that is part of a 3-digit
scheme group in L003 qualify for the 3-Digit Barcoded rate when placed
in a 3-digit scheme tray if grouped separately from pieces for other 3-
digit areas.
d. Groups of fewer that 150 pieces in origin/entry 3-digit/scheme
trays and groups of 150 or more pieces in other 3-digit, 3-digit
scheme, or AADC trays and all pieces in mixed AADC trays qualify for
the Basic Barcoded rate.
* * * * *
M MAIL PREPARATION AND SORTATION
* * * * *
M800 All Automation Mail
[Revise the heading of M810 to read as follows:]
M810 Letter-Size Mail
1.0 BASIC STANDARDS
1.1 Standards
[Amend 1.1 by replacing the term ``Regular Periodicals'' with
``Periodicals'' in the first sentence to read as follows:]
Letter-size automation rate First-Class Mail, Periodicals, and
Standard Mail (A) must be prepared under M810 and the eligibility
standards for the rate claimed.* * *
1.2 Mailings
[Amend 1.2 by adding the following sentence to the end of the section
to read as follows:]
* * *A Periodicals mailings may not contain both ZIP+4 Classroom
pieces and any other automation rate Periodicals.
* * * * *
1.6 Scheme Sortation
[Amend 1.6 by adding the following sentence to the end of the section
to read as follows:]
* * *Scheme sortation is not available for ZIP+4 Classroom
Periodicals.
* * * * *
3.0 PREPARATION--PERIODICALS
3.1 Tray Preparation
[Amend 3.1 by revising 3.1b to read as follows:]
Tray size, preparation sequence, and labeling:
* * * * *
b. 3-digit/scheme (3-digit only for ZIP+4 Classroom Periodicals):
required (150-piece minimum except no minimum for required origin/
optional entry 3-digit(s)/scheme); overflow allowed; for Line 1, use
L002, Column B (except use L002, Column A, for ZIP+4 Classroom
Periodicals).
* * * * *
3.2 Line 2
[Revise 3.2 to read as follows:]
Line 2: PER or NEWS (as appropriate), LTRS BC (except LTRS UPGR for
ZIP+4 Classroom Periodicals), and:
* * * * *
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 96-23394 Filed 9-11-96; 8:45 am]
BILLING CODE 7710-12-M
Complete official Federal Register PDF
FR Doc. 96-23367 Revision of Class E Airspace; Gainesville, TX
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48069-48070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23367]
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DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 95-ASW-15]
Revision of Class E Airspace; Gainesville, TX
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule; correction.
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SUMMARY: This action corrects an error in the geographic coordinates of
a final rule that was published in the Federal
[[Page 48070]]
Register on June 4, 1996 (61 FR 28037), Airspace Docket No. 95-ASW-15.
EFFECTIVE DATE: September 12, 1996.
FOR FURTHER INFORMATION CONTACT:
Chuck Frankenfield, Operations Branch, Air Traffic Division, Southwest
Region, Federal Aviation Administration, Fort Worth, TX 76193-0530,
telephone 817-222-5591.
SUPPLEMENTARY INFORMATION:
History
Federal Register Document 96-13929, Airspace Docket No. 95-ASW-15,
published on June 4, 1996 (61 FR 28037), revised the description of the
Class E airspace area at Gainesville, TX. An error was discovered in
the geographic coordinates for the Gainesville Municipal Airport,
Gainesville, TX, and for the Gainesville Radio Beacon (RBN). The
coordinates for the Gainesville Municipal Airport were published as
latitude 33 deg.38'57''N., longitude 97 deg.11'43''W.; they should have
been published as latitude 33 deg.39'05''N., longitude 97 deg.11'49''W.
The coordinates for the Gainesville RBN were published as latitude
33 deg.42'24''N., longitude 99 deg.10'19''W.; they should have been
published as latitude 33 deg.43'07''N., longitude 97 deg.11'55''W. This
action corrects the geographic coordinates that were published in
error.
Correction to Final Rule
Accordingly, pursuant to the authority delegated to me, the
geographic coordinates for the description of the Class E airspace area
at Gainesville, TX, as published in the Federal Register on June 4,
1996 (61 FR 28037), (Federal Register Document 96-13929: page 28037,
column 3), are corrected as follows:
Sec. 71.1 [Corrected]
* * * * *
ASW TX E5 Gainesville, TX [Corrected]
Gainesville Municipal Airport, TX
Removing ``(Lat. 33 deg.38'57''N., long. 97 deg.11'43''W.)'' and
substituting
``(Lat. 33 deg.39'05''N., long. 97 deg.11'49''W.)''
Gainesville RBN
Removing ``(Lat. 33 deg.42'24''N., long. 99 deg.10'19''W.)'' and
substituting
``(Lat. 33 deg.43'07''N., long. 97 deg.11'55''W.)''
* * * * *
Issued in Fort Worth, TX, on September 3, 1996.
Albert L. Viselli,
Acting Manager, Air Traffic Division, Southwest Region.
[FR Doc. 96-23367 Filed 9-11-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-23331 Office of the Assistant Secretary for Financial Markets; Government Securities Act Regulations: Large Position Rules
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48338-48351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23331]
[[Page 48337]]
_______________________________________________________________________
Part IV
Department of the Treasury
_______________________________________________________________________
17 CFR Parts 400 and 420
Government Securities Act Regulations: Large Position Rules; Final Rule
Federal Register / Vol. 61, No. 178 / Thursday, September 12, 1996 /
Rules and Regulations
[[Page 48338]]
DEPARTMENT OF THE TREASURY
17 CFR Parts 400 and 420
RIN 1505-AA53
Office of the Assistant Secretary for Financial Markets;
Government Securities Act Regulations: Large Position Rules
AGENCY: Office of the Assistant Secretary for Financial Markets,
Treasury.
ACTION: Final rule.
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SUMMARY: The Department of the Treasury (``Department'' or
``Treasury'') is publishing final rules that establish a new Part 420
providing recordkeeping and reporting requirements pertaining to very
large positions in certain Treasury securities. The regulations are
promulgated pursuant to the Government Securities Act Amendments of
1993, which authorized the Secretary of the Treasury to prescribe rules
requiring persons holding, maintaining or controlling large positions
in to-be-issued or recently-issued Treasury securities to keep records
and file reports of such large positions. The proposed rules were
published to solicit public comment on December 18, 1995.
The recordkeeping rules require any person or entity that controls
a position equal to or greater than $2 billion in a specific Treasury
security to maintain and preserve certain records that enable the
entity to compile, aggregate and report large position information. If
the Treasury requests large position information, the reporting rules
require entities to file a large position report with the Federal
Reserve Bank of New York if their reportable position equals or exceeds
the large position threshold in a particular Treasury security as
specified by the Treasury in the notice requesting the large position
information. The Department's large position rules are intended to
provide the Treasury and other securities regulators with information
on concentrations of control that will enable them to understand better
the possible reasons for apparent significant price distortions and the
causes of market shortages in certain Treasury securities. Requests by
the Treasury for this information are expected to be very infrequent.
DATES: The effective date is October 15, 1996. Further dates: See
Secs. 420.4(a) and 420.5.
FOR FURTHER INFORMATION CONTACT: Ken Papaj, Director, or Kerry Lanham,
Government Securities Specialist, Bureau of the Public Debt, Department
of the Treasury, at 202-219-3632.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Authority
The Government Securities Act Amendments of 1993 (GSAA) 1
included a provision granting the Department the authority to write
rules for large position recordkeeping and reporting in certain
Treasury securities. Specifically, Section 104 of the GSAA, which
amended Section 15C of the Securities Exchange Act of 1934,2
authorizes the Treasury to adopt rules requiring specified persons
holding, maintaining or controlling large positions in to-be-issued or
recently-issued Treasury securities to maintain records and file
reports regarding such positions.3 The provision was in response
to certain market events in 1990-91 and is designed to improve the
information available to the Treasury and other regulators regarding
very large positions of recently-issued Treasury securities held by
market participants and to ensure that regulators have the tools
necessary to understand unusual conditions in the Treasury securities
market.
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\1\ Pub. L. 103-202, 107 Stat. 2344 (1993).
\2\ 15 U.S.C. 78o-5.
\3\ Pub. L. 103-202, Sec. 104; 107 Stat. 2344, 2346-2348; 15
U.S.C. 78o-5(f).
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The GSAA gives the Department wide latitude and discretion in
determining several key features and conditions that would form the
underpinnings of the large position recordkeeping and reporting rules.
Among the most significant of these features are: defining which
persons (individually or as a group) hold, maintain or control large
positions; determining the minimum size of positions to be reported;
determining what constitutes ``control'' for the purposes of the rules;
prescribing the manner in which positions and accounts are to be
aggregated; identifying the types of positions to be reported;
determining the securities that would be subject to the rules; and
developing the form, manner and timing of reporting. Both the proposed
and final rules address these points.
B. Participation in Rulemaking Process/Solicitation of Comments
Throughout the process of developing large position rules, the
Department has sought the views of the market participants who would be
directly affected by such regulations. We believed that market
participant involvement in the rulemaking initiative from its outset
would facilitate greater understanding of, and support for, the final
rules when implemented. Due to the potential complexity of the rules
and the myriad of ways to approach them, we sought advice and initial
comment on a variety of conceptual approaches to designing a large
position recordkeeping and reporting system.
Accordingly, the Department issued an Advance Notice of Proposed
Rulemaking (ANPR) on January 24, 1995.4 The ANPR addressed several
key issues, concepts and approaches to be considered in developing
large position recordkeeping and reporting rules and solicited
comments, suggestions and recommendations regarding how the
requirements should be structured. The ANPR also contained a detailed
historical background that provides a fuller understanding of the
events and circumstances that resulted in the establishment of this
regulatory authority, the purposes and objectives to be achieved from
large position rules, and the Congressional intent behind this
legislation. The comment period on the ANPR ran through May 24,
1995.5 In response to the ANPR, the Department received seven
comment letters which were summarized in the preamble to the proposed
rules.6 Rather than repeating that information here, readers are
referred to the proposed rules for a discussion of the comments.
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\4\ 60 FR 4576 (January 24, 1995).
\5\ 60 FR 20065 (April 24, 1995).
\6\ 60 FR 65214 (December 18, 1995).
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C. The Proposed Rules
The Department published for comment proposed large position
recordkeeping and reporting rules on December 18, 1995.7 The
proposed rules were designed to strike a balance between achieving the
purposes and objectives of the statute and minimizing costs and burdens
to those entities affected by the regulations. The proposed rules
required reports to be submitted only in response to a specific request
by the Treasury for large position information on a particular Treasury
security issue. Using this approach, reporting would be an infrequent
event required primarily in response to pricing anomalies in a specific
Treasury security rather than a regular, on-going process resulting
from a certain pre-determined large position threshold being exceeded
in a broader range of securities.
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\7\ Ibid.
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The proposed rules provided a minimum large position threshold of
$2 billion, below which the Treasury would not request large position
reports.
[[Page 48339]]
As a result, very few entities would be required to file large position
reports. The proposed recordkeeping requirements would generally not
apply to any reporting entity (as defined in the rules) that did not
control a position that equalled or exceeded $2 billion in a Treasury
security. For those entities currently subject to recordkeeping rules
of the Securities and Exchange Commission (SEC), the Treasury or the
bank regulatory agencies, the proposed rules would have imposed only
minor additional recordkeeping requirements and only if certain
conditions were present. Finally, the proposed rules incorporated
several concepts from the Treasury's auction rules (e.g., positions to
be included in a reportable large position, definition of a reporting
entity and method of aggregating positions) which have been in effect
since March 1993 and are understood by many of the major participants
in the Treasury securities market.8
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\8\ Uniform Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds; 31 CFR
Chapter II, Subchapter B, Part 356.
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In addition to considering the views expressed by the commenters to
the two rulemaking proposals, Department staff has also consulted with
various regulatory agencies (i.e., staff of the SEC, the Commodity
Futures Trading Commission, the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York (FRBNY)) in
developing the ANPR, the proposed rules and these final rules.
D. Scope of Large Position Rules
It is important for all market participants to recognize that large
position rules create a requirement to maintain records and report
information about such positions. However, these requirements apply
only to entities that hold or control (i.e., exercise investment
discretion over) very large positions, as determined by the Department,
in specific Treasury security issues. Accordingly, there is no
obligation on executing brokers and dealers to report large trades nor
is there an affirmative duty to inform their customers of the large
position recordkeeping and reporting requirements prescribed by this
rulemaking.
The Department emphasizes that large positions are not inherently
harmful and there is no presumption of manipulative or illegal intent
on the part of the controlling entity merely because a position is
large enough to be subject to these rules. In addition, the rules do
not establish trading or position limits or require the identification
of large traders or the reporting of large trades. Finally, the GSAA
specifically provides that the Department shall not be compelled to
disclose publicly any information required to be kept or reported for
large position reporting. In particular, such information is exempt
from disclosure under the Freedom of Information Act (FOIA).9
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\9\ 5 U.S.C. 552(b)(3)(B).
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II. Comments Received in Response to Proposed Rules
As discussed in the ANPR 10 and the proposed rules,11 the
Department made the decision, early on, to obtain the views of the
market participants who would be directly affected by such regulations.
In the proposed rules, which addressed and incorporated those comments
received in response to the ANPR, the Department strongly encouraged
market participants to submit comments, including any suggestions for
reducing burdens on the industry while still achieving the objective of
the rules.
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\10\ See supra note 4.
\11\ See supra note 6.
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In response to the proposed rules, the Department received thirteen
comment letters. The letters were submitted by four trade associations,
three primary government securities dealers, four bank holding
companies (including two primary dealers), and one mutual fund
manager.12 The Department has carefully considered the comments
that were received, which generally supported the approach and process
adopted in the proposed rules. Each comment letter did not necessarily
address all aspects of the proposed rules.
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\12\ Public Securities Association (two letters); Investment
Company Institute; British Bankers' Association; London Investment
Banking Association; Goldman, Sachs & Co.; J.P. Morgan Securities,
Inc.; HSBC Securities, Inc.; Bank of America; Chemical Banking
Corporation; Norwest Corporation; BANC ONE Corporation; and Fidelity
Management & Research Co., respectively.
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The comments have been summarized and organized into the following
eight basic categories: Control and the Definition of a Reporting
Entity; Reporting Threshold; Time Frame for Submitting Reports;
Reportable Position Components; Report and Recordkeeping
Certifications; Recordkeeping; Announcement of a Request for Reports;
and General Commentary.
A. Control and the Definition of a Reporting Entity
Eight comment letters specifically addressed this issue. While the
comments were generally in agreement with the definition of control as
proposed, the concept of control premised on an entity's investment
discretion, and defining a reporting entity or a separate reporting
entity under a requested ``carve out'' in conformity with the single
bidder process in the uniform offering circular, four letters had
specific recommendations.
One commenter expressed concern about the timing and aggregation
requirements given the definitions of ``control'' and ``entity'' and
believed that it would be difficult to aggregate all of its holdings
within the proposed reporting time frame. This commenter recommended
that the definition of ``reporting entity'' be limited to a legal
entity that exercises independent investment discretion, believing that
if a narrower definition were adopted then their concerns would be
eliminated. The second commenter, while agreeing with the concept of
control premised on investment discretion, suggested that a participant
be allowed to exclude from its reportable position those securities for
which the entity has investment discretion but which do not exceed a
minimum threshold. This approach, which would be similar to the net
long position reporting requirement in the uniform offering circular,
permits bidders to exclude amounts in non-bidding controlled accounts
under a certain threshold from their reporting requirement. This
commenter asserted that this exclusion would significantly alleviate
the burden in tracking amounts of the security subject to investment
discretion.
The third letter, in specifically commenting on the application for
separate reporting status, similar to the separate bidder application
incorporated in the uniform offering circular, recommended that
Appendix A of the rules be changed to encompass organizational
components previously recognized under the uniform offering circular's
definition. The fourth commenter expressed concern with the various
distinctions being drawn among reporting entities, aggregating entities
and separate reporting entities, stating that this will cause a myriad
of problems for complex and changing financial services businesses. The
commenter proposed that a narrower reporting population be defined,
such as those business units which are the primary bidders for, and
proprietary traders in, U.S. government securities. Within these
groups, the commenter suggested excluding those securities that are not
held for proprietary trading. This commenter further suggested an
alternative approach which would not require the aggregation of
positions, where the different business units within a firm are clearly
independent,
[[Page 48340]]
while excluding all business units where securities are held as long-
term investments.
B. Reporting Threshold
Seven letters directly addressed the proposed $2 billion minimum
large position threshold. Two of the seven commenters believed this
threshold to be an appropriate level, with one of these commenters
suggesting that the rules specifically provide that the threshold be
raised from time to time based on market developments. Three other
commenters stated that by including gross financing positions in the
total reportable position, all primary dealers and large market
participants would trigger the $2 billion threshold and effectively be
required to report their positions in all instances, due to their
matched repo book and other financing activity, thereby resulting in
numerous reports. Given these large matched book positions, one of the
three commenters advocated that this threshold be increased to $5
billion, while another suggested that the reportable position be based
on the participant's net financing position. The third commenter, while
also advocating a significant increase in the threshold, went further
by recommending two other alternative approaches. In the first
approach, the $2 billion threshold would be triggered by the aggregate
of the net trading position and the net fails position, excluding the
gross financing position. The second alternative approach would provide
participants with the option of netting the gross par amounts of
securities received in financing transactions against the gross par
amount of securities delivered with the same term to the same
counterparty. In both approaches, the commenter stated that this would
only be to determine if a firm had crossed the threshold. Once it was
determined that the firm was subject to reporting, then its gross
financing positions would be reported to provide for a full range of
large position information.
The sixth letter, focusing on those large firms that operate in
foreign markets, represented that even if the normal activity of a
participant was below the threshold, if the participant was a part of a
group of affiliates, it may be subject to the reporting rules. The
commenter went on to state that foreign affiliates, however minimal
their activity, would need to report information to the designated
filing entity unless they qualified for, and received, separate
reporting status. This commenter, and a seventh commenter which
supported increasing the minimum threshold, suggested that the process
could be simplified by setting a minimum threshold for each aggregating
entity below which the entity's position would not need to be included
in the reporting entity's report.
C. Time Frame for Submitting Reports
Only one of the thirteen comment letters did not specifically
address the subject of the proposed reporting time frame in which
reports must be submitted once an announcement for large position
information on a particular security is made by the Treasury. All
twelve letters basically stated that the proposed one and one-half
business day time frame was too short given the enormity of the data
that would need to be gathered, reviewed and aggregated. These letters
suggested that a longer period would seem more appropriate based on the
effort required to compile the information, the fact that current
requirements do not require holdings to be aggregated at a reporting
level, and the time needed for participants with large international
presences to gather the data from worldwide affiliates, especially
given the different time zones. One commenter recommended extending
this turnaround time to at least three business days. Others suggested
four or five business days while several commenters recommended that a
minimum of ten business days would be appropriate. Commenters noted
that a turnaround time frame of ten business days is the same as that
for large position rules in place for the equities securities market
(i.e., 13d filings) and is the same as that for the SEC's proposed
large trader reporting rules.
One of the commenters, while not recommending a specific time
frame, suggested that even a ten business day turnaround would be
insufficient. This letter proposed several alternatives to balance the
need to collect information quickly and the burdens on the reporting
entity. The commenter suggested that an initial or ``first cut'' report
of summary positions be prepared which would contain less precise
information. Possible alternatives would be to subsequently provide a
breakdown of the various components upon request; or, accept an initial
report with only trading, reverse repo, and securities borrowed
positions, with additional information to follow in a longer time
frame; or, permit U.S.-based entities to report first, with information
regarding foreign holdings to follow upon request; or, permit filing of
partial reports to address situations where an aggregating entity does
not have its reportable position ready in time.
Another commenter, while recommending a time frame of not less than
ten business days if the reportable position includes all securities
received in pledge and in other collateralized transactions, also
advocated the implementation of a phased reporting system where
participants would provide certain information in less than ten
business days, with the balance of the required information to be
provided by the tenth business day. This commenter went on to state
that many participants would be able to report their net trading
positions for all aggregating entities within five to seven business
days. One commenter requested that the final rule specifically provide
that the reporting entities could amend a filing if the original
reported information was inaccurate.
D. Reportable Position Components
Eleven of the thirteen comment letters addressed the subject of the
composition of a reportable position. Certain commenters generally
supported including in the total reportable position the selected
components as proposed, such as net forward and net fails positions.
However, the majority of commenters objected to how certain aspects of
the net trading and gross financing positions were to be included or
whether they should even be included in the total reportable position.
For example, two commenters specifically objected to a separate
reporting of the net trading position components since, as stated by
one of these commenters, separate reporting serves no useful purpose
because all these positions represent control. Both commenters stated
that the positions should be reported as of trade date, not settlement
date. These same commenters stated that those securities received under
overnight repos should be excluded from the reporting and recordkeeping
obligations since investment advisers do not exercise effective control
over them, they are not rehypothecated, and a significant portion of
these transactions are tri-party repos where the counterparties
typically have the right of substitution.
The inclusion of securities received in pledge as collateral for
margin loans, swap transactions, and other collateralized credit
extended in the gross financing position generated the most comments
from those that addressed the reportable position's components. Nine
comment letters responded similarly that these pledged securities
should be excluded from being reported in the gross financing position.
The commenters stressed there are minimal policy benefits to be
[[Page 48341]]
derived by including them and that this information would be of
marginal utility. The inclusion of these securities is based on the
premise that the pledgee maintains control. However, the commenters
stated that firms do not control those securities received in pledge
since the pledgor often has the right to substitute them in accordance
with the market practice of pledging general collateral rather than
specific securities identified by particular CUSIPs (i.e., a unique
identifying number assigned to each separate security issue and
separate STRIPS component). The letters also stressed that most firms
or market participants do not have a systematic method for aggregating
these positions firm-wide and do not possess the operational capacity
or systems to track those securities pledged by CUSIP. It was argued
that it would be prohibitively expensive to design and implement
systems and procedures to track these pledged securities by CUSIP. Two
letters, in particular, stressed that if these securities received in
pledge and securities in other collateralized transactions were to be
included in the final rules then market participants should continue to
be provided the option to exclude the securities collateral over which
the pledgor retains the right to substitute or which is subject to
third party custodial relationships. Further, the amount of such
exclusions should not be required to be reported separately in a
memorandum entry in the report. One letter stated that the rules should
allow for the netting of repos and reverse repos when the counterparty
is a primary government securities dealer.
Two commenters requested further clarification on different
position components. One of the letters stated that while fails should
be included in a reportable position, the rules should clarify that
fails are not included in the calculation for the cash/immediate net
settled position. The second letter requested clarification on the
treatment of forward start repos and reverse repos, believing that they
should be included in the gross financing position. This commenter also
requested clarification that fails to receive or fails to deliver would
not be included in the cash/immediate net settled position since this
would avoid double counting in the reports. This letter suggested that
fails be treated similarly to forwards and that fails should be able to
be netted with other components as either a positive or negative
number. This commenter suggested amending the proposed rules to permit
net fails to be less than zero.
E. Report and Recordkeeping Certifications
Six letters specifically commented on the proposed report and
recordkeeping certifications and essentially objected to, or would find
problematic, the requirement that only certain senior executives would
be permitted to sign the report and certify the adequacy of the
reporting entity's recordkeeping system. It was recommended that the
rules be broadened to provide that others, such as the chief legal or
compliance officers, or individuals authorized by the designated filing
entity, be able to sign the reports and recordkeeping certifications.
This approach would be consistent with the requirement under Section 13
of the Securities Exchange Act of 1934.
Three letters, in particular, expressed concern about the
obligations and responsibilities with respect to the certifications
that must be given by the designated filing entity on behalf of the
reporting entity and its aggregating entities. It was recommended that
the certifications in the final rules specifically permit the
designated filing entity to rely on certifications or other reasonable
bases of evidence of the accuracy of the information as provided by the
aggregating entities.
F. Recordkeeping
Five letters directly addressed the proposed recordkeeping
requirements. Two of these letters objected to applying the rules to
those entities that had a large position at any time during the two-
year period ending ninety days after publication of the final rules
since the reviews of records to determine whether a large position was
held would be an extensive, time consuming, and very costly process and
would amount to a retroactive application of a new requirement. It was
recommended that if this requirement were retained, entities be given
the option of certifying or notifying the FRBNY that the holding of a
large position is based on the entity's general knowledge of past
investment and trading activities, without actually reviewing their
records to document this fact. Another two letters specifically
commented on the imposition of a significant recordkeeping burden on
unregulated aggregating entities. Both letters stressed the view that
this additional compliance burden, with these unregulated firms having
to design and implement recordkeeping systems, may cause certain
entities to either re-evaluate or curtail their participation in the
Treasury market. One letter suggested that these unregulated entities
be excluded from these requirements.
G. Announcement of a Request for Reports
Five letters addressed the issue that the Treasury would annually
test the reporting of large positions by requesting reports. Four
letters recommended that when this request for large position
information is made, the Treasury should notify market participants
that it is a test. This is because some participants will assume that
all such requests are real and their reactions may create price
anomalies where none existed. One letter, in particular, stressed that
advising market participants that the request is a test would not cause
firms to be less diligent in complying with the rules and that firms
would in every case have a legal obligation to submit the required
information in a timely and accurate manner.
One letter recommended that the start of the response period, in
which the reports would be required to be submitted, should be
triggered by publication of the announcement in the Federal Register,
which would provide more certainty than a press release, that the
notice was received. Another letter, from a trade association,
suggested that while they support the issuance of a press release and
publication in the Federal Register, they would also like to be
immediately notified when the release is provided to third party wire
services so that they can redistribute the notice to their members.
H. General Commentary
Nine of the thirteen comment letters expressed general support for
the proposed rules and the desired effect to prevent and detect market
manipulation. Specifically, the letters supported the approach taken in
providing for a $2 billion reporting threshold, an on-demand reporting
system where reports are required to be submitted in response to
infrequent requests, and relying on records that are already required
to be maintained. Three of the nine letters stated that certain
features of the proposed rules would be overly burdensome and pose
compliance problems.
One commenter agreed that the proposed rules strike the appropriate
balance between achieving the purposes of the statute and minimizing
the costs to the affected entities. Another commenter, while generally
supportive, strongly objected to the Treasury reserving the right to
collect information on securities issues that are older than those
specified, since accommodating
[[Page 48342]]
historical information requests would impose significant cost burdens
and business disruptions. A third commenter suggested that the FRBNY
adopt an appendix to the final rules that would identify acceptable
submission methods. A fourth commenter reiterated the view it expressed
in response to the ANPR that the particular features of the Treasury
bill market make it difficult to accumulate a concentration in these
issues. A fifth commenter stated that the final rules should explicitly
include a provision providing that any information required to be kept
or reported will be exempt from FOIA and provided confidential
treatment given its concern that the Treasury, in following up on a
report, would seek the names of its advisory clients. This same
commenter also stated that it does not believe that the GSAA provides
the Treasury with the authority to request information on securities
issues older than those defined as recently-issued and, therefore, this
provision should be eliminated.
Three commenters opposed the application of the large position
rules to foreign firms. One letter expressed the commenter's belief
that there are complications for those firms operating in foreign
markets and that the proposed rules raise concerns about the potential
effect on the liquidity of the government securities market. This
commenter stated that the recordkeeping requirements and open-ended
obligation to file large position reports could make Treasury
securities less attractive to foreign participants, many of whom
structure their business so as not to bring themselves under direct
U.S. regulation. This letter further urged that the issuance of the
final rules be delayed until the Treasury is absolutely certain that
these rules meet the stated goal. Another commenter, in addition to
expressing concerns with compliance costs (particularly for major
European financial conglomerates), raised the issue of the extension of
extra-territorial regulation by U.S. authorities. It was this
commenter's belief that the extra-territorial application of the rules
would be unwarranted in principle and unworkable in practice and would
``aggravate problems over the trade in services.'' The commenter
suggested that an alternative approach would be to rely more on
memoranda of understanding (MOUs) with European supervisors and less on
regulations. This letter further questioned the enforcement capacity
with which U.S. authorities would have to enforce the regulations
outside national jurisdiction, in the context of large foreign
conglomerates. To this extent, the commenter recommended a narrower
definition of the reporting population.
A third commenter stated that the extra-territorial scope of the
large position rules should be modified, particularly with respect to
firms domiciled in countries where foreign regulators have MOUs with
U.S. authorities. This commenter stated that the Treasury should
explore the possibility of obtaining large position information from
the foreign regulatory authorities rather than directly from the firms.
It was represented that this process would ``build on * * * the
increasing and important trend of enhancing cooperation between
regulators in the securities markets * * *.'' This commenter further
stated that large position reporting may not be needed at all for firms
based in foreign jurisdictions which have rules in place to prohibit
market manipulation.
III. Section-by-Section Analysis of Changes in Response to Comments
A. Section 420.1--Applicability
In preparing the applicability section of the final rules, one
change was made from the proposed rules. The change provides a total
exemption from the large position rules to foreign central banks,
foreign governments and international monetary authorities (e.g., World
Bank) (collectively, foreign official organizations). The proposed
rules had provided these entities a partial exemption from the rules
limited to the portion of their positions maintained at the FRBNY. In
response to the ANPR, the Treasury had received comments (from the
FRBNY and the Investment Company Institute) on the regulatory treatment
of these organizations and public comment was specifically requested on
the approach taken in the proposed rules. No further comments were
received.
The Department has determined to grant the foreign official
organizations a total exemption after careful consideration of the
costs and benefits resulting from subjecting them to large position
rules. The Treasury believes that attempting to regulate these entities
would create significant potential legal and practical problems.
Additionally, for the infrequent occasion when foreign official
organizations may control a large position in a Treasury security, this
information is likely to be available from other sources. Accordingly,
the Treasury perceives very little benefit to be obtained from
regulating the foreign official organizations in relation to the costs
that would be incurred. It is for this reason that they are being
granted a full exemption.
The exemption provided to foreign official organizations does have
one limitation. To the extent that such an organization has an
ownership interest in an entity that engages primarily in commercial
transactions (e.g., a nationalized commercial bank), the exemption does
not extend to that entity. This limitation is designed to provide
equivalent treatment to all commercial market participants regardless
of their ownership structure.
Three commenters objected to the applicability of the rules to
foreign firms (i.e., foreign private financial enterprises). Two argued
that the extra-territorial application of the rules by U.S. regulators
would be either unwarranted in principle and unworkable in practice or
unnecessary for many foreign firms since they are already subject to
the rules of their domestic supervisor prohibiting market manipulation.
The commenters recommended that, in lieu of an extra-territorial
application of the rules, Treasury: (1) Rely more on MOUs with foreign
regulators to obtain needed information, and (2) define a narrower
reporting population for the rules (e.g., only business units that are
primary bidders for, and proprietary traders in, Treasury securities).
Treasury has considered the problems related to the ability of U.S.
regulators to obtain large position information from foreign investors.
As a result, Treasury expects that U.S. regulators will continue to
cooperate with foreign securities regulators through MOUs and other
means when and if such actions become necessary. It is impractical to
exempt foreign investors from the large position rules since the
potential exists for these entities to amass large positions in
Treasury securities, and further, the granting of such an exemption
could cause U.S.-based entities to move their securities holdings
overseas to foreign firms. Accordingly, the Treasury has decided to
retain the requirement that foreign private financial enterprises be
subject to the large position rules.
The commenters also asserted that compliance costs for foreign
firms--especially European financial conglomerates--would be
considerable. The Treasury believes that the changes made to the
proposed rules, as explained in the remainder of this section of the
preamble, together with the fact that the on-demand reporting system
does not require aggregation of positions on a daily basis, will
facilitate the ability of affected firms, including foreign firms, to
comply with the rules
[[Page 48343]]
without incurring substantial compliance costs.
B. Section 420.2--Definitions
Comments were received on paragraph 420.1(d) of the proposed rules,
which reserves the Treasury's right to collect information on certain
Treasury securities which do not meet the regulatory definition of
``recently-issued'' but reporting on them would be consistent with the
purposes of the GSAA. The commenters believed that such a reservation
of rights was beyond the scope of the Treasury's authority. The purpose
of the provision was to provide notice to market participants that,
while the definition of ``recently-issued'' narrowed the routine
coverage of the large position rules to a small universe of securities,
the authority provided to the Treasury by the GSAA is broad enough to
be applied to a larger group of securities and that, in certain rare
circumstances, the Treasury may choose to invoke this broader
authority. Treasury continues to hold this view.
After consideration of these comments, and to make clear that
``recently-issued'' is not limited by statute to the two or three most
recent issues of a security, the Department has removed paragraph
420.1(d) but revised the definition of ``recently-issued'' in paragraph
420.2(g) of the final rules. The revision adds a new subparagraph (5)
to the definition of ``recently-issued'' to include Treasury security
issues older than those specified in subparagraphs 420.2(g)(1) and (2)
where the large position information is necessary and appropriate for
monitoring the impact of concentrations of positions in Treasury
securities. As discussed in the preamble to the proposed rule,13
the Treasury believes that this authority to request large position
information on older security issues would only be used in exceptional
circumstances. One example is the April and May 1991 two-year Treasury
note squeeze situations in which these securities remained of concern
to the Treasury beyond the time that would otherwise have been covered
by the definition of ``recently-issued'' in subparagraphs 420.2(g) (1)
and (2). It is not the Department's intention to gather information on
securities that have been outstanding for an extended period of time.
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\13\ 60 FR 65214, 65217 (December 18, 1995).
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The definition of gross financing position, paragraph 420.2(c), was
the subject of a number of comments principally on two different
aspects of the proposed definition; the inclusion of securities
collateral and the scope of the optional exclusion. As previously
described in Section II.D., many commenters were particularly concerned
about the broad scope of the definition of the gross financing
position. As proposed, the gross financing position included amounts of
a security received from any financing transaction, including
collateral for commercial loans or financial derivatives. Commenters
represented that compliance with the extensive reach of this position
component would be unduly burdensome and for a large, diversified
reporting entity could not be calculated within the provided reporting
time frame. Some of the commenters stated that in order to calculate
the gross financing position they would have to develop automated
systems at substantial cost. The commenters did not object to the
treatment of security financing transactions such as reverse repurchase
agreements and bonds borrowed.
After reviewing the comments, the Department has determined to
limit the scope of the gross financing position. Specifically, all
commercial lending transactions that include Treasury securities as
collateral will be excluded from the gross financing position. These
transactions include financings such as lines of credit, general
purpose business loans and other securitized loans unrelated to
activities in the financial markets. This change should greatly
simplify the computation of the gross financing position for entities
such as large commercial banks that extend secured commercial credit
from a large number of locations and do not maintain a centralized
register of the specific collateral for these transactions.
In preparing the final rules, the Treasury carefully considered the
commenters' further objections to the inclusion of securities received
as collateral for financial derivatives such as swap agreements. The
commenters represented that since these activities are generally
conducted in unregulated affiliates of regulated entities, there are
few standardized systems for tracking the specific collateral obtained
and that creating an obligation to determine whether a specific
security is held as collateral in a very short time frame, even on an
on-demand basis, would require the development of extremely expensive
automated systems. The Department weighed these arguments against the
potential importance of this information in ascertaining control of a
particular security and decided that the benefits of including them
were greater than the burdens to market participants. Factors affecting
this decision were the growing popularity of collateral structures for
financial derivatives, the practical similarities between these
structures and reverse repos and bonds borrowed transactions, as well
as the fact that large market participants that would be affected by
the large position rules already have non-integrated systems for
tracking this collateral to conduct daily mark-to-market calculations
and to determine the sufficiency of the collateral. Additionally, as is
discussed later in the preamble, the Department has also determined to
extend the reporting time frame. Accordingly, a Treasury security that
has been received as collateral for a financial derivative transaction
or other securities transaction (e.g., margin loan) must be included in
the gross financing position.
In response to the proposed rules, commenters also noted that the
optional exclusion provided in the definition of gross financing
position for transactions in which securities were transferred without
effective control was restricted to only some financing transactions.
The Department is sympathetic to this concern and is revising the
definition in paragraph 420.2(c) in the final rules to permit the
optional exclusion to be available on the same terms for any collateral
transaction in which securities are received. The circumstances in
which control is deemed to not exist--the right to substitute
securities, a third party custodial relationship or hold-in-custody
agreements--remain unchanged from the proposal. Extension of the
exclusion to all components of the gross financing position should
further mitigate the impact of including financial derivatives
collateral in the definition since many of these agreements provide for
the right to substitute securities.
As a clarifying point in response to one commenter, the Department
notes that forward start reverse repo transactions are to be included
in the gross financing position just as forward settling trades are in
the net trading position.
While the Department is not revising the definition in paragraph
420.2(d) of large position threshold, it emphasizes that the $2 billion
level is only an absolute minimum reporting level. The Treasury wishes
to reiterate that, while the $2 billion threshold triggers the
recordkeeping requirements pursuant to section 420.4, no reporting
burden is created until the Treasury issues a notice for information on
a specific security. The Treasury envisions that the level specified in
any actual request for large position information would most likely be
significantly in excess of $2 billion and would, therefore, affect
[[Page 48344]]
only a small number of entities. Accordingly, no change is being made
to the definition.
Comments were specifically requested on the treatment of fails in
the composition of a reportable position. The only negative comments
received on this component suggested that the net fails position be
permitted to be a negative number. The Department has decided to retain
the current restriction that the net fails position should be reported
as zero if it is negative. Fails to deliver that exceed fails to
receive should not be used to reduce the size of a reportable position
because their size is, to a great extent, controllable by the reporting
entity. The Department also wishes to clarify that fails are not to be
included in the net trading position and, therefore, are not double
counted in computing a reportable position.
In paragraph 420.2(f), the definition of net trading position, the
Department requested comment on the proposed treatment of forward
settling positions. The comments that were received on this issue were
supportive of the proposed treatment. Accordingly, no change has been
made to the treatment of forward settling positions in the net trading
position. As a reminder, all the components of a reportable position
are to be computed on a trade date basis.
One commenter requested that the criteria for designation of a
separate reporting entity within the definition of a reporting entity,
paragraph 420.2(i) and Appendix A, be modified to parallel more closely
the criteria for designation as a separate bidder in the uniform
offering circular. 14 Specifically, the commenter asked that
organizational components within an entity be permitted to establish
themselves as separate reporting entities as they are permitted to be
separate bidders in the uniform offering circular. To ensure
consistency between the uniform offering circular and the large
position rules, the Department has made a clarifying change to the term
aggregating entity as defined in paragraph 420.2(a) and as used in
Appendix A of the large position rules. These revisions clarify that an
organizational component (e.g., a bank trust department) falls within
the definition of aggregating entity and may be recognized as a
separate reporting entity. Appendix A has been further revised to
clarify that any entity, including an organizational component thereof,
that has already received recognition from the Treasury as a separate
bidder in Treasury auctions pursuant to the uniform offering circular
is also recognized as a separate reporting entity without requesting
such status. However, the separate reporting entity must continue to
abide by the conditions set out in the uniform offering circular that
are required for recognition as a single bidder, which parallel the
conditions set out in Appendix A of the large position rules for
recognition as a separate reporting entity.
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\14\ 31 CFR 356 Appendix A.
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C. Section 420.3--Reporting
1. On-Demand Reporting System
The on-demand reporting system approach that the Treasury proposed
for filing large position reports received overwhelming support from
the commenters. In an on-demand reporting system, large position
reports are required to be prepared and filed only in response to a
notice from the Treasury requesting large position information on a
specific issue of a Treasury security by those reporting entities whose
positions exceeded the large position reporting threshold specified in
the notice.
Nine of the twelve organizations that submitted comment letters
addressed the on-demand reporting requirement and all of them supported
the proposed reporting method in which large position reports would be
submitted only in response to a specific, infrequent request by the
Treasury. The commenters agreed with the Treasury's assessment that an
on-demand reporting system would be significantly less costly and
burdensome than a regular reporting system. An on-demand system would
target the reporting to a specific issue of a Treasury security in
response to price distortions or market anomalies, while still
achieving the legislative and policy goals of strengthening the ability
of the regulatory agencies to deter possible manipulation of the
Treasury securities market. Thus, the on-demand approach is essential
to the Treasury's overall commitment to design rules that strike an
appropriate balance between achieving the purposes and objectives of
the statute and minimizing costs and burdens to those entities affected
by the regulations. Accordingly, the on-demand reporting requirement in
paragraph 420.3(a) is being adopted without change from the proposed
rules.
2. Notice Requesting Large Position Reports
Another of the provisions of paragraph 420.3(a) identifies the
information that will be provided in the notice that will be issued by
the Treasury (i.e., press release and subsequent Federal Register
notice) requesting the preparation and submission of large position
reports. Paragraph 420.3(a) is being modified to indicate that the
notice will also contain, where applicable, identification of the
STRIPS principal component that is related to the specific Treasury
security issue for which large position information is being requested.
This information is being added because the STRIPS principal component,
which must be reported as part of the net trading position, has a
different security description and CUSIP number from the related
Treasury note or bond that would be the subject of the Treasury's
request for information.
The preamble discussion to the proposed rules indicated that the
Treasury notice requesting large position information would be provided
to major news and financial publications and electronic financial wire
services for subsequent dissemination, and published in the Federal
Register.15 This procedure was proposed because we believe that
the press release requesting large position information would be given
wide and timely distribution without undue delay in the same manner as
Treasury offering announcements and auction results. However, the
Public Securities Association (PSA) has expressed concern about relying
on the press for notification of the large position information request
and that some entities may not have access to the particular wire
service carrying the notice. For these reasons, the PSA has requested
that the Treasury provide it with a facsimile copy of the notice so
that the PSA can immediately notify its members of the reporting
obligation. To facilitate broad and timely dissemination of the notice,
Treasury will provide the PSA with a copy of the press release at the
time it is issued. The Treasury will similarly make a copy of the
notice available to other industry or trade associations at their
request.
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\15\ Since the Federal Register is the designated federal
publication for providing official notice, publishing the Treasury
notice in that publication is legally sufficient for ``constructive
notice'' of the request.
---------------------------------------------------------------------------
3. Information Required in Large Position Reports
--Net Trading Position
Paragraph 420.3(c), together with Appendix B, details the specific
information that must be provided in the large position information
reports. In the proposed rules, paragraph 420.3(c)(1) identified the
specific component positions of the total reportable position that must
be reported by the reporting entity. For the
[[Page 48345]]
net trading position, which is one of three positions that constitute
the total reportable position, the proposed rules required each of the
following five components to be listed in the large position report:
(1) Cash/immediate net settled positions; (2) net when-issued positions
for to-be-issued and reopened issues; (3) net forward settling
positions, including next day settling positions; (4) net positions in
futures contracts that require delivery of the specific security; and
(5) net holdings of STRIPS principal components of the security.
Two commenters objected to the requirement that each of the five
components of the net trading position be reported separately since the
only difference among these items is their settlement date. One of
these commenters also stated that the separate reporting of the net
holdings of STRIPS principal components of a security does not appear
to be necessary. In response to the comments and also to reduce the
amount of information that must be included in the large position
report, we are revising the final rules to eliminate the separate
reporting of the five components that comprise the net trading
position. Reporting only the total net trading position, rather than
each of the five components, is also consistent with the way the net
long position is reported under the Treasury's auction rules.16
Accordingly, paragraph 420.3(c)(1) has been revised to require a
reporting entity to report only its net trading position, gross
financing position, net fails position and the total reportable
position, which is the sum of the three positions. However, Treasury or
FRBNY staff may require, as a follow-up inquiry pursuant to paragraph
420.3(e), a reporting entity to provide the amount of each component
that constitutes the net trading position. Reporting entities must make
good faith efforts to respond to such inquiries and provide any
additional information requested in a timely manner.
---------------------------------------------------------------------------
\16\ 31 CFR 356.13(b).
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--Gross Financing Position
The gross financing position is the second of three positions
constituting the total reportable position that must be included in the
large position report pursuant to paragraph 420.3(c)(1) of the final
rules. As discussed at length in Sections II.D. and III.B. of this
preamble, the gross financing position was the subject of extensive
comments regarding the inclusion of securities collateral in the
position, the scope of the voluntary exclusion that permitted firms to
reduce the gross financing position by the amount of securities
received over which they did not have effective control, and the
requirement to report the amount of the voluntary exclusion as a
memorandum entry. Section III.B. discusses how the definition of gross
financing position is being modified to narrow the scope of
transactions that are covered and how the voluntary exclusion is being
expanded to cover all components in the gross financing position. No
changes to paragraph 420.3(c)(1) are necessary to address these issues.
However, the Treasury has changed the provision in paragraph
420.3(c)(2) of the proposed rules that would have required the amount
of the voluntary exclusion to be reported. Entities that would have
taken advantage of the voluntary exclusion would have been required to
report the amount of the exclusion in Memorandum #2. The Treasury
agrees with the commenters who stated that requiring this memorandum
entry would impose additional burdens, thus negating the benefits that
would be derived from exercising the voluntary exclusion. As a result,
the Treasury is revising paragraph 420.3(c)(2) in the final rules by
deleting the requirement to report Memorandum #2--the amount excluded
from the gross financing position--in the large position report.
--Net Fails Position
Regarding the net fails position, which is the third component of
the total reportable position, two commenters requested clarification
that fails should not be included in the cash/immediate net settled
position component of the net trading position. The Department concurs
with the views expressed by the commenters and reiterates the
clarification it made in the preamble to the proposed rules that
positions remaining unsettled after their scheduled settlement date are
not to be included in the computation of the net trading position. As
discussed earlier, the final rules adopt without change the treatment
of the net fails position as proposed, i.e., net fails must be reported
either as a positive number or zero.
--Trade Date Reporting
Paragraph 420.3(c)(3) has been revised with technical and
conforming changes. Language has been added to this provision to state
explicitly that all position amounts on the large position report
should be reported on a trade date basis. Since two commenters stated
that positions should be reported as of trade date rather than
settlement date, we believe this revision to the final rules will
eliminate any confusion or misunderstanding regarding this issue.
A conforming change is also being made to paragraph 420.3(c)(3) to
reflect that the net trading position should be reported as one net
number rather than reporting each of the five net trading position
elements. See the discussion above in the section entitled Net Trading
Position.
--Supplemental Information
As described in the proposed rules, paragraph 420.3(e) requires
that a reporting entity provide, in response to a request from the
FRBNY or the Treasury, information in support of its large position
report. Such a request could include the detail on the five components
of a net trading position. Examples of other information that may be
requested include the terms of repurchase agreements involving the
security, such as rate and maturity, as well as transaction volume for
the reported security.
4. Report Signatories and Certifications
In the proposed rules, paragraph 420.3(c)(5) provided a listing of
the administrative information that must be included in the large
position report, the individuals authorized to sign the report, and the
required certification language attesting to the accuracy and
completeness of the report and to compliance by the reporting entity
with the large position rules under this part. A number of commenters
recommended that the list of those individuals authorized to sign the
large position reports be expanded to include other officials and
further that authority to sign be permitted to be delegated to other
individuals. Additionally, many commenters requested that the
certification language be changed to permit the designated filing
entity to rely on certifications or other reasonable bases of evidence
received from the aggregating entities regarding the accuracy and
completeness of the large position information provided by the
aggregating entities.
In response to these comments, the Department is liberalizing and
providing greater flexibility for the signatory and certification
requirements. Paragraph 420.3(c)(5) as it appeared in the proposed
rules is being separated into two paragraphs. New paragraph 420.3(c)(5)
lists the specific administrative information that must be provided in
the large position report without any substantive change from the
proposal.
New paragraph 420.3(c)(6) lists the individuals authorized to sign
the large position reports and provides the specific certification
language that must be included in each report. This
[[Page 48346]]
provision is being revised in the final rules by adding the chief
compliance officer and chief legal officer to the list of officials
authorized to sign the large position reports. In broadening the list
of authorizing officials, the Department believes affected firms will
have greater flexibility to determine the appropriate signatory for a
particular report.
New paragraph 420.3(c)(6) also contains a provision requiring two
certification statements. The first certification statement requires
the person signing the large position report to certify that the
information contained in the report with respect to the designated
filing entity is accurate and complete. This is consistent with the
certification in the proposed rules. However, the certification
language regarding (i) the accuracy and completeness of the large
position information related to the other aggregating entities and (ii)
compliance by the reporting entity, including all aggregating entities,
with the large position recordkeeping and reporting rules has been
modified to permit such certifications based on lesser standards of
assurance. The final rule language will enable the signatories to make
the required certifications based on a standard of reasonable inquiry
and best knowledge and belief. Such an approach permits the authorized
official to rely on certifications, schedules or other reasonable bases
of evidence that the aggregating entities provide to the designated
filing entity pertaining to their holdings of large positions and
compliance with the rules.
This certification approach adopted in the final rules is similar
to that used by the SEC regarding reports filed under Sections 13(d)
and 13(g) of the Securities Exchange Act of 1934.17
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\17\ 17 CFR 240.13d-1; 240.13d-101; 240.13d-102, item 10; 15
U.S.C. 78m(d), 78m(g).
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5. Reporting Time Frame
Twelve of the thirteen comment letters objected to the one and one-
half business day reporting time frame in the proposed rules and
recommended longer time frames ranging from three to ten business days.
In addition, two commenters recommended a phased reporting approach
with staggered deadlines for different types of positions.
The Department is extending the time frame for filing the large
position reports from one and one-half to three and one-half business
days as prescribed in new paragraph 420.3(c)(7). Accordingly, reports
must be received by 12:00 noon Eastern time at the FRBNY, Market
Reports Division, on the fourth business day after the issuance of the
Treasury press release requesting large position information.
The Department is sympathetic to the concerns expressed by the
commenters regarding the time and effort that will be needed to
compile, aggregate and file the large position reports, particularly
where reporting entities have a large number of aggregating entities,
including foreign affiliates. To be weighed against these concerns is
the need that the report be filed relatively quickly in order to
accomplish its purpose. However, we believe that the significant
changes that have been made in the final rules--revising the definition
of gross financing position to exclude securities received as
collateral for commercial loans; expanding the voluntary exclusion for
the gross financing position to cover securities received on any
component of the position; eliminating the requirement to report as a
memorandum entry the amount of the voluntary exclusion; eliminating the
need to report separately each of the five components of the net
trading position; and expanding the flexibility regarding the signatory
and certification requirements--will reduce the burdens associated with
meeting the three and one-half business day reporting requirement.
The Department also wants to clarify a misunderstanding on the part
of some commenters that the large position rules impose an on-going
aggregation requirement. Neither the proposed rules nor these final
rules impose a daily aggregation requirement for large position
information. The Department adopted the on-demand method of reporting
specifically to avoid requiring entities to redesign or develop systems
that would summarize, compile and aggregate large position information
on a daily basis. While all aggregating entities subject to the rules
must make records of their transactions on a daily basis, only the
designated filing entities are required to have a process to aggregate
the large position information on behalf of the reporting entity, and
then only in response to a specific request from the Treasury for large
position reports. The Department is not persuaded that the rules
require firms to develop system interfaces or integrated systems to
compile and aggregate the required large position information.
The Department did not adopt the recommendation for a phased
reporting system. We believe such a system would impose unnecessary
administrative burdens and add unneeded complexity to the reporting
process.
6. Report Media
In response to a request for clarification, paragraph 420.3(d) has
been revised to indicate that facsimile and delivered hard copy reports
are the acceptable media for the large position reports. Reporting
entities should contact the FRBNY staff to work out arrangements if
they wish to submit the reports in a different type of media.
7. Testing of Large Position Reporting System
The Department reiterates its intention to test the accuracy and
reliability of the large position reporting system by requesting large
position reports at least annually, regardless of market conditions for
a particular security. Many commenters expressed concerns that, by the
Treasury not disclosing that a request for large position information
is a test, the market will assume the request is real and may react
negatively, thus creating price anomalies where none existed. While the
Department may announce a test as such, we intend to preserve our
policy prerogative to request large position information without
stating that the request is a test. The Department appreciates and
understands these concerns but believes that the market should be able
to discern, based on the market prices for the security issue selected
for the test, that the request for large position information is only a
test.
D. Section 420.4--Recordkeeping
The recordkeeping rules require large position holders to make and
preserve records related to large position reporting requirements. The
final recordkeeping rules contain minor modifications to the proposed
rules, reflecting the Treasury's review of issues raised in the comment
letters.
The proposed recordkeeping rules required, among other things, that
each designated filing entity, in instances where its reporting entity
controlled a reportable position of at least $2 billion in any Treasury
security during the prior two-year period ending 90 days after
publication of the final rule, submit a letter to the FRBNY
``certifying'' that the designated filing entity had or would have by
the effective date a recordkeeping system capable of making, verifying
the accuracy of, and preserving the requisite records. (A technical
change has been made in these final rules regarding this letter.
Pursuant to section 420.4(a)(2) of the final large position rules, the
letter must now be submitted to the Treasury's Bureau of the Public
Debt, rather than to the FRBNY.)
[[Page 48347]]
Four commenters objected to this requirement. Three commenters
asserted that the provision, which effectively required certain firms
to review positions dating back two years, was unduly time-consuming
and costly since such information could not be readily collected and
aggregated. The third commenter objected on the grounds that certain
entities, particularly banks, are not required to maintain securities-
related records that cover all Treasury securities held as collateral
(e.g., collateral received to secure extensions of credit) and are not
required to maintain records by CUSIP. In addition, three commenters
stated that the designated filing entity should not be expected to
certify the accuracy of the records of other aggregating entities
within the reporting entity.
The Treasury believes that relatively few entities will be subject
to the recordkeeping rules because few entities hold, have held, or
expect to hold reportable positions equal to or greater than $2
billion. Nevertheless, in order to ease the burden on, and costs to,
the firms that will be subject to the rules when they become effective,
the final recordkeeping rules eliminate the requirement that an
affected designated filing entity make a certification in its letter to
the Bureau of the Public Debt. Instead, paragraph 420.4(a)(2) of the
final rules requires the designated filing entity to ``state'' in its
letter that it has in place or will have in place a recordkeeping
system to meet the requirements of the rules. Further, the final rules
clarify the distinction between the designated filing entity's
recordkeeping system requirements and those of the other aggregating
entities in the reporting entity; each letter to the Bureau of the
Public Debt now must also contain a statement that, after reasonable
inquiry and to the best of its knowledge and belief, the designated
filing entity ``represents'' that its aggregating entities also have in
place or will have in place specified recordkeeping systems. In
determining whether to submit a letter and to have the required
recordkeeping systems in place by the effective date, a designated
filing entity can now make such determinations as a result of a
reasonable bases of evidence, or its general knowledge, of the
magnitude of its own positions and those of its aggregating entities
over the two-year time frame. These changes allow firms to avoid the
time and cost of conducting a detailed review of their positions
covering the prior two-year time period.
Further, as described in Section III.C. of this preamble, the final
rules substantially reduce the amount of information required to be
reported pertaining to certain kinds of collateral received to secure
extensions of credit (e.g., collateral for commercial loans). This
change obviates the need to maintain information on some of the
securities collateral about which one commenter expressed concerns.
Section III.C. also discussed the reasons for incorporating into
the final reporting rules an expansion of categories of officials who
are authorized to sign and certify the reports. Using the same
rationale, the final recordkeeping rules in paragraph 420.4(a)(3)
provide that the same expanded list of officials of the designated
filing entity are authorized to sign the letter to the Bureau of the
Public Debt.
The final recordkeeping rules include two additional changes from
the proposed rules. In the event that a designated filing entity
obtains any certifications or schedules from its aggregating entities
pertaining to their holdings of a reportable position, paragraphs
420.4(b)(2) and 420.4(c)(2)(ii) require the designated filing entity to
maintain copies of such certifications or schedules.
The Treasury emphasizes that, although the final recordkeeping
rules impose a modest amount of new requirements, particularly with
regard to entities that are not currently subject to federal securities
recordkeeping rules, the new requirements are not expected to
necessitate significant automation or administrative expenses for the
affected firms. As discussed in the preamble to the proposed rules,
Treasury places a great deal of importance on minimizing the compliance
burden on all affected entities, including unregulated ones. As a
result, Treasury intentionally avoided imposing the vast majority of
the requirements contained in SEC Rule 17a-3 18 on the unregulated
entities. Instead, Treasury
FR Doc. 96-23331 Office of the Assistant Secretary for Financial Markets; Government Securities Act Regulations: Large Position Rules
selected the most basic record (similar to
the blotter requirement of SEC Rule 17a-3) that would be crucial to
documenting and preparing large position reports without imposing a
burden on the few unregulated firms that are likely to be subject to
the recordkeeping requirements. It is our understanding that such
investors already maintain records capturing most or all of the
information required by the recordkeeping rules.
---------------------------------------------------------------------------
\18\ 17 CFR 240.17a-3.
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E. Section 420.5--Effective Date
Section 420.5 sets out the effective date for both the
recordkeeping and reporting provisions of the large position rules. The
rules provide for a delayed effective date approximately six months
after the date of this publication. This period of time is provided to
give affected entities sufficient time to make the necessary
preparations for compliance. Only paragraph 420.4(a) is not subject to
this date but instead contains its own specific dates for compliance.
F. Appendix B to Part 420--Sample Large Position Report
The sample large position report in Appendix B has been shortened
to conform to the changes in paragraph 420.3(c) of the final reporting
rules. Refer to Section III.C. of this preamble for an explanation of
the changes.
IV. Special Analysis
The rules do not meet the criteria for a ``significant regulatory
action'' pursuant to Executive Order 12866.
In the preamble to the proposed rules, pursuant to the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), the Department certified that
these amendments, if adopted, would not have a significant economic
impact on a substantial number of small entities. Accordingly, a
regulatory flexibility analysis was not prepared. The proposed and
final rules establish a minimum large position threshold of $2 billion
which assures market participants that the Treasury would not request
large position reports below that minimum amount. The Department
continues to believe that there are no small entities that will control
positions of $2 billion or greater in any Treasury security. Based on
this fact and its review of the final rules being adopted herein, and
since no comments were received related to this particular issue, the
Department has concluded there is no reason to alter the previous
certification.
The collections of information contained in the final regulations
have been reviewed and approved by the Office of Management and Budget
under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35) under Control Number 1535-0089. Under the Act, an agency
may not conduct or sponsor, and a person is not required to respond to,
a collection of information unless it displays a valid OMB control
number.
The information is being collected by the Department to enable the
Treasury and other regulators to understand better the possible reasons
for any apparent significant price distortions and the possible causes
of market shortages in certain Treasury securities. The collection of
information will help
[[Page 48348]]
ensure that the Treasury securities market remains liquid and
efficient, and is not viewed as subject to manipulation. The final
rules apply to nearly all market participants controlling large
positions as defined in the rules. Per paragraph 420.3(c), it is a
mandatory requirement that reporting entities with reportable positions
that equal or exceed the specified threshold in a Treasury notice
respond through their designated filing entities by filing a report in
the required format and within the specified reporting time frame. The
GSAA provides that the Department shall not be compelled to disclose
publicly any information required to be kept or reported for large
position reporting. Such information is exempt from disclosure under
FOIA.\19\
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\19\ See supra note 9.
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Estimated total annual reporting and recordkeeping burden: 4,940
hours.
Estimated annual number of recordkeepers: 100.
Estimated annual number of respondents: 10.
Estimated annual frequency of response: On occasion.
Comments on the accuracy of the estimate for this collection of
information or suggestions to reduce the burden should be sent to the
Office of Information and Regulatory Affairs of the Office of
Management and Budget, Attention: Desk Officer for Department of the
Treasury, Washington, D.C., 20503; with copies to the Government
Securities Regulations Staff, Bureau of the Public Debt, Room 515, 999
E Street, NW., Washington, D.C. 20239-0001.
List of Subjects
17 CFR Part 400
Administrative practice and procedure, Banks, banking, Brokers,
Government securities, Reporting and recordkeeping requirements.
17 CFR Part 420
Foreign investments in U.S., Government securities, Investments,
Reporting and recordkeeping requirements.
For the reasons set out in the preamble, 17 CFR Chapter IV,
subchapter A is amended as follows:
PART 400--RULES OF GENERAL APPLICATION
1. The authority citation for part 400 is revised to read as
follows:
Authority: 15 U.S.C. 78o-5.
2. In Sec. 400.1, paragraph (e) is added as follows:
Sec. 400.1 Scope of regulations.
* * * * *
(e) Section 104 of the Government Securities Act Amendments of 1993
(Pub. L. 103-202, 107 Stat. 2344) amended Section 15C of the Act (15
U.S.C. 78o-5) by adding a new subsection (f), authorizing the Secretary
of the Treasury to adopt rules to require specified persons holding,
maintaining or controlling a large position in to-be-issued or
recently-issued Treasury securities to report such a position and make
and keep records related to such a position. Part 420 of this
subchapter contains the rules governing large position reporting.
3. Part 420 is added to read as follows:
PART 420--LARGE POSITION REPORTING
Sec.
420.1 Applicability.
420.2 Definitions.
420.3 Reporting.
420.4 Recordkeeping.
420.5 Effective Date.
Appendix A to Part 420--Separate Reporting Entity.
Appendix B to Part 420--Sample Large Position Report.
Authority: 15 U.S.C. 78o-5(f).
Sec. 420.1 Applicability.
(a) This part, including the Appendices, is applicable to all
persons that participate in the government securities market,
including, but not limited to: government securities brokers and
dealers, depository institutions that exercise investment discretion,
registered investment companies, registered investment advisers,
pension funds, hedge funds and insurance companies that may control a
reportable position in a recently-issued marketable Treasury bill, note
or bond as those terms are defined in Sec. 420.2.
(b) Notwithstanding paragraph (a) of this section, foreign central
banks, foreign governments and international monetary authorities are
exempt from this part. This exemption is not applicable to a broker,
dealer, financial institution or other entity that engages primarily in
commercial transactions and that may be owned in whole or in part by a
foreign government.
(c) Notwithstanding paragraph (a) of this section, Federal Reserve
Banks are exempt from this part for the portion of any reportable
position they control for their own account.
Sec. 420.2 Definitions.
For the purposes of this part:
(a) ``Aggregating entity'' means a single entity (e.g., a parent
company, affiliate, or organizational component) that is combined with
other entities, as specified in paragraph (i) of this section, to form
a reporting entity. In those cases where an entity has no affiliates,
the aggregating entity is the same as the reporting entity.
(b) ``Control'' means having the authority to exercise investment
discretion over the purchase, sale, retention or financing of specific
Treasury securities. Only one entity should be considered to have
investment discretion over a particular position.
(c) ``Gross financing position'' is the sum of the gross par
amounts of a security issue received from financing transactions,
including reverse repurchase transactions and bonds borrowed, and as
collateral for financial derivatives and other securities transactions
(e.g., margin loans). In calculating the gross financing position, a
reporting entity may not net its positions against repurchase
transactions, securities loaned, or securities pledged as collateral
for financial derivatives and other securities transactions. However, a
reporting entity may elect to reduce its gross financing position by
the par amount of the security received in transactions: in which the
counterparty retains the right to substitute securities; that are
subject to third party custodial relationships; or that are hold-in-
custody agreements.
(d) ``Large position threshold'' means, with respect to a
reportable position, the dollar par amount such position must equal or
exceed in order for a reporting entity to be required to submit a large
position report. The large position threshold will be announced by the
Department and may vary with each notice of request to report large
position information and with each specified Treasury security.
However, under no circumstances will a large position threshold be less
than $2 billion.
(e) ``Net fails position'' is the net par amount of ``fails to
receive'' less ``fails to deliver'' in the same security. The net fails
position, as reported, may not be less than zero.
(f) ``Net trading position'' is the net sum of the following
respective positions in the specific security issue:
(1) Cash/immediate net settled positions;
(2) Net when-issued positions;
(3) Net forward positions, including next-day settling;
(4) Net futures contract positions that require delivery of the
specific security; and
(5) Net holdings of STRIPS principal components of the security.
[[Page 48349]]
(g) ``Recently-issued'' means:
(1) With respect to Treasury securities that are issued quarterly
or more frequently, the three most recent issues of the security (e.g.,
in early April, the January, February, and March 2-year notes).
(2) With respect to Treasury securities that are issued less
frequently than quarterly, the two most recent issues of the security.
(3) With respect to a reopened security, the entire issue of a
reopened security (older and newer portions) based on the date the new
portion of the reopened security is issued by the Department (or for
when-issued securities, the scheduled issue date).
(4) For all Treasury securities, a security announced to be issued
or auctioned but unissued (when-issued), starting from the date of the
issuance announcement. The most recent issue of the security is the one
most recently announced.
(5) Treasury security issues other than those specified in
paragraphs (g)(1) and (2) of this section, provided that such large
position information is necessary and appropriate for monitoring the
impact of concentrations of positions in Treasury securities.
(h) ``Reportable position'' is the sum of the net trading
positions, gross financing positions and net fails positions in a
specified issue of Treasury securities collectively controlled by a
reporting entity.
(i) ``Reporting entity'' means any corporation, partnership, person
or other entity and its affiliates, as further provided herein. For the
purposes of this definition, an affiliate is any: entity that is more
than 50% owned, directly or indirectly, by the aggregating entity or by
any other affiliate of the aggregating entity; person or entity that
owns, directly or indirectly, more than 50% of the aggregating entity;
person or entity that owns, directly or indirectly, more than 50% of
any other affiliate of the aggregating entity; or entity, a majority of
whose board of directors or a majority of whose general partners are
directors or officers of the aggregating entity or any affiliate of the
aggregating entity.
(1) Subject to the conditions prescribed in Appendix A, one or more
aggregating entities, either separately or together with one or more
other aggregating entities, may be recognized as a separate reporting
entity.
(2) Notwithstanding this definition, any persons or entities that
intentionally act together with respect to the investing in, retention
of, or financing of, Treasury securities are considered, collectively,
to be one reporting entity.
Sec. 420.3 Reporting.
(a) A reporting entity is subject to the reporting requirements of
this section only when its reportable position equals or exceeds the
large position threshold specified by the Department for a specific
Treasury security issue. The Department shall provide notice of such
threshold by issuance of a press release and subsequent publication of
the notice in the Federal Register. Such notice will identify the
Treasury security issue to be reported (including, where applicable,
identification of the related STRIPS principal component); the date or
dates (as of close of business) for which the large position
information must be reported; and the applicable large position
threshold for that issue. It is the responsibility of a reporting
entity to take reasonable actions to be aware of such a notice.
(b) A reporting entity shall select one entity from among its
aggregating entities (i.e., the designated filing entity) as the entity
designated to compile and file a report on behalf of the reporting
entity. The designated filing entity shall be responsible for filing
any large position reports in response to a notice issued by the
Department and for maintaining the additional records prescribed in the
applicable paragraph of Sec. 420.4.
(c)(1) In response to a notice issued under paragraph (a) of this
section requesting large position information, a reporting entity with
a reportable position that equals or exceeds the specified large
position threshold stated in the notice shall compile and report the
amounts of the reporting entity's reportable position in the order
specified, as follows:
(i) net trading position;
(ii) gross financing position;
(iii) net fails position; and
(iv) total reportable position.
(2) The large position report should include the following
additional memorandum item: a total that includes the amounts of
securities delivered through repurchase agreements, securities loaned,
and as collateral for financial derivatives and other securities
transactions. This total should not be reflected in the gross financing
position.
(3) An illustration of a sample report is contained in Appendix B.
The net trading position shall be one net number and reported as the
applicable positive or negative number (or zero). The gross financing
position and net fails position should each be reported as a single
entry. If the amount of the net fails position is zero or less, report
zero. All position amounts should be reported on a trade date basis and
at par in millions of dollars.
(4) All positions must be reported as of the close of business of
the reporting date(s) specified in the notice.
(5) Each submitted large position report must include the following
administrative information in addition to the reportable position: the
name of the reporting entity, the address of the principal place of
business, the name and address of the designated filing entity, the
Treasury security that is being reported, the CUSIP number for the
security being reported, the report date or dates for which information
is being reported, the date the report was submitted, the name and
telephone number of the person to contact regarding information
reported, and the name and position of the authorized individual
submitting this report.
(6) The large position report must be signed by one of the
following: the chief compliance officer; chief legal officer; chief
financial officer; chief operating officer; chief executive officer; or
managing partner or equivalent. The designated filing entity must also
include in the report, immediately preceding the signature, a statement
of certification as follows:
By signing below, I certify that the information contained in
this report with regard to the designated filing entity is accurate
and complete. Further, after reasonable inquiry and to the best of
my knowledge and belief, I certify: (i) That the information
contained in this report with regard to any other aggregating
entities is accurate and complete; and (ii) that the reporting
entity, including all aggregating entities, is in compliance with
the requirements of 17 CFR Part 420.
(7) The report must be filed before noon Eastern time on the fourth
business day following issuance of the press release.
(d) A report to be filed pursuant to paragraph (c) of this section
will be considered filed when received by the Federal Reserve Bank of
New York, Market Reports Division. The report may be filed with the
Federal Reserve Bank of New York by facsimile or delivered hard copy.
The Federal Reserve Bank of New York may in its discretion also
authorize additional means of reporting.
(e) A reporting entity that has filed a report pursuant to
paragraph (c) of this section shall, at the request of the Department
or the Federal Reserve Bank of New York, timely provide any
supplemental information pertaining to such report.
(Approved by the Office of Management and Budget under control
number 1535-0089)
[[Page 48350]]
Sec. 420.4 Recordkeeping.
(a)(1) Notwithstanding the provisions of paragraphs (b) and (c) of
this section, an aggregating entity must make and maintain records
pursuant to this part as of its effective date, but only if the
aggregating entity has controlled a portion of its reporting entity's
reportable position in any Treasury security when such reportable
position of the reporting entity has equaled or exceeded the minimum
large position threshold specified in Sec. 420.2(d) (i.e., $2 billion)
during the prior two-year period ending December 11, 1996. Subsequent
to the effective date, an aggregating entity that controls a portion of
its reporting entity's reportable position in a recently-issued
Treasury security, when such reportable position of the reporting
entity equals or exceeds the minimum large position threshold, shall be
responsible for making and maintaining the records prescribed in this
section.
(2) In the case of a reporting entity whose reportable position in
any Treasury security has equaled or exceeded the minimum large
position threshold during the prior two-year period ending December 11,
1996, each such reporting entity's designated filing entity shall
submit a letter to the Government Securities Regulations Staff, Bureau
of the Public Debt, 999 E Street, N.W., Room 515, Washington, DC 20239,
stating that the designated filing entity has in place, or will have in
place by the effective date, a recordkeeping system (including policies
and procedures) capable of making, verifying the accuracy of, and
preserving the records required pursuant to this section. The letter
shall further state that, after reasonable inquiry and to the best of
its knowledge and belief, the designated filing entity represents that
all other aggregating entities have in place, or will have in place by
the effective date, a system (including policies and procedures)
capable of making, verifying the accuracy of, and preserving the
records required pursuant to this section.
(3) The letter specified in paragraph (a)(2) of this section must
be signed by one of the following: the chief compliance officer; chief
legal officer; chief financial officer; chief operating officer; chief
executive officer; or managing partner or equivalent. The letter must
be received by the Bureau of the Public Debt no later than January 21,
1997.
(b) Records to be made and preserved by entities that are subject
to the recordkeeping provisions of the Commission, the Department, or
the appropriate regulatory agencies for financial institutions. As an
aggregating entity, compliance by a registered broker or dealer,
registered government securities broker or dealer, noticed financial
institution, depository institution that exercises investment
discretion, registered investment adviser, or registered investment
company with the applicable recordkeeping provisions of the Commission,
the Department, or the appropriate regulatory agencies for financial
institutions shall constitute compliance with this section, provided
that if such entity is also the designated filing entity it:
(1) Makes and keeps copies of all large position reports filed
pursuant to this part;
(2) Makes and keeps supporting documents or schedules used to
compute data for the large position reports filed pursuant to this
part, including any certifications or schedules it receives from
aggregating entities pertaining to their holdings of a reportable
position;
(3) Makes and keeps a chart showing the organizational entities
that are aggregated (if applicable) in determining a reportable
position; and
(4) With respect to recordkeeping preservation requirements that
contain more than one retention period, preserves records required by
paragraphs (b)(1)-(3) of this section for the longest record retention
period of applicable recordkeeping provisions.
(c) Records to be made and kept by other entities. (1) An
aggregating entity that is not subject to the provisions of paragraph
(b) of this section shall make and preserve a journal, blotter, or
other record of original entry containing an itemized record of all
transactions that fall within the definition of a reportable position,
including information showing the account for which such transactions
were effected and the following information pertaining to the
identification of each instrument: the type of security, the par
amount, the CUSIP number, the trade date, the maturity date, the type
of transaction (e.g., a reverse repurchase agreement), and the name or
other designation of the person from whom sold or purchased.
(2) If such aggregating entity is also the designated filing
entity, then in addition, it shall make and preserve the following
records:
(i) Copies of all large position reports filed pursuant to this
part;
(ii) Supporting documents or schedules used to compute data for the
large position reports filed pursuant to this part, including any
certifications or schedules it receives from aggregating entities
pertaining to their holdings of a reportable position; and
(iii) A chart showing the organizational entities that are
aggregated (if applicable) in determining a reportable position.
(3) With respect to the records required by paragraphs (c) (1) and
(2) of this section, each such aggregating entity shall preserve such
records for a period of not less than six years, the first two years in
an easily accessible place. If an aggregating entity maintains its
records at a location other than its principal place of business, the
aggregating entity must maintain an index that states the location of
the records, and such index must be easily accessible at all times.
(Approved by the Office of Management and Budget under control
number 1535-0089)
Sec. 420.5 Effective Date.
The provisions of this part, except for Sec. 420.4(a), shall be
first effective on March 31, 1997.
Appendix A to Part 420--Separate Reporting Entity
Subject to the following conditions, one or more aggregating
entity(ies) (e.g., parent, subsidiary, or organizational component) in
a reporting entity, either separately or together with one or more
other aggregating entity(ies), may be recognized as a separate
reporting entity. All of the following conditions must be met for such
entity(ies) to qualify for recognition as a separate reporting entity:
(1) Such entity(ies) must be prohibited by law or regulation from
exchanging, or must have established written internal procedures (i.e.,
Chinese walls) designed to prevent the exchange of information related
to transactions in Treasury securities with any other aggregating
entity;
(2) Such entity(ies) must not be created for the purpose of
circumventing these large position reporting rules;
(3) Decisions related to the purchase, sale or retention of
Treasury securities must be made by employees of such entity(ies).
Employees of such entity(ies) who make decisions to purchase or dispose
of Treasury securities must not perform the same function for other
aggregating entities; and
(4) The records of such entity(ies) related to the ownership,
financing, purchase and sale of Treasury securities must be maintained
by such entity(ies). Those records must be identifiable--separate and
apart from similar records for other aggregating entities.
[[Page 48351]]
To obtain recognition as a separate reporting entity, each
aggregating entity or group of aggregating entities must request such
recognition from the Department pursuant to the procedures outlined in
paragraph 400.2(c) of this title. Such request must provide a
description of the entity or group and its position within the
reporting entity, and provide the following certification:
``[Name of the entity(ies)] hereby certifies that to the best of
its knowledge and belief it meets the conditions for a separate
reporting entity as described in Appendix A to 17 CFR Part 420. The
above named entity also certifies that it has established written
policies or procedures, including ongoing compliance monitoring
processes, that are designed to prevent the entity or group of entities
from:
``(1) Exchanging any of the following information with any other
aggregating entity (a) positions that it holds or plans to trade in a
Treasury security; (b) investment strategies that it plans to follow
regarding Treasury securities; and (c) financing strategies that it
plans to follow regarding Treasury securities, or
``(2) In any way intentionally acting together with any other
aggregating entity with respect to the purchase, sale, retention or
financing of Treasury securities.
``The above-named entity agrees that it will promptly notify the
Department in writing when any of the information provided to obtain
separate reporting entity status changes or when this certification is
no longer valid.''
Any entity, including any organizational component thereof, that
previously has received recognition as a separate bidder in Treasury
auctions from the Department pursuant to 31 CFR Part 356 is also
recognized as a separate reporting entity without the need to request
such status, provided such entity continues to be in compliance with
the conditions set forth in Appendix A of 31 CFR Part 356.
Appendix B to Part 420--Sample Large Position Report
Formula for Determining a Reportable Position
[$ Amounts in millions at par value as of trade date]
Security Being Reported........................ ____________
Date For Which Information is Being Reported... ____________
1. Net Trading Position (Total of cash/
immediate net settled positions; net when-
issued positions; net forward positions,
including next day settling; net futures
contracts that require delivery of the
specific security; and net holdings of STRIPS
principal components of the security.)........ ____________
2. Gross Financing Position (Total of
securities received through reverse repos
(including forward settling reverse repos),
bonds borrowed, financial derivative
transactions and as collateral for other
securities transactions which total may be
reduced by the optional exclusion described in
Sec. 420.2(c).).............................. + $ ____________
3. Net Fails Position (Fails to receive less
fails to deliver. If equal to or less than
zero, report 0.).............................. + $ ____________
4. Total Reportable Position................... = $ ____________
Memorandum: Report one total which includes the gross par amounts of
securities delivered through repurchase agreements, securities loaned,
and as collateral for financial derivatives and other securities
transactions. Not to be included in item #2 (Gross Financing Position)
as reported above.
$ ____________
Administrative Information To Be Provided in the Report
Name of Reporting Entity:
Address of Principal Place of Business:
Name and Address of the Designated Filing Entity:
Treasury Security Reported on:
CUSIP Number:
Date or Dates for Which Information Is Being Reported:
Date Report Submitted:
Name and Telephone Number of Person to Contact Regarding Information
Reported:
Name and Position of Authorized Individual Submitting this Report (Chief
Compliance Officer; Chief Legal Officer; Chief Financial Officer; Chief
Operating Officer; Chief Executive Officer; or Managing Partner or
Equivalent of the Designated Filing Entity Authorized to Sign Such
Report on Behalf of the Entity):
Statement of Certification: ``By signing below, I certify that the
information contained in this report with regard to the designated
filing entity is accurate and complete. Further, after reasonable
inquiry and to the best of my knowledge and belief, I certify: (i) that
the information contained in this report with regard to any other
aggregating entities is accurate and complete; and (ii) that the
reporting entity, including all aggregating entities, is in compliance
with the requirements of 17 CFR Part 420.''
Signature of Authorized Person Named Above:
Dated: August 14, 1996.
Darcy Bradbury,
Assistant Secretary (Financial Markets).
[FR Doc. 96-23331 Filed 9-11-96; 8:45 am]
BILLING CODE 4810-39-P
Complete official Federal Register PDF
FR Doc. 96-23322 Fisheries of the Exclusive Economic Zone Off Alaska; Pollock by Vessels Using Nonpelagic Trawl Gear in the Bering Sea and Aleutian Island Area
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Page 48074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23322]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 679
[Docket No. 960129019-6019-01; I.D. 090696F]
Fisheries of the Exclusive Economic Zone Off Alaska; Pollock by
Vessels Using Nonpelagic Trawl Gear in the Bering Sea and Aleutian
Island Area
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Closure.
-----------------------------------------------------------------------
SUMMARY: NMFS is closing the directed fishery for pollock by trawl
vessels using nonpelagic trawl gear in the Bering Sea and Aleutian
Islands management area (BSAI). This action is necessary to prevent
exceeding the BSAI bycatch allowance of halibut specified for the trawl
pollock/Atka mackerel/``other species'' fishery category.
EFFECTIVE DATE: 1200 hrs, Alaska local time (A.l.t.), September 7,
1996, until 2400 hrs, A.l.t., December 31, 1996.
FOR FURTHER INFORMATION CONTACT: Mary Furuness, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the BSAI exclusive
economic zone is managed by the NMFS according to the Fishery
Management Plan for the Groundfish Fishery of the Bering Sea and
Aleutian Islands Area (FMP) prepared by the North Pacific Fishery
Management Council under authority of the Magnuson Fishery Conservation
and Management Act. Fishing by U.S. vessels is governed by regulations
implementing the FMP at 50 CFR parts 600 and 679.
The 1996 bycatch allowance of halibut specified for the trawl
pollock/Atka mackerel/``other species'' fishery category which is
defined at Sec. 679.21(e)(3)(iv)(F), was established as 430 metric tons
by the Final 1996 Harvest Specifications of Groundfish (61 FR 4311,
February 5, 1996).
The Administrator, Alaska Region, NMFS, has determined, in
accordance with Sec. 679.21(e)(7), that the bycatch allowance of
halibut specified for the trawl pollock/Atka mackerel/``other species''
fishery category has been reached. Therefore, NMFS is closing the
directed fishery for pollock by trawl vessels using nonpelagic trawl
gear in the BSAI.
Maximum retainable bycatch amounts for applicable gear types may be
found in the regulations at Sec. 679.20(e).
Classification
This action is taken under 50 CFR 679.21 and is exempt from review
under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: September 6, 1996.
Gary C. Matlock,
Director, Office of Sustainable Fisheries, National Marine Fisheries
Service.
[FR Doc. 96-23322 Filed 9-6-96; 5:02 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-23321 Fisheries of the Exclusive Economic Zone Off Alaska; Sharpchin and Northern Rockfish in the Aleutian Islands Subarea
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48073-48074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23321]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 679
[Docket No. 960129019-6019-01; I.D. 090696D]
Fisheries of the Exclusive Economic Zone Off Alaska; Sharpchin
and Northern Rockfish in the Aleutian Islands Subarea
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Inseason adjustment; request for comments.
-----------------------------------------------------------------------
SUMMARY: NMFS issues an inseason adjustment prohibiting retention of
Atka mackerel in the Aleutian Islands subarea of the Bering Sea and
Aleutian Islands management area (BSAI). This action is necessary to
prevent overfishing of the sharpchin/northern rockfish species group.
DATES: 1200 hrs, Alaska local time (A.l.t.), September 7, 1996, until
2400 hrs, A.l.t., December 31, 1996. Comments must be received at the
following address no later than 4:30 p.m., A.l.t., September 23, 1996.
ADDRESSES: Comments may be sent to Ronald J. Berg, Chief, Fisheries
Management Division, Alaska Region, NMFS, P.O. Box 21668, Juneau, AK
99802, Attn: Lori Gravel, or be delivered to the fourth floor of the
Federal Building, 709 West 9th Street, Juneau, AK.
FOR FURTHER INFORMATION CONTACT: Andrew Smoker, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the BSAI exclusive
economic zone is managed by NMFS according to the Fishery Management
Plan for the Groundfish Fishery of the Bering Sea and Aleutian Islands
Area (FMP) prepared by the North Pacific Fishery Management Council
under authority of the Magnuson Fishery Conservation and Management Act
(Magnuson Act). Fishing by U.S. vessels is governed by regulations
implementing the FMP at subpart H of 50 CFR part 600 and 50 CFR part
679.
The Magnuson Act requires that conservation and management measures
prevent overfishing. The 1996 overfishing level for the sharpchin/
northern rockfish species group in the Aleutian Islands subarea of the
BSAI is established by the Final 1996 Harvest Specifications of
Groundfish (61 FR 4311, February 5, 1996) as 5,810 metric tons (mt) and
the acceptable biological catch as 5,810 mt. As of August 24, 1996,
6,578 mt of sharpchin/northern rockfish have been caught.
NMFS closed directed fishing for sharpchin/northern rockfish on May
30, 1996 (61 FR 28072, June 4, 1996) and prohibited retention of
sharpchin/northern rockfish on July 27, 1996 (61 FR 40158, August 1,
1996). Substantial trawl fishing effort will be directed at remaining
amounts of Atka mackerel in the Aleutian Islands subarea during 1996.
This fishery can have a significant bycatch of sharpchin/northern
rockfish.
The Administrator, Alaska Region, NMFS, has determined, in
accordance with Sec. 679.25(a)(1)(i) and (a)(2)(iii), that closing the
season by prohibiting retention of Atka mackerel by vessels using trawl
gear is necessary to prevent overfishing of the sharpchin/northern
rockfish species group, and is the least restrictive measure to achieve
that purpose. Without this prohibition of retention, significant
incidental catch of sharpchin/northern rockfish would occur by trawl
vessels targeting Atka mackerel.
Therefore, NMFS is requiring that further catches of Atka mackerel
by vessels using trawl gear in the Aleutian Islands subarea of the BSAI
be treated as prohibited species in accordance with Sec. 679.21(b)(2).
[[Page 48074]]
The Assistant Administrator for Fisheries, NOAA, finds for good
cause that providing prior notice and public comment or delaying the
effective date of this action is impracticable and contrary to the
public interest. Immediate effectiveness is necessary to prevent
overfishing of sharpchin/northern rockfish in the Aleutian Islands
subarea of the BSAI. Under Sec. 679.25(c)(2), interested persons are
invited to submit written comments on this action to the above address
until September 23, 1996.
Classification
This action is taken under Sec. 679.20 and is exempt from OMB
review under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: September 6, 1996.
Gary Matlock,
Director, Office of Sustainable Fisheries, National Marine Fisheries
Service.
[FR Doc. 96-23321 Filed 9-6-96; 5:02 pm]
BILLING CODE 3510-22-P
Complete official Federal Register PDF
FR Doc. 96-23318 United States Standards for Grades of Frozen Field Peas and Frozen Black-Eye Peas
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Page 48066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23318]
[[Page 48066]]
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DEPARTMENT OF AGRICULTURE
7 CFR Part 52
[FV-95-329]
United States Standards for Grades of Frozen Field Peas and
Frozen Black-Eye Peas
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Agriculture (USDA) is adopting as a final
rule with change the provisions of an interim final rule amending U.S.
grade standards for Frozen Field Peas and Frozen Black-Eye Peas. The
change would allow producers of frozen field peas and frozen black-eye
peas the option to pack black-eye peas and cream peas without the
requirement that these peas have an ``obvious green color.'' In
addition, this rule enables the frozen food industry to produce frozen
black-eye peas and frozen field peas more efficiently.
EFFECTIVE DATE: October 15, 1996.
FOR FURTHER INFORMATION CONTACT: James R. Rodeheaver, Processed
Products Branch, Fruit and Vegetable Division, Agricultural Marketing
Service, U.S. Department of Agriculture, Room 0709, South Building,
P.O. Box 96456, Washington, D.C. 20090-6456, Telephone (202) 720-4693.
SUPPLEMENTARY INFORMATION: This rule is issued under the United States
Standards for Grades of Frozen Field Peas and Frozen Black-Eye Peas (7
CFR Part 52) to improve grade standards. The standards are effective
under the Agricultural Marketing Act of 1946 as amended (7 U.S.C. 1621-
1627), hereinafter referred to as the Act. The USDA is issuing this
rule in conformance with Executive Order 12866.
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. This action is not intended to have retroactive effect.
This final rule will not preempt any State or local laws, regulations,
or policies, unless they present irreconcilable conflict with this
rule. There are no administrative procedures which must be exhausted
prior to any judicial challenge to the provisions of this rule.
The Agricultural Marketing Service has certified that this action
will not have a significant economic impact on a substantial number of
small entities, as defined in the Regulatory Flexibility Act, (5 U.S.C.
601 et seq.), because it reflects current marketing practices. In
addition, these standards are voluntary. Therefore, a small entity may
avoid incurring any additional economic impact by not employing the
standards. Further, no additional costs are expected to result from
this action for producers and benefits derived from this action may be
passed on to consumers.
The American Frozen Food Institute (AFFI) petitioned for emergency
relief from a requirement in the United States grade standards for
frozen field peas and frozen black-eye peas. AFFI is a trade
association representing over 560 food industry companies that account
for over 90 percent of frozen food production in the United States. The
frozen food industry requested USDA revise the grade standards to bring
it in line with current harvesting and marketing practices. This would
give economic relief to the frozen field pea and black-eye pea
industry. The U.S. grade standards are voluntary standards. However,
there is widespread use of the standards in contracts.
When these grade standards were promulgated in 1976, it included a
``Grade A'' color requirement for frozen black-eye peas and cream peas
that approximately 14 percent of these type peas have an obvious green
color.
This requirement was applicable when hand harvesting techniques
forced growers to harvest their crops earlier in the growing season
which allowed for a high percentage of immature peas. Today, modern
mechanical harvesting techniques allow growers to harvest these types
of peas with more mature pods that are easily shelled.
The requirement for these types of peas to have an obvious green
color has caused undue economic stress on the industry.
Frozen field pea and black-eye pea processors must purchase
imported, hand-harvested peas and blend them with domestic crops to
meet the ``Grade A'' color requirement. AFFI estimates that 10 million
pounds of imported peas must be purchased by U.S. processors per year
at an approximate annual cost of more than $2 million.
Based on all the information received, USDA amended Section 52.1669
in the United States Standards for Grades of Frozen Field Peas and
Frozen Black-Eye Peas by removing the color attribute requirements for
frozen black-eye peas and frozen cream peas from the text and Table III
of this section.
No additional costs are expected to result from this action for
producers and benefits derived from this action may be passed on to
consumers. This change is expected to facilitate marketing of frozen
field peas and frozen black-eye peas.
The interim final rule became effective when it was published in
the Federal Register (60 FR 62709) on December 7, 1995, with a 30-day
comment period. In response to the interim final rule the only comment
received was from AFFI, which agreed with this revision.
This action will finalize the interim final rule. An editorial
change will be made for clarity in Section 52.1669 (b)(2) to specify
that in the classification of color for ``field peas'' and ``mixed
types'', ``black-eye peas'' and ``cream peas'' are not considered. In
addition, in the interim final rule, corrections are made to the
authority citation.
List of Subjects in 7 CFR Part 52
Food grades and standards, Food labeling, Frozen foods, Fruit
juices, Fruits, Reporting and recordkeeping requirements, Vegetables.
Accordingly, the interim final rule amending 7 CFR part 52, which
was published at 60 FR 62710 on December 7, 1995, is adopted as a final
rule with the following change.
PART 52--[AMENDED]
1. The authority citation for part 52 is revised to read as
follows:
Authority: 7 U.S.C. 1621-1627.
2. In Sec. 52.1669, paragraph (b)(2) is revised to read as follows:
Sec. 52.1669 Classification of color and grade compliance.
* * * * *
(b) * * *
(2) ``Field peas'' and ``mixed types''. Each unit with a color that
is characteristic of very young peas (``black-eye peas'' and ``cream
peas'' are not considered.)
Dated: September 6, 1996.
Robert C. Keeney,
Director, Fruit and Vegetable Division.
[FR Doc. 96-23318 Filed 9-11-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-23317 United States Standards for Grades of Frozen Okra
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Page 48065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23317]
========================================================================
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. 178 / Thursday, September 12, 1996 /
Rules and Regulations
[[Page 48065]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 52
[FV-95-328]
United States Standards for Grades of Frozen Okra
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Agriculture (USDA) is adopting as a final
rule, with change, the provisions of the interim final rule that amends
the existing U.S. standards for Frozen Okra by removing references to
trimmed pods. This change will allow producers of frozen okra the
option to pack whole and cut okra without trimming.
EFFECTIVE DATE: October 15, 1996.
FOR FURTHER INFORMATION CONTACT: James R. Rodeheaver, Processed
Products Branch, Fruit and Vegetable Division, Agricultural Marketing
Service, U.S. Department of Agriculture, room 0709, South Building,
P.O. Box 96456, Washington, D.C. 20090-6456, Telephone (2) 720-4693.
SUPPLEMENTARY INFORMATION: This rule is issued under the United States
Standards for Grade of Frozen Okra (7 CFR Part 52) to improve grade
standards.
The standards are effective under the Agricultural Marketing Act of
1946 as amended (7 U.S.C. 1621-1627), hereinafter referred to as the
Act.
The USDA is issuing this rule in conformance with Executive Order
12866.
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. This action is not intended to have retroactive effect.
This final rule will not preempt any State or local laws, regulations,
or policies, unless they present irreconcilable conflict with this
rule. There are no administrative procedures which must be exhausted
prior to any judicial challenge to the provisions of this rule.
The Agricultural Marketing Service has certified that this action
will not have a significant economic impact on a substantial number of
small entities, as defined in the Regulatory Flexibility Act, (5 U.S.C.
601 et seq.), because it reflects current marketing practices. In
addition, these standards are voluntary. A small entity may avoid
incurring any additional economic impact by not employing the
standards.
Further, no additional costs are expected to result from this
action for producers and benefits derived from this action may be
passed on to consumers.
The American Frozen Food Institute (AFFI) petitioned for emergency
relief from a requirement in the United States Standards for Grades of
Frozen Okra.
AFFI is a trade association representing over 560 food industry
companies that account for over 90 percent of frozen food production in
the United States.
The frozen okra industry requested that USDA revise the grade
standards for frozen okra so that producers of frozen okra will have
the option to pack whole an cut okra without trimming and still meet
the requirements of the United States Standards for Grades of Okra. The
U.S. grade standards are voluntary standards. However, there is
widespread use of the standards for frozen okra in contract
requirements.
When the United States grade standards were first issued, okra was
cut by hand. With the advent of mechanical harvesting, the techniques
of harvesting have changed. Also processing equipment, including
electronic sorters, has improved the quality such that the frozen okra
industry can control quality more effectively without extensive
handling.
Moreover, AFFI stated in its petition to revise the standards that
since the frozen okra standards were last revised in 1969, new
varieties have been established which leave the stems edible and tender
when harvested with pods of the desirable length for freezing. AFFI
noted that all other forms of whole okra including fresh, pickled,
etc., are marketed untrimmed.
AFFI also stated that the cost associated with trimming frozen
whole okra was approximately $.0625 per pound of okra. Based on 1994
United States production of 65,114,000 pounds of frozen okra sold,
trimming okra costs U.S. processors of frozen okra approximately
$4,069,625 each year.
AFFI claimed that in the time it takes to revise the frozen okra
standard through ordinary channels, frozen okra processors could incur
costs of more than $8 million.
Based on all the information received, USDA revised the grade
standards by amending the product description in Sec. 52.1511 and
Sec. 52.1512, Styles, in the United States Standards for Grades of
Frozen Okra. Also, in Sec. 52.1517(c)(5)(i), ``apparent untrimmed
pods'' was removed from the standards as a defect since it no longer
applies.
No additional costs are expected to result from this action for
producers and benefits derived from this action may be passed on to
consumers. This change is expected to facilitate marketing of frozen
okra.
The interim final rule became effective when it was published in
the Federal Register (60 FR 62708) on December 7, 1995, with a 30-day
comment period. In response to the interim final rule the only comment
received was from AFFI, which agreed with this revision.
This action will finalize the interim final rule. In addition, in
the interim final rule, corrections are made to the authority citation.
List of Subjects in 7 CFR Part 52
Food grades and standards, Food labeling, Frozen foods, Fruit
juices, Fruits, Reporting and record keeping requirements, Vegetables.
Accordingly, the interim final rule amending 7 CFR part 52, which
was published at 50 FR 62709 on December 7, 1995, is adopted as a final
rule with the following change.
PART 52--[AMENDED]
The authority citation for part 52 is revised to read as follows:
Authority: 7 U.S.C. 1621-1627.
Dated: September 6, 1996.
Robert C. Keeney,
Director, Fruit and Vegetable Division.
[FR Doc. 96-23317 Filed 9-11-96; 8:45 am]
BILLING CODE 3410-02-M
Complete official Federal Register PDF
FR Doc. 96-23253 Fisheries Off West Coast States and in the Western Pacific; West Coast Salmon Fisheries; Closures from the Oregon-California Border to Humboldt South Jetty, CA, and from the U.S.-Canadian Border to Leadbetter Point, WA
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48072-48073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23253]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
50 CFR Part 660
[Docket No. 960126016-6121-04; I.D. 090396B]
Fisheries Off West Coast States and in the Western Pacific; West
Coast Salmon Fisheries; Closures from the Oregon-California Border to
Humboldt South Jetty, CA, and from the U.S.-Canadian Border to
Leadbetter Point, WA
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Closures.
-----------------------------------------------------------------------
SUMMARY: NMFS announces that commercial salmon fisheries were closed in
the following areas: from the Oregon-California border (42 deg.00'00''
N. lat.) to Humboldt South Jetty, CA (40 deg.45'53'' N. lat.), at
midnight, August 22, 1996; and from the U.S.-Canadian border to
Leadbetter Point, WA (46 deg.38'10'' N. lat.), at midnight, August 24,
1996. The Director, Northwest Region, NMFS (Regional Director), has
determined that the commercial quotas of 2,500 chinook salmon and
20,800 coho salmon for the respective areas have been reached. This
action is necessary to conform to the preseason announcement of the
1996 management measures and is intended to ensure conservation of
chinook and coho salmon.
DATES: Closure from the Oregon-California border to Humboldt South
Jetty, CA, is effective at 2400 hours local time, August 22, 1996,
through 0001 hours local time, September 1, 1996, at which time the
season reopens under the terms of the preseason announcement of the
1996 management measures. Closure from the U.S.-Canadian border to
Leadbetter Point, WA, is effective at 2400 hours local time, August 24,
1996, through 2400 hours local time, September 30, 1996, at which time
the season remains closed under the terms of the preseason announcement
of the 1996 management measures. Comments will be accepted through
September 26, 1996.
ADDRESSES: Comments may be mailed to William Stelle, Jr., Director,
Northwest Region, NMFS, 7600 Sand Point Way NE., Seattle, WA 98115-
0070, or Hilda Diaz-Soltero, Director, Southwest Region, NMFS, 501 W.
Ocean Blvd., Suite 4200, Long Beach, CA 90802-4132. Information
relevant to this action
[[Page 48073]]
has been compiled in aggregate form and is available for public review
during business hours at the Northwest Regional Office or Southwest
Regional Office.
FOR FURTHER INFORMATION CONTACT: William L. Robinson, 206-526-6140, or
Rodney R. McInnis, 310-980-4030.
SUPPLEMENTARY INFORMATION: Regulations governing the ocean salmon
fisheries at 50 CFR 660.409(a)(1) state that when a quota for the
commercial or the recreational fishery, or both, for any salmon species
in any portion of the fishery management area is projected by the
Regional Director to be reached on or by a certain date, NMFS will, by
notice issued under 50 CFR 660.411, close the commercial or
recreational fishery, or both, for all salmon species in the portion of
the fishery management area to which the quota applies as of the date
the quota is projected to be reached.
In the annual management measures for ocean salmon fisheries (61 FR
20175, May 6, 1996), NMFS announced that the 1996 commercial fishery in
the area between the Oregon-California border and Humboldt South Jetty,
CA, would open on August 15 and continue through August 31 or
attainment of the 2,500 chinook salmon quota, whichever occurred first.
NMFS also announced that a 1996 commercial fishery contingency season
in the area between the U.S.-Canadian border and Leadbetter Point, WA,
would open on July 26 and continue through September 30 or attainment
of the 18,800 chinook salmon quota, whichever occurred first. An
inseason action at 61 FR 40157, August 1, 1996, announced
implementation of the contingency season. A further inseason action at
61 FR 43472, August 23, 1996, increased the commercial coho salmon
quota for the area to 20,800 fish.
The best available information on August 21 indicated that catch
and effort data and projections supported closure of the commercial
fishery in the area between the Oregon-California border and Humboldt
South Jetty, CA, at midnight, August 22, and closure of the commercial
fishery in the area between the U.S.-Canadian border and Leadbetter
Point, WA, at midnight, August 24.
The Regional Director consulted with representatives of the Pacific
Fishery Management Council, the California Department of Fish and Game,
and the Washington Department of Fish and Wildlife regarding these
closures. The States of California and Washington will manage the
commercial fishery in state waters adjacent to these areas of the
exclusive economic zone in accordance with this Federal action. As
provided by the inseason notice procedures of 50 CFR 660.411, actual
notice to fishermen of this action was given prior to 2400 hours local
time, August 22, 1996 (closure from the Oregon-California border to
Humboldt South Jetty, CA) and 2400 hours local time, August 24, 1996
(closure from the U.S.-Canadian border to Leadbetter Point, WA) by
telephone hotline number 206-526-6667 or 800-662-9825 and by U.S. Coast
Guard Notice to Mariners broadcasts on Channel 16 VHF-FM and 2182 kHz.
Because of the need for immediate action to stop the fishery upon
achievement of the quota, NMFS has determined that good cause exists
for this notice to be issued without affording a prior opportunity for
public comment. This notice does not apply to other fisheries that may
be operating in other areas.
Classification
This action is authorized by 50 CFR 660.409 and 660.411 and is
exempt from review under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: September 5, 1996
Gary C. Matlock,
Director, Office of Sustainable Fisheries, National Marine Fisheries
Service.
[FR Doc. 96-23253 Filed 9-11-96; 8:45 am]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-23210 Order Execution Obligations
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48290-48332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23210]
[[Page 48289]]
_______________________________________________________________________
Part III
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Part 240
Order Execution Obligations; Final Rule; Proposed Quote Rule Amendment
Federal Register / Vol. 61, No. 178 / Thursday, September 12, 1996 /
Rules and Regulations
[[Page 48290]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-37619A; File No. S7-30-95]
RIN 3235-AG66
Order Execution Obligations
AGENCY: Securities and Exchange Commission.
ACTION: Final Rules.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting a new rule requiring the display of customer limit orders and
amending a current rule governing publication of quotations to enhance
the quality of published quotations for securities and to enhance
competition and pricing efficiency in our markets. These rules have
been designed to address growing concerns about the handling of
customer orders for securities.
Specifically, the Commission is adopting new Rule 11Ac1-4
(``Display Rule'') under the Securities Exchange Act of 1934
(``Exchange Act'') to require the display of customer limit orders
priced better than a specialist's or over-the-counter (``OTC'') market
maker's quote or that add to the size associated with such quote. The
Commission also is adopting amendments to Rule 11Ac1-1 (``Quote Rule'')
under the Exchange Act to require a market maker to publish quotations
for any listed security when it is responsible for more than 1% of the
aggregate trading volume for that security and to make publicly
available any superior prices that a market maker privately quotes
through certain electronic communications networks (``ECNs'') (``ECN
amendment''). Finally, the Commission is deferring action on proposed
Rule 11Ac1-5 (``Price Improvement Rule'').
Effective Date: January 10, 1997. For specific phase-in dates for the
Display Rule, see section III.A.3.d of this Release.
FOR FURTHER INFORMATION CONTACT: Elizabeth Prout Lefler or Gail A.
Marshall regarding amendments to the Quote Rule and David Oestreicher
regarding the Display Rule at (202) 942-0158, Division of Market
Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Mail Stop 5-1, Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION:
I. Introduction and Summary
On September 29, 1995, the Commission issued a release 1
proposing for comment new Rules 11Ac1-4 and 11Ac1-5 and amendments to
Rule 11Ac1-1 2 under the Exchange Act.3 As proposed, new Rule
11Ac1-4 would require the display of customer limit orders that improve
certain OTC market makers' and specialists' quotes or add to the size
associated with such quotes. The proposed amendments to the Quote Rule
would require OTC market makers and specialists who place priced orders
with ECNs to reflect those orders in their published quotes. The
proposed Quote Rule amendments also would require OTC market makers and
specialists that account for more than 1% of the volume in any listed
security to publish their quotations for that security (``Mandatory
Quote Rule''). The Price Improvement Rule would have required OTC
market makers and specialists to provide their customer market orders
an opportunity for price improvement; it also would have included a
non-exclusive safe harbor to satisfy the price improvement obligation.
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\1\ Securities Exchange Act Release No. 36310 (September 29,
1995), 60 FR 52792 (October 10, 1995) (``Proposing Release'').
\2\ 17 CFR 240.11Ac1-1.
\3\ 15 U.S.C. 78a to 78ll (1988).
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The Commission received 152 comment letters (from 145 commenters)
in response to the Proposing Release.4 Commenters generally
supported the Display Rule and the Mandatory Quote Rule, with some
commenters suggesting specific modifications or alternatives to the
proposed rules. Commenters also supported the objectives of the ECN
amendment, but many expressed concerns that diminishing the anonymity
of such systems would threaten their viability. Most commenters
believed the Price Improvement Rule would be costly to implement and
would not be necessary if the other proposals were adopted.
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\4\ The comment letters and a summary of comments have been
placed in Public File No. S7-30-95, which is available for
inspection in the Commission's Public Reference Room. The Commission
received comments on the proposals from 77 individual investors, ten
industry associations, seven exchanges and the National Association
of Securities Dealers (``NASD''), eight academics, 41 market
participants and the United States Department of Justice. In
addition, the Commission met with representatives of broker-dealers,
self-regulatory organizations (``SROs''), industry associations, and
the U.S. Department of Justice to discuss the proposals. The
Commission has conducted its own economic analysis of the likely
economic effects of the various proposals.
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After considering the comments and relevant economic research, and
based on the Commission's experience with the development of the
national market system (``NMS'') and its knowledge of current market
practices, the Commission is adopting the Display Rule and the proposed
amendments to the Quote Rule, with certain modifications. The
Commission believes that these modifications are consistent with the
proposals and responsive to many of the concerns voiced by the
commenters.
The Display Rule adopted today requires OTC market makers and
specialists to display the price and full size of customer limit orders
when these orders represent buying and selling interest that is at a
better price than a specialist's or OTC market maker's public quote.
OTC market makers and specialists also must increase the size of the
quote for a particular security to reflect a limit order of greater
than de minimis size when the limit order is priced equal to the
specialist's or OTC market maker's disseminated quote and that quote is
equal to the national best bid or offer.
The Commission has modified the proposed Display Rule in some
respects in response to comments. The proposal included an exception to
permit a specialist or OTC market maker to deliver a limit order to an
exchange or registered national securities association
(``association'') sponsored system that complies with the Display Rule.
This exception has been expanded to permit delivery to ECNs that
display and provide access to these orders. Additionally, with regard
to implementation of the rule, the Commission has provided for a phase-
in over a one year period for non-exchange-traded securities covered by
the Display Rule.
Today, the Commission also is adopting two significant amendments
to the Quote Rule. These amendments are designed to ensure that more
comprehensive quotation information is made available to the public.
The first amendment requires a specialist or OTC market maker to make
publicly available the price of any order it places in an ECN if the
ECN price is better than the specialist's or OTC market maker's public
quotation. The Commission has adopted this amendment as proposed, with
an alternative (``ECN display alternative'') that deems OTC market
makers and specialists in compliance with the Quote Rule if prices
these OTC market makers and specialists enter into an ECN are publicly
disseminated and the ECN provides access to other broker-
[[Page 48291]]
dealers to trade at those prices.5 Thus, OTC market makers and
specialists may comply directly with the ECN amendment by changing
their public quote to reflect their ECN order, or by using an ECN that
facilitates their compliance with the rule as described above.
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\5\ This alternative means of compliance with the ECN amendment
is referred to hereinafter as the ``ECN display alternative''.
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Implementation of the ECN display alternative requires the
cooperation of the SROs in order to include the ECN prices in the
public quotation system and to provide equivalent access to these
quotations. The Commission expects the SROs to work expeditiously with
ECNs that wish to avail themselves of this alternative to develop rules
or understandings of general applicability. The Commission is prepared
to act if necessary to ensure implementation of the ECN display
alternative prior to the effective date of the Quote Rule.
The second amendment to the Quote Rule expands the categories of
securities covered by the Mandatory Quote Rule. As amended, the Quote
Rule will require that OTC market makers and specialists publish quotes
in any listed security if their volume in that security exceeds 1% of
the aggregate volume during the most recent calendar quarter.
Previously, these requirements applied only to certain listed
securities.6
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\6\ Additional amendments to the Quote Rule adopted today
provide that certain Quote Rule provisions that previously applied
to market makers that elected to quote a Nasdaq National Market
security now also will apply to market makers electing to quote a
Nasdaq SmallCap security. See section III.B.d.iii.
---------------------------------------------------------------------------
The Commission is deferring final action on the Price Improvement
Rule at this time. The Commission will consider the effect of the new
Display Rule and the amendments to the Quote Rule adopted today before
determining the appropriate course of action on that proposal.
In a parallel action, the Commission today is proposing for comment
an additional amendment to the Quote Rule. The proposed amendment would
require OTC market makers and specialists that account for more than 1%
of the volume in any Nasdaq security to publish their quotations for
that security.7
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\7\ See Securities Exchange Act Release No. 37620 (August 28,
1996) (``Companion Release'').
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II. Basis and Purpose of the Display Rule and Quote Rule Amendments
Twenty years ago, Congress directed the Commission--having due
regard for the public interest, the protection of investors, and the
maintenance of fair and orderly markets--to use the Commission's
authority granted under the Exchange Act to facilitate the
establishment of a national market system for securities.8
Congress further determined that the public interest, investor
protection and the maintenance of fair and orderly markets required the
NMS to feature:
---------------------------------------------------------------------------
\8\ Pub. L. No. 94-29, 89 Stat. 97 (1975) (``1975 Amendments'').
---------------------------------------------------------------------------
(i) Economically efficient executions;
(ii) Fair competition among brokers and dealers, among exchange
markets, and between exchange markets and markets other than exchange
markets;
(iii) Public availability of quotation and transaction information;
(iv) An opportunity to obtain best execution; and
(v) An opportunity to obtain execution without dealer intervention
to the extent consistent with economically efficient executions and the
opportunity to obtain best execution.9
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\9\ Exchange Act section 11A(a)(1), 15 U.S.C. 78k-1(a)(1). This
Section also recites the Congressional findings that: The securities
markets are an important national asset which must be preserved and
strengthened; and new data processing and communications techniques
create the opportunity for more efficient and effective market
operations.
---------------------------------------------------------------------------
The years since the 1975 Amendments have witnessed dramatic
developments in the U.S. securities markets. Last sale reporting, which
enables investors to determine the current market for a security, has
been extended to OTC-traded securities. The Consolidated Quotation
System (``CQS''), which allows investors to view in a single source
quotes disseminated from dispersed market centers, did not exist in
1975. The Intermarket Trading System (``ITS''), which permits
investors' orders in certain exchange-listed securities to be routed to
the market center displaying the best quotation, has greatly
facilitated quote competition. Moreover, technological developments not
envisioned twenty years ago have enabled market centers to handle
volume levels many times greater than those that led to the ``back
office'' crisis of the late 1960s and early 1970s. Taken together,
these and other developments have made it possible for investors'
orders to be executed much more rapidly and at far lower cost.
The Commission recognized that U.S. equity markets had undergone
significant changes since passage of the 1975 Amendments and were
likely to undergo further changes of equal magnitude.10
Accordingly, the Commission announced in July 1992 that its Division of
Market Regulation (``Division'') would undertake a study of the
structure of the U.S. equity markets and of the regulatory environment
in which those markets operate.11
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 30920 (July 14,
1992), 57 FR 32587 (July 22, 1992) (``Market 2000 Concept
Release'').
\11\ Id.
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In January 1994, the Division published a study,12 which
reviewed, among other things, market practices and structures that
could affect the ability of customers to obtain opportunities for
better prices. The Market 2000 Study noted that U.S. equity markets had
evolved since 1975 to provide a much wider array of trading venues to
meet the diverse needs of investors and made a series of
recommendations intended to facilitate the further development of a
national market system. As expected, U.S. equity markets have continued
to evolve since the Market 2000 Study was published.
---------------------------------------------------------------------------
\12\ Division of Market Regulation, Market 2000: An Examination
of Current Equity Market Developments (January 1994) (``Market 2000
Study'' or ``Study'').
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This evolution of the markets is reflected in part by comparing
trading volumes and the venues in which orders are executed. In 1976,
the New York Stock Exchange (``NYSE'') average daily trading volume was
approximately 21.2 million shares.13 By 1995, average daily
trading volume exceeded 346 million shares.14 Third market
trading, i.e., OTC trading of listed securities, in NYSE-listed issues
accounted for 4.57% of consolidated volume in 1976.15 By 1995,
third market trading increased to 7.94% of consolidated volume.16
In 1987, the NYSE handled almost 74% of trades of NYSE-listed issues
reported on the consolidated tape; in 1995, it handled 70.22% of such
trades.17
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\13\ 1982 NYSE Fact Book.
\14\ 1995 NYSE Annual Report.
\15\ 1982 NYSE Fact Book.
\16\ 1995 NYSE Fact Book.
\17\ Regional exchanges, namely, the Boston Stock Exchange
(``BSE''), the Philadelphia Stock Exchange (``Phlx''), the
Cincinnati Stock Exchange (``CSE''), the Chicago Stock Exchange
(``CHX''), and the Pacific Stock Exchange (``PSE''), have captured a
significant share of volume in NYSE-listed issues, particularly with
respect to smaller investor orders. In 1995, the regional exchanges
accounted for 9.96% of consolidated volume in NYSE-listed issues but
accounted for 19.01% of trades of NYSE-listed issues reported on the
consolidated tape. Id. They also accounted for approximately 35% of
share volume in trades of 100 to 2,099 shares. Shapiro, U.S. Equity
Markets: Recent Equity Developments, in Global Equity Markets:
Technological, Competitive, and Regulatory Challenges 21 (R.
Schwartz ed. 1995). In January 1996, trades of 100-499 shares
represented between 65-72% of all trades in NYSE-listed issues on
regional exchanges; such trades represented only 37% of all trades
on the NYSE. Ross, Shapiro and Smith, Price Improvement of SuperDOT
Market Orders on the NYSE (NYSE Working Paper 96-01) (March 11, 1996
draft) (prepared for the NYSE Conference for the Search for Best
Price) (``Ross, Shapiro and Smith'').
---------------------------------------------------------------------------
Comparable figures for The Nasdaq Stock Market (``Nasdaq'') are
even more
[[Page 48292]]
dramatic. In 1975, Nasdaq annual volume was approximately 1.39 billion
shares.18 By 1995, Nasdaq annual volume increased to 101.2 billion
shares,19 which means that more shares traded hands on three
average trading days in 1995 than in all of 1975. In 1993, volume in
all proprietary trading systems combined represented 13% of the total
volume in Nasdaq/National Market securities; 20 by January 1996,
volume on Instinet alone represented approximately 15% of total Nasdaq
volume and 20% of total volume for the 250 Nasdaq stocks with the
highest median dollar volume.21
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\18\ 1992 Nasdaq Fact Book.
\19\ 1995 NASD Annual Report.
\20\ Market 2000 Study at Appendix IV-2.
\21\ The Introduction of NAqcess into the Nasdaq Stock Market:
Intent and Expectation, NASD Economic Research Staff, June 6, 1996
(``NASD Study''), Exhibit D to Securities Exchange Act Release No.
37302 (June 11, 1996), 61 FR 31574 (June 20, 1996) (Notice of Filing
of Amendment No. 2 to Proposed Rule Change by National Association
of Securities Dealers Relating to the NAqcess System and
Accompanying Rules of Fair Practice)(``NAqcess Release 2'').
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The Study addressed the development of certain practices, such as
internalization,22 payment for order flow 23 and the non-
disclosure of certain customer trading interest to all market
participants, that raise a variety of market structure and customer
order handling concerns. For example, brokers today may quote one price
publicly to retail customers, while showing a better price privately to
other investors and dealers on an ECN. In addition, the quotes
displayed to public investors may not accurately reflect the best price
for a security because limit orders, which specify the price at which
customers will buy or sell a security, are not uniformly required to be
included in the quote.
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\22\ Internalized orders are customer orders routed by a broker-
dealer to an affiliated specialist or executed by that broker-dealer
as a market maker.
\23\ The Commission now requires enhanced disclosure of payment
for order flow practices on customer confirmations and account
statements, as well as upon opening new accounts. Securities
Exchange Act Release No. 34902 (October 27, 1994), 59 FR 55006
(November 2, 1994) (adopting rules requiring enhanced disclosure of
payment for order flow practices on customer confirmations, and
account statements, as well as upon opening new accounts) (``Payment
for Order Flow Release''). See also Securities Exchange Act Release
No. 35473 (March 10, 1995), 60 FR 14366 (March 17, 1995).
---------------------------------------------------------------------------
The Study recommended that the exchanges and the NASD consider
taking action to respond appropriately to certain of these
developments. Since that time, Nasdaq market makers holding customer
limit orders have been prohibited from trading ahead of those
orders,24 and some market makers have begun to offer price
improvement opportunities in OTC transactions to their retail
customers.25 In addition, the NYSE now requires almost all limit
orders transmitted through SuperDOT to be displayed to the
market.26 Further, Commission rules require enhanced disclosure of
payment for order flow practices on customer confirmations and account
statements, as well as upon opening new accounts.27
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\24\ Securities Exchange Act Release No. 34279 (June 29, 1994),
59 FR 34883 (July 7, 1994) (``Manning I''); Securities Exchange Act
Release No. 35751 (May 22, 1995), 60 FR 27997 (May 26, 1995)
(``Manning II'').
\25\ See, e.g., Louis, Schwab Debuts New Trading System, San
Francisco Chronicle, October 17, 1995, at D1.
\26\ Securities Exchange Act Release No. 36231 (September 14,
1995), 60 FR 48736 (September 20, 1995).
\27\ See Payment for Order Flow Release supra note 23.
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Notwithstanding the progress achieved in this period, the
Commission believes that further regulatory initiatives are warranted
at this time. These changes, as indicated in the Proposing Release, are
intended to address current market practices that inhibit opportunities
for order interaction and that are inconsistent with Congress's vision
of the national market system. These changes also address certain
problems in Nasdaq. The Commission recently reported that, among other
things: (i) Nasdaq market makers widely followed a pricing convention
concerning the increments they used to adjust their displayed quotes;
(ii) adherence to the pricing convention was not the result of natural
economic forces, often impacted the fairness and accuracy of public
quotation information and interfered with the economically efficient
execution of customer transactions; (iii) the pricing convention
impaired the ability of investors to ascertain the best market for
their trades, increased the costs of transactions, and resulted in
unfair discrimination among classes of market participants; (iv)
numerous market makers collaborated in ways that misled and
disadvantaged their customers and other market participants and
frequently failed to honor their price quotations; and (v) many market
makers have not consistently reported their trades on time or
appropriately designated them as late as required by NASD rules.28
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\28\ Report Pursuant to Section 21(a) of the Securities Exchange
Act of 1934 Regarding the NASD, the Nasdaq Market, and Nasdaq Market
Makers, Securities Exchange Act Release No. 37542 (August 8, 1996)
(``21(a) Report'').
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The Commission has taken specific regulatory and enforcement
actions to address these problems.29 The Display Rule and Quote
Rule amendments adopted today should bring about other, significant
changes in the operation of Nasdaq, by ensuring the disclosure of
customer and market maker buying and selling interest that heretofore
has been hidden from many market participants. At the same time, the
new rules will benefit investors in the exchange markets by increasing
transparency in those markets and improving opportunities for the best
execution of customer orders.
---------------------------------------------------------------------------
\29\ See id.
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The Commission firmly believes that the actions it is taking today
are consistent with the regulatory framework for a national market
system established by Congress in the 1975 Amendments. Congress
envisioned a national market system supported by accurate and reliable
public quotation and transaction information, and fair competition
among market centers. Congress also believed that linking all markets
for qualified securities through communication and data processing
facilities would foster efficiency, enhance competition, increase
information available to market participants and contribute to the best
execution of customer orders.30
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\30\ See Exchange Act section 11A(a)(1)(D), 15 U.S.C. 78k-
1(a)(1)(D).
---------------------------------------------------------------------------
The Commission recognizes that investors will lose confidence in
the fairness of the markets unless market structures and practices
treat all investors fairly. The regulatory initiatives adopted today
address current market practices that hinder competition among markets
and affect the prices at which customer orders are executed. The
Display Rule and Quote Rule amendments enhance transparency and
facilitate best execution of customer orders in a manner that preserves
maximum flexibility for the markets to design and implement trading and
communication systems that are consistent with the objectives of the
national market system. These rules contribute to the achievement of
the full potential of the national market system as envisioned by
Congress. They represent one more step to facilitate the development of
an efficient, competitive and transparent national market system in
which all market participants can achieve best execution of their
orders.
III. Discussion
A. Display of Customer Limit Orders
1. Introduction
As discussed above, the 1975 Amendments contain an explicit
statutory mandate for the establishment of a national market system.
Congress considered mandating certain minimum
[[Page 48293]]
components of the national market system, but instead created a
statutory scheme granting the Commission broad authority to oversee the
implementation, operation and regulation of the national market
system.31 At the same time, Congress charged the Commission with
the responsibility to assure that the national market system develop
and operate in accordance with specific goals and objectives.32
The Commission believes that the adoption of a limit order display rule
furthers these goals and objectives determined by Congress.
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\31\ S. Rep. No. 75, 94th Cong., 1st Sess. 8-9 (1975) (``Senate
Report'').
\32\ Id. at 9. Among other things, Congress found it in the
public interest and appropriate for the protection of investors and
the maintenance of fair and orderly markets to assure an opportunity
for investors' orders, in both dealer and auction markets, to be
executed without the participation of a dealer, to the extent that
this was consistent with economically efficient executions of such
orders in the best market. Exchange Act Section 11A(a)(1(c), 15
U.S.C. 78k-1(a)(1)(C).
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Specifically, the display of customer limit orders advances the
national market system goal of the public availability of quotation
information, as well as fair competition, market efficiency, best
execution and disintermediation. The enhanced transparency of such
orders increases the likelihood that limit orders will be executed
because contra-side market participants will have a more accurate
picture of trading interest in a given security. Further, this
increased visibility will enable market participants to interact
directly with limit orders, rather than rely on the participation of a
dealer for execution.
Moreover, as noted in the Proposing Release, the display of limit
orders that are priced better than current quotes addresses at least
three regulatory concerns. First, displaying customer limit orders in
the quotation can increase quote competition. If the quotes from a
market or market maker represent only market maker buying and selling
interest in a given security, the market or market maker faces less
price competition than if customer buying and selling interest is made
public. As a result, the price discovery process may be constrained.
Second, the display of limit orders can narrow quotation spreads.
Third, because many markets and market makers offer automatic
executions of small orders at the best displayed quotes, the display of
limit orders that improve the best displayed quotes can result in
improved executions for these orders.
Limit orders currently are handled differently in the various
auction and dealer markets. Generally, the rules of most exchanges
require that a limit order be displayed in the quotation for a security
when it improves the best bid or offer. NYSE specialists, for example,
must reflect a customer limit order in their quotations at the limit
price when requested to do so.33 In addition, the NYSE's order
handling procedures assume that all limit orders routed to a specialist
through SuperDOT contain a display request.34 Therefore, except in
the unusual and infrequent circumstance where a specialist believes
market conditions suggest the likelihood of imminent price improvement,
a limit order received by a specialist through SuperDOT should be
reflected in the specialist's quote as soon as practicable following
receipt of the order.35 According to the NYSE, 93% of all SuperDOT
limit orders that improve the best bid or offer displayed are reflected
in the specialist's quote within two minutes of receipt, while 98% of
such limit orders are reflected within five minutes of receipt.36
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\33\ See NYSE Rule 79A.10 (when a limit order is presented to
the specialist by a floor broker, the floor broker must
affirmatively request that the specialist display the limit order;
failure to so request leaves the decision whether to display the
limit order to the discretion of the specialist); see also NYSE Rule
60 (requiring specialists to promptly report, inter alia, the best
bid and offer in the trading crowd in each reported security in
which the specialist is registered).
\34\ NYSE Information Memo 93-12 (Mar. 30, 1993).
\35\ Id.
\36\ Telephone Conference between Edward A. Kwalwasser,
Executive Vice President, NYSE, and Holly H. Smith, Associate
Director, Division of Market Regulation, SEC, January 9, 1995.
Other exchanges also have rules regarding dissemination of bids
and offers. However, no uniform standard has been adopted among the
exchanges. Generally, the rules either cite, in whole or in part,
language from the Quote Rule, or are drafted in such a manner as to
allow for broad interpretation with respect to the display of limit
orders. See, e.g., BSE Guide, Rules of the Board of Governors,
Chapter II, Sec. 7, (CCH) para. 2020; PSE Guide, Rules of the Board
of Governors, Rule 5.6(f), (CCH) para. 3979; American Stock Exchange
Guide, General and Floor Rules, Rule 115, (CCH) para. 9265; CHX
Guide, Article XX, Rule 7, (CCH) para. 1688; Phlx Guide, Rules 105
and 229 (CCH) para. 2105 and 2229; Cincinnati Stock Exchange Rules,
Rule 11.9.
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A recent NYSE policy statement requires specialists to display the
full size of all orders received through SuperDOT as well as orders
received by specialists manually that are subsequently entered into the
electronic book.37 When a member requests that less than the full
size of the order be shown, the specialist is obligated to show the
size requested. Specialists must display as soon as practicable any
order that, in relation to current market conditions in a particular
security, represents a material change in the supply or demand for that
security. This requirement includes increasing the size of a quotation
for orders at the same price as the current bid or offer. If the
quotation already reflects significant supply or demand, and the
specialist receives an order that is de minimis in relation to such
supply or demand, the specialist may take a reasonable time (generally
not more than two minutes) before updating the size of the
quotation.38
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\37\ See supra note 26.
\38\ The NYSE provides the following example of when a
specialist may take a reasonable time to update the size of the
quotation: If the market in XYZ security is 20 (5,000)--20\1/4\
(50,000), and the specialist receives an order to sell 200 shares at
20\1/4\, such order would be considered de minimis and the
specialist would be permitted to wait a reasonable period of time
(but not more than two minutes) before changing the size of the
offer to 50,200.
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Currently in the OTC market, the quote for any security typically
represents a dealer's own bid and offer. The rules of the NASD do not
require market makers to display customer limit orders, whether or not
they better the best bid or offer for the security.39 Generally,
customer limit orders in OTC securities either will be routed to a
broker-dealer's market making desk or to another market maker for
execution if the customer's firm does not make a market in the
security. In the past, market makers typically did not execute limit
orders until the best bid (for sell orders) or offer (for buy orders)
displayed on Nasdaq reached the limit price. This practice has changed,
however, in recent years. In June 1994, the Commission approved a rule
change filed by the NASD that prohibits broker-dealers from trading
ahead of their customers' limit orders.40 This rule was expanded
in May 1995, to prohibit broker-dealers from trading ahead of customer
limit orders they accept from other brokers.41 The NASD also has
filed a proposed rule change that would require, in certain
circumstances, the display of customer limit orders for exchange-listed
securities traded OTC.42
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\39\ See NASD Manual, Rule 4613.
\40\ See Manning I, supra note 24.
\41\ See Manning II, supra note 24.
\42\ See Securities Exchange Act Release No. 35471 (March 10,
1995), 60 FR 14310 (March 16, 1995). The NASD proposal, applicable
to exchange-listed securities traded OTC, generally would require a
market maker either to execute immediately a limit order of less
than the minimum quotation size priced better than the market
maker's quotation, or display the order in its quotation for an
amount equal to the minimum quotation size. Market makers would have
to display a limit order greater than the minimum quotation size for
that security but would not have to display the full size of the
order. Any portion of the order not displayed, however, would have
to be executed at a price at least as favorable as the displayed
price if the displayed portion is executed in its entirety. At the
NASD's request, the Commission has postponed final action on the
NASD's proposal in order to permit the NASD to evaluate its proposal
in light of the Commission's actions on the proposals it is adopting
today.
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[[Page 48294]]
The exchanges and the NASD use automated trading systems to route
and, in some instances, execute orders up to a predetermined size. Some
of these systems accept limit orders. Each system, however, may differ
in its handling of limit orders that are not executed immediately upon
receipt. For example, the NYSE's SuperDOT system routes limit orders to
the specialists' posts where they are handled in accordance with NYSE
rules governing specialist representation of such orders. The American
Stock Exchange's (``Amex'') PER system routes limit orders in the same
manner as SuperDOT and the orders are handled in accordance with Amex
rules. The NASD's Small Order Execution System (``SOES'') treats limit
orders priced at the current inside market as market orders that are
immediately executed.43 All other limit orders reside in a limit
order file that can be viewed only by market makers.44 SOES does
not provide an opportunity for limit orders to interact with incoming
market orders. The Commission has published for comment an NASD
proposal to replace SOES with ``NAqcess,'' a system that would include
a limit order file designed to display certain customer limit
orders.45
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\43\ Preferenced orders (i.e., orders routed to a specific
market maker pursuant to a pre-existing agreement) are executed
immediately at the inside quote. Unpreferenced orders are executed
against market makers in a security in rotation. SOES, however, does
not execute an unpreferenced order against a single market maker
more than once every 15 seconds.
\44\ The current SOES rules have been extended, with certain
changes that do not affect the handling of limit orders, through
January 31, 1997. Securities Exchange Act Release No. 37502 (July
30, 1996), 61 FR 40869 (August 6, 1996).
\45\ See Securities Exchange Act Release No. 36548 (December 1,
1995), 60 FR 60392 (December 8, 1995) (``NAqcess Release 1'');
NAqcess Release 2, supra note 21. As proposed, NAqcess would act as
an order delivery system with a limited public limit order file.
Limit orders up to 9,900 shares would be permitted in NAqcess
for the top 250 Nasdaq National Market securities, defined by median
daily dollar volume, and for 1,000 shares for all other Nasdaq
securities. Market makers would be allowed to query the entire limit
order file. All other market participants would be limited to
viewing the top of the NAqcess limit order file (i.e., the best
priced buy and sell limit orders, and the size associated with those
orders--the NAqcess inside market). This inside market would be
factored into the calculation for the inside quote for each Nasdaq
security. Although use of NAqcess would be voluntary, limit orders
not entered in NAqcess would be provided with market-wide price
protection under the proposal.
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The disparate treatment of limit orders across markets was raised
as an issue in the Market 2000 Study. The Commission received numerous
comments concerning whether the optimal degree of pre-trade disclosure
of limit orders was being achieved within the U.S. equity markets. Some
commentators alleged that specialists and third market dealers
sometimes fail to display limit orders priced better than the displayed
quotation.46 Questions also were raised about the lack of limit
order exposure on Nasdaq. After considering these comments, the
Division recommended in the Study that the securities exchanges
consider whether to encourage the display of all limit orders in listed
stocks priced better than the best intermarket quotes, unless the
ultimate customer requests that the order not be displayed. The Market
2000 Study also recommended the display of limit orders in Nasdaq
stocks when the orders are at prices better than the best Nasdaq
quotes, unless the customer requests that the order not be
displayed.47
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\46\ See generally Thomas H. McInish & Robert A. Wood, Hidden
Limit Orders on the NYSE, 21 J. Portfolio Mgmt. 19 (No. 3, Spring
1995) (``McInish & Wood Study''). The authors asserted that NYSE
specialists only display about 50% of limit orders that better
existing quotes. In their opinion, this practice represents a
serious policy issue because it places both public investors and
regional exchanges at a disadvantage. They asserted that hiding
limit orders impedes strategic decisions on order placement; results
in publicly submitted market orders receiving inferior prices;
hampers the monitoring of order executions; reduces the probability
of a limit order being executed; results in a delay in reporting
limit order executions; interferes with the ability of the regional
exchanges to execute public orders; and artificially improves NYSE
performance relative to the regional exchanges using a common
benchmark. The authors also claimed that NYSE Rule 60 is ambiguous
in that the specialists may have some leeway in choosing what to
disclose in their quotes.
In its comment letter to the Market 2000 Study, however, the
NYSE asserted that its publicly disseminated best bid or offer
includes all firm trading interest announced on the floor as
required by the exchange's rules. See Letter from William H.
Donaldson, Chairman and Chief Executive Officer, NYSE, to Jonathan
G. Katz, Secretary, SEC at 25-26 (November 24, 1992). In addition,
the NYSE issued a policy statement that reiterates that specialists
have an obligation to reflect in their quotes certain limit orders
received manually or via SuperDOT that are not executed on receipt.
See supra note 26.
\47\ Market 2000 Study, at IV-6.
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2. Discussion
a. Basis for Adoption of the Rule
After carefully considering all of the comments as well as economic
research regarding the Display Rule, and based on the Commission's
experience and knowledge of current market practices and conditions,
the Commission believes that adoption of the Display Rule will promote
transparency and enhance execution opportunities for customer orders,
and encourage liquidity.48
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\48\ See, e.g., Letter from Thomas F. Ryan, Jr., President and
Chief Operating Officer, Amex, to Jonathan G. Katz, Secretary, SEC,
dated February 1, 1996 (``Amex Letter''); Letter from David E. Shaw,
Ph.D., Chairman, D.E. Shaw & Co., to Jonathan G. Katz, Secretary,
SEC, dated January 9, 1996 (``D.E. Shaw Letter'') (rule will promote
transparency); Letter from Paul A. Merolla, Vice President,
Associate General Counsel, Goldman, Sachs & Co., to Jonathan G.
Katz, Secretary, SEC, dated January 26, 1996 (``Goldman Sachs
Letter'') (rule would benefit marketplace); Letter from Craig S.
Tyle, Vice President and Senior Counsel, Securities and Financial
Regulation, Investment Company Institute, to Jonathan G. Katz,
Secretary, SEC, dated January 16, 1996 (``ICI Letter'') (increased
transparency of customer limit orders in all markets could produce
benefits to the markets and investors); Letter from Donald L.
Crooks, Managing Director, Lehman Brothers, Inc., to Jonathan G.
Katz, Secretary, SEC, dated February 26, 1996 (``Lehman Letter'')
(rule promotes transparency and results in improved opportunities
for execution of customer orders); Letter from Bernard L. Madoff and
Peter B. Madoff, Bernard L. Madoff Investment Securities, to
Jonathan G. Katz, Secretary, SEC, dated January 12, 1996 (``Madoff
Letter'') (rule will help achieve true price discovery and fairness
to investors); Letter from Andrew E. Feldman, Director and Associate
General Counsel, Smith Barney Inc., to Jonathan G. Katz, Secretary,
SEC, dated January 29, 1996 (``Smith Barney Letter'') (rule will
promote transparency and assist in achieving best execution of
orders). But see Letter from Charles R. Hood, Senior Vice President
and General Counsel, Instinet, to Jonathan G. Katz, Secretary, SEC,
dated January 16, 1996 (``Instinet Letter'') (exceptions to rule
eliminate potential positive impact on transparency).
---------------------------------------------------------------------------
The Commission stresses, however, that the rule is not meant to
displace any SRO rules that provide additional order handling
protections to customer limit orders. Instead, the Commission rule
represents only a minimum display standard.
The Commission believes that limit orders are a valuable component
of price discovery. The uniform display of such orders will encourage
tighter, deeper, and more efficient markets. Limit orders convey buying
and selling interest at a given price. The display of limit orders can
be expected to narrow the bid-ask spread when this buying and selling
interest is priced better than publicly disclosed prices.49 Both
large and small orders stand to benefit from the Display Rule's effect
on price discovery.50 In fact, the importance of
[[Page 48295]]
limit orders in the trading process was documented in recent
studies.51 The author quantified the impact of exposing limit
orders on quoted spreads and effective transaction costs. Using NYSE
data, he determined that the quote spreads resulting from participation
of the limit order book were approximately 4 to 6 cents smaller than
the spreads not set by the limit order book. Further, trading costs on
the NYSE were approximately 3-4 cents less per share on a ``round
trip'' transaction when both the purchase and the sale were executed
against the limit order book.52
---------------------------------------------------------------------------
\49\ For example, limit order trading allows investors the
opportunity to trade at prices superior to those represented by the
prevailing inside bid and offer. See NASD Study, supra note 21.
\50\ According to SuperDOT trade data analyzed by the
Commission's Office of Economic Analysis (``OEA''), customer limit
orders account for 50% of all NYSE customer trades originating from
orders routed through SuperDOT (``customer trades'') of 100-500
shares; 66% of all customer trades of 600-1,000 shares; 71% of all
customer trades of 1,100-3,000 shares; and 74% of all customer
trades of 3,100-9,900 shares. The Commission believes that these
high percentages are based, at least in part, on the fact that limit
orders routed through SuperDOT are required to be displayed in the
specialist's quote. The Commission believes that these percentages
help demonstrate the benefits associated with limit order display
for both large and small order sizes. In addition, OEA data shows
that NYSE customer limit orders routed through SuperDOT narrow the
NYSE quote 22% of the time and match the quote 39% of the time for
customer limit orders of 100-1,000 shares; narrow the quote 17% of
the time and match the quote 43% of the time for customer limit
orders of 1,100-3,000 shares; and narrow the quote 14% of the time
and match the quote 46% of the time for customer limit orders of
3,100-9,900. OEA data also shows that, when the NYSE bid-ask spread
was \1/4\ point or more, customer limit orders routed through
SuperDOT narrow the NYSE spread between 41% and 50% of the time,
depending on the size of the customer order.
\51\ See Jason T. Greene, The Impact of Limit Order Executions
on Trading Costs in NYSE Stocks (An Empirical Examination), December
1995 (``Greene Study''); see also Jason T. Greene, Limit Order
Executions and Trading Costs for NYSE Stocks, June 1996 (``Greene
Study II'').
\52\ The Commission further believes that the display
requirement will improve price transparency in securities with
diverse trading characteristics. Based on SuperDOT trade data, the
Commission's OEA has determined that for NYSE securities with an
average daily trading value (``ADTV'') of under $100,000, customer
limit orders account for 57% of all NYSE customer trades originating
from orders routed through SuperDOT (``customer trades'') of 100-500
shares; 69% of all customer trades of 600-1,000 shares; 76% of all
customer trades of 1,100-3,000 shares; and 83% of all customer
trades of 3,100-9,900 shares. Limit orders also are frequently used
for securities with higher ADTVs. For example, for NYSE securities
with an ADTV of over $5,000,000, customer limit orders account for
48% of all NYSE customer trades of 100-500 shares; 68% of all
customer trades of 600-1,000 shares; 72% of all customer trades of
1,100-3,000 shares; and 73% of all customer trades of 3,100-9,900
shares. Moreover, OEA data shows that for NYSE securities with an
ADTV of under $100,000, customer limit orders routed through
SuperDOT narrow the NYSE quote 30% of the time and match the quote
32% of the time. For less liquid securities, therefore, the display
of customer limit orders narrows spreads, improves price discovery,
and increases market depth. For NYSE securities with an ADTV of
$5,000,000 or more, customer limit orders routed through SuperDOT
narrow the NYSE quote 18% of the time and match the quote 41% of the
time.
The NASD has suggested that the greater the size of the
displayed spread, the greater the use of limit orders. See NASD
Study, supra note 21.
---------------------------------------------------------------------------
The uniform display of limit orders also will lead to increased
quote-based competition. Market makers will not only be competing
amongst themselves, but also against customer limit orders represented
in the quote. The Commission believes that this result will reduce the
possibility of certain trading behavior on Nasdaq that was recently the
subject of a Commission investigation.\53\ As reported in the 21(a)
Report, Nasdaq market makers widely adhered to a ``pricing
convention,'' whereby Nasdaq market makers maintained artificially
inflexible quotations and as a result often traded with the public at
prices unduly favorable to such market makers.\54\ In addition, the
Commission determined that Nasdaq market makers adhered to a ``size
convention'' that deterred Nasdaq market makers from narrowing their
quotes to create a new inside market unless the market makers were
willing to trade at least 2,000 to 5,000 shares at that price, rather
than the minimum quotation size as determined by NASD rules.\55\ This
practice prevented the dissemination of improved quotes when a trader
sought to trade stock only at a size equal to the minimum quotation
size. Thus, the true buying and selling interest in a given security
was not reflected in the published quotes.
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\53\ See 21(a) Report, supra note 28. The investigation
identified a number of practices in the Nasdaq market that are
similar to practices identified in the 1963 Special Study. See SEC,
Report of Special Study of Securities Markets (1963). For example,
the 1963 Special Study discussed cooperation and information sharing
between traders, as well as other non-competitive practices. Id. at
pt. 2, 576-577.; See also Competitive Impact Statement of the U.S.
Department of Justice Antitrust Division, United States v. Alex.
Brown & Sons, et. al., (S.D.N.Y. 1996).
\54\ As a result of this convention, most Nasdaq stocks were
quoted only in increments of \1/4\. Under the convention, stocks
with a dealer spread of \3/4\ or more would only be quoted in even-
eighths (i.e., \1/4\, \1/2\, \3/4\), thereby giving rise to a
minimum inside spread of \1/4\. Stocks with dealer spreads less than
\3/4\ would be quoted in both even and odd-eighths, thereby allowing
a minimum inside spread of \1/8\. The pricing convention
significantly limited the flexibility and competitiveness of price
quotations in the Nasdaq market.
\55\ See 21(a) Report, supra note 28.
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In addition to the Commission's actions, and those of the
Department of Justice in connection with its investigation of the
Nasdaq market, the Commission believes the requirement to display
customer limit orders in market maker quotes would inhibit market
makers from engaging in the conduct described above. Moreover, the
display of limit orders reduces the potential for certain other conduct
described in the 21(a) Report, including market maker collaboration and
coordination of trade and quote activities. Market makers will be less
able to improperly coordinate such behavior due to the display of
competing customer order flow and the resulting transparency of
ultimate buying and selling interest. The Commission believes that the
display requirement will both foster renewed quote-based competition
among market makers and introduce new competition from customer limit
orders.
The Commission also believes that overall market liquidity should
be enhanced due to the increased trading volume that is expected to
result from the display of limit orders.\56\ As noted previously,
customer limit orders account for a significant percentage of total
customer orders on the NYSE, where customer limit orders generally are
required to be displayed when they represent a better price.\57\
Moreover, previous Commission initiatives designed to enhance
transparency have resulted in increased competition and liquidity for
the markets.\58\
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\56\ See Greene Study and Greene Study II, supra note 51 (limit
orders affect the quoted spread, provide liquidity to traders that
demand immediacy of execution, and may contribute to reduced trading
costs); NASD Study, supra note 21 (the liquidity supplied by limit
orders reduces trading costs of market participants); OEA Data,
supra notes 50 and 52 (limit orders narrow spreads, improve price
discovery, and increase market depth).
\57\ See OEA Data, supra notes 50 and 52.
\58\ See Market 2000 Study at Study IV. See also discussion at
section III.A.b.iii., infra; Simon & Colby The National Market
System For Over-The-Counter Stocks (``Simon and Colby''), 55 Geo.
Wash. L. Rev. 17 (1986).
---------------------------------------------------------------------------
Customers also will be better able to monitor the quality of their
executions. Currently, the failure to display limit orders often
results in inferior or missed executions for these orders. The
Commission has received frequent complaints from customers whose limit
orders have not been filled while other executions are reported at
prices inferior to their limit order prices. Requiring the display of
customer limit orders in specialist and market maker quotes, although
not guaranteeing that such limit orders will be executed, will help
ensure that other orders are not executed at inferior prices until
better priced limit orders are executed. Similarly, customers entering
market orders will be able to determine whether their orders are
receiving the best price available. Customers also will be in a better
position to compare the execution quality provided by different broker-
dealers.\59\
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\59\ The Commission notes that if the Display Rule leads some
market makers to charge commissions for handling limit orders,
Commission rules require disclosure of such charges. See 17 CFR
240.10b-10.
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The absence of a uniform limit order display requirement across all
markets has contributed to the controversy among market participants
regarding the availability of true price improvement
[[Page 48296]]
opportunities. Many claim that ``hidden'' limit orders in exchange
markets contribute to distorted price improvement figures for these
markets.\60\ This potential distortion also hinders a customer's
ability to monitor execution quality. Pursuant to the Display Rule, the
vast majority of limit orders will be publicly disclosed, thus enabling
a more accurate comparison of price improvement opportunities, and
enabling customers and broker-dealers to make more informed order
routing decisions.\61\
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\60\ See James J. Angel, Who Gets Price Improvement on the
NYSE?, Working Paper, December 1994. In studying the availability of
price improvement on the NYSE, the author noted that over 18% of the
market orders that were price improved were filled by SuperDOT limit
orders. Based on this percentage, the author estimated the
percentage of orders price improved by ``hidden'' limit orders and
determined that if such limit orders were represented in the
specialist's quote rather than ``hidden,'' spreads would have been
narrower and NYSE price improvement statistics would have declined.
See also, McInish & Wood Study, supra note 46; Mitchell A. Petersen
& David Fialkowski, Posted Versus Effective Spreads: Good Prices or
Bad Quotes, 35 J. Fin. Econ. 269 (1994) (the fact that so many
orders execute inside the posted spreads indicates that quotes do
not represent the true supply and demand of a given security, and
may be based, in part, on the failure to display public limit order
interest in the quote). Cf. Ross, Shapiro and Smith, supra note 17
(although the authors did not examine limit orders in detail, and
discounted the effect of ``hidden'' limit orders on their
statistics, the authors found that limit orders provide 27% of the
price improvement afforded to SuperDOT market order volume).
\61\ See, e.g., Amex Letter (rule would help eliminate hidden
limit orders); Letter from Frederick Moss, Chairman of the Board,
CSE, to Jonathan G. Katz, Secretary, SEC, dated January 16, 1996
(``CSE Letter'') (elimination of hidden limit orders will eliminate
illusion of superior price improvement); Letter from Harold S.
Bradley, Vice President and Director of Trading, Investors Research
Corporation, to Jonathan G. Katz, Secretary, SEC, dated January 13,
1996 (``Investors Research Letter'') (hidden limit orders are not
justified).
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Moreover, the Commission believes that the display of limit orders
will benefit orders routed to automated execution systems. To the
extent these systems execute orders at prices based on the best
displayed quotation for a particular security,\62\ customers whose
orders are executed through these systems will receive the benefit of
prices that more accurately reflect buying and selling interest in the
market.
---------------------------------------------------------------------------
\62\ Compare discussion of best execution at section III.C.2.
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In sum, the Commission believes the adoption of the Display Rule is
an important step in furthering the goals expressed by Congress in the
1975 Amendments. The Display Rule will provide enhanced opportunities
for public orders to interact with other public orders, consistent with
congressional goals.63 In addition, the display requirement will,
among other things, narrow quotes, enhance market liquidity, and
improve an investor's ability to monitor the quality of its
executions.64 This will create a better environment for execution
of both limit and market orders without the participation of a dealer.
The increased order interaction will result in quicker and more
frequent executions of customer limit orders. The Display Rule,
therefore, will increase the likelihood that limit orders will be
executed, a result that the Commission believes is consistent with the
duty of best execution.
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\63\ See 15 U.S.C. 78k-1(a)(1)(C)(v).
\64\ The Commission notes that a few commenters are concerned
about the potential effects of the Commission's proposals on
institutional customers. See Goldman Sachs Letter; Letter from
Howard J. Schwartz, Chairman and Chief Executive Officer, and James
Hanrahan, Managing Director--Trading, Lynch, Jones & Ryan, Inc., to
Jonathan G. Katz, Secretary, SEC, dated February 9, 1996 (``LJR
Letter''); Letter from A.B. Krongard, Chairman, SIA Board of
Directors, and Bernard L. Madoff and Robert Murphy, Co-Chairmen,
Order Execution Committee, Securities Industry Association, to
Jonathan G. Katz, Secretary, SEC, dated February 26, 1996 (``SIA
Letter''). The Commission believes that the Display Rule will
benefit both retail and institutional customers, while preserving
the access to the markets that institutional customers have today.
For example, an institutional customer's block size limit order
would not be subject to the rule unless such customer requests that
the order be displayed. Moreover, any customer, whether individual
or institutional, can request that its non-block size limit order
not be displayed. The Commission also notes that increased quote
competition and enhanced transparency should improve the prices at
which institutions and market makers begin their negotiations for
the execution of institutional orders. See also 21(a) Report, supra
note 28.
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b. Response to Comments 65
The Commission proposed Rule 11Ac1-4 to establish minimum display
requirements for customer limit orders that improve a specialist's or
OTC market maker's best bid or offer for a particular security as well
as the size of such orders. In addition, the rule requires the display
of the size of certain limit orders priced at the national best bid or
offer (``NBBO''). Although the rule generally would mandate the display
of limit orders, market makers and specialists still would retain some
flexibility in handling limit orders accepted for execution.
---------------------------------------------------------------------------
\65\ For further discussion of the views of commenters, see the
Summary of Comments, supra note 4.
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Specifically, the rule allows an OTC market maker or specialist,
immediately upon receipt of a limit order, to: (1) Change its quote and
the size associated with its quote to reflect the limit order; (2)
execute the limit order; (3) deliver the limit order in an exchange- or
association-sponsored system that complies with the requirements of the
rule; or (4) send the limit order to another market maker or specialist
who complies with the requirements of the rule. The rule would require
a specialist or OTC market maker to display a customer limit order when
the order was ``held'' by the specialist or OTC market maker. If the
specialist or OTC market maker immediately sends the order to a system
or to another specialist or OTC market maker that complies with the
rule, the specialist or OTC market maker that routed the order would
have satisfied its obligation to display the order. These alternatives
are intended to allow market makers, specialists, and market centers an
opportunity to continue to provide their valuable services while
offering customers the best available execution opportunities.
The Display Rule as adopted maintains these alternatives as
proposed. Additionally, to better achieve its aims and to respond to
comments, the Commission has made some modifications to the proposed
rule. For example, the Commission has decided to permit a specialist or
OTC market maker to deliver a limit order to certain ECNs as an
alternative to representing the limit order in its quote. This change
is an extension of the proposed exception that permits a specialist or
OTC market maker to deliver a limit order to an exchange- or
association-sponsored system that complies with the Display Rule.
Moreover, with regard to implementation of the rule, the Commission is
providing for a four-stage phase-in over a one year period for non-
exchange-traded securities.
Of the commenters who specifically addressed the proposed Display
Rule, an overwhelming majority strongly support the inclusion of
customer limit orders in the quote.66 One commenter
[[Page 48297]]
notes that true price discovery and fairness for public investors can
only be achieved when limit orders are reflected in the NBBO.67
Other commenters, expressing strong support for the proposed rule,
believe that market-wide limit order procedures will improve the
markets by enhancing overall market transparency 68 and
eliminating the advantages derived by some markets from hidden limit
orders.69 The Department of Justice states that the proposed rule
encourages quote competition, which is likely to reduce spreads,70
and allows customer orders to interact with one another.71 In this
regard, several commenters recognize that the proposed rule would
assist in achieving best execution of customer orders 72 by
increasing the opportunities for execution of limit orders, and
improving the prices for market orders.73 Another commenter states
that the proposed rule is consistent with investor expectations and
will act to protect retail customer interests.74
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\66\ See, e.g., Amex Letter; Letter from Marshall E. Blume,
Director, Howard Butcher Professor of Financial Management, The
Wharton School of the University of Pennsylvania, to Jonathan G.
Katz, Secretary, SEC, dated January 11, 1996 (``Blume Letter'');
Letter from George W. Mann, Jr., Senior Vice President and General
Counsel, BSE, to Jonathan G. Katz, Secretary, SEC, dated January 26,
1996 (``BSE Letter''); Letter from Robert H. Forney, CHX, to
Jonathan G. Katz, Secretary, SEC, dated January 23, 1996 (``CHX
Letter''); D.E. Shaw Letter; Letter from Antitrust Division, U.S.
Department of Justice, to SEC, dated January 26, 1996 (``DOJ
Letter''); Letter from Preston Estep, Estep Trading Partners L.P.,
to Jonathan Katz, Secretary, SEC, dated December 21, 1995 (``Estep
Letter''); Goldman Sachs Letter; ICI Letter; Lehman Letter; Madoff
Letter; Letter from William A. Lupien, Chairman and Chief Executive
Officer, Mitchum, Jones & Templeton, Inc., to Jonathan G. Katz,
Secretary, SEC, dated January 8, 1996 (``MJT Letter''); Letter from
Joseph R. Hardiman, President, National Association of Securities
Dealers, Inc., to Jonathan G. Katz, Secretary, SEC, dated January
26, 1996 (``NASD Letter''); Letter from James E. Buck, Senior Vice
President and Secretary, NYSE, Inc., to Jonathan G. Katz, Secretary,
SEC, dated January 15, 1996 (``NYSE Letter''); Letter from David S.
Pottruck, President and Chief Operating Officer, The Charles Schwab
Corporation, to Jonathan G. Katz, Secretary, SEC, dated May 7, 1996
(``Schwab Letter II''); SIA Letter; Letter from William R. Rothe,
Chairman, and John L. Watson III, President, Security Traders
Association, to Jonathan G. Katz, Secretary, SEC, dated January 15,
1996 (``STA Letter''); Letter from John F. Luikart, President and
Chief Executive Officer, Sutro & Co., to Jonathan Katz, Secretary,
SEC, dated January 16, 1996 (``Sutro Letter'').
\67\ Madoff Letter.
\68\ See, e.g., Amex Letter; CHX Letter; CSE Letter; D.E. Shaw
Letter; ICI Letter; Investors Research Letter; Lehman Letter; Smith
Barney Letter.
\69\ See, e.g., Amex Letter (rule would help eliminate hidden
limit orders); CSE Letter (elimination of hidden limit orders will
eliminate illusion of superior price improvement); Investors
Research Letter (hidden limit orders are not justified).
\70\ DOJ Letter.
\71\ Id; see also Amex Letter; Lehman Letter.
\72\ See, e.g., Lehman Letter; Smith Barney Letter.
\73\ Lehman Letter.
\74\ D.E. Shaw Letter.
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Other commenters oppose the proposal. Several commenters in this
group have raised the following general concerns regarding the proposed
rule.
i. Distinction Between Markets
Several commenters argue that the Display Rule does not take into
account distinctions between auction and dealer markets. Some of these
commenters, discussing the Proposing Release as a whole, argue that the
Commission's proposals would ``auctionize'' the dealer market.75
One commenter warns that, because auction and dealer markets are
fundamentally different, a single set of rules for both auction and
dealer markets would reduce quote quality and damage overall market
integrity in dealer markets.76 Although the SIA reports that the
consensus view of its Ad Hoc Committee on Order Execution is to require
a market maker to reflect customer limit orders in the quote, the SIA
argues that the adoption of the proposed rule, without suggested
modifications, could adversely affect the dealer market so as to weaken
competition between dealer and auction markets.77
---------------------------------------------------------------------------
\75\ See, e.g., Letter from R. Steven Wunsch, President, AZX,
Inc., to Jonathan G. Katz, Secretary, SEC, dated January 15, 1996
(``AZX Letter''); Goldman Sachs Letter; Letter from David Rich, Vice
President, Jefferies & Company, Inc., to Jonathan G. Katz,
Secretary, SEC, dated January 25, 1996 (``Jefferies Letter'');
Letter from Robert W. Murphy, President, RPM Specialist Corporation,
to Jonathan G. Katz, Secretary, SEC, dated February 26, 1996 (``RPM
Letter''); Letter from Robert A. Schwartz, Professor of Finance and
Economics, and Yamaichi Faculty Fellow, Leonard N. Stern School of
Business, New York University, and Robert A. Wood, Distinguished
Professor of Finance, Fogelman College of Business and Economics,
University of Memphis, to Jonathan G. Katz, Secretary, SEC, dated
January 23, 1996 (``Schwartz & Wood Letter''); SIA Letter.
\76\ RPM Letter.
\77\ SIA Letter. Cf. Letter from A.B. Krongard, Chairman, SIA
Board of Directors, and Bernard L. Madoff, Chairman, Trading
Committee, to Jonathan G. Katz, Secretary, SEC, dated August 1, 1996
(``SIA NAqcess Letter'') (the SIA, in its letter to the Commission
regarding the NASD's NAqcess proposal, states that the Commission's
Order Execution Obligations proposal would narrow quotation spreads,
improve transparency, and provide customers with best execution of
their orders, consistent with the 1975 Amendments).
---------------------------------------------------------------------------
The Commission believes that the application of the principles
underlying the limit order display rule to the dealer market is neither
a new nor radical concept. In 1975, Congress envisioned an NMS in which
public limit orders in qualified securities would have a central
role.78 Congress anticipated that the NMS would make all
specialists and market makers aware of public customer limit orders
held anywhere in the system, and provide enhanced protection and
priority for limit orders in stocks qualified for trading in a national
market system.79 The Commission has consistently recognized since
1975 that, in order to satisfy this Congressional vision, multiple-
market display of limit orders was an important component for qualified
securities.80 More recently, the Market 2000 Study recommended
that the SROs, including the NASD, consider requiring the display of
customer limit orders,81 and the NASD, in a proposed rule change
filed with the Commission, proposed that CQS market makers display in
their quotes certain customer limit orders for exchange-listed
securities traded OTC.82 The NASD also has proposed a mechanism
for the display and protection of customer limit orders in Nasdaq
securities.83
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\78\ Senate Report, supra note 31.
\79\ Id. The Senate Report stressed the need to establish a
mechanism by which specialists and market makers could be made aware
of customer orders within the NMS. The Senate Report was ``satisfied
that [the legislation] grant[ed] the Commission complete and
effective authority to implement a system for the satisfaction of
public limit orders.'' Id. at 18.
\80\ See Securities Exchange Act Release No. 15671 (March 22,
1979), 44 FR 20360 (April 4, 1979) (Development of a National Market
System Status Report). See also Securities Exchange Act Release No.
18738 (May 13, 1982), 47 FR 22376 (May 24, 1982) (proposing limit
order display requirement for Rule 19c-3 securities).
\81\ Market 2000 Study, at IV-6.
\82\ See supra note 42.
\83\ See supra note 45.
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Although some commenters claim that the Commission is attempting to
``auctionize'' the dealer market, the display requirement is based on
transparency and agency concerns, including a broker-dealer's
obligation to provide its customers with best execution.84 The
display of customer limit orders will act to narrow spreads, improve
price discovery, and increase market depth. The enhanced transparency
resulting from the Display Rule will increase the likelihood that
customer limit orders will be executed, improve the execution prices of
market orders, and strengthen an investor's ability to monitor the
quality of executions.85 These results further several
Congressional goals.
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\84\ See NASD Study, supra note 21 (enhancements to limit order
handling, within the dealer market structure, will create
significant benefits for investors). See also Manning II, supra note
24 (Commission's extension of limit order protection to Nasdaq does
not suggest an intention to ``auctionize'' the dealer market).
\85\ See Senate Report, supra note 31 at 16-18 (discussing
desirability of incorporating certain auction market principles,
such as limit order display and protection, for certain qualifying
securities in dealer markets).
--------------------------------------------------
FR Doc. 96-23210 Order Execution Obligations
-------------------------
In keeping with Congressional intent, the Commission believes the
treatment of limit orders should reflect the very real changes in
market structure that have taken place since the enactment of the 1975
Amendments. These changes include the development of a robust, liquid
OTC dealer market that attracts significant investor trading interest,
that trades at many multiples of the volume extant in 1975, and that is
characterized by the inclusion of thousands of securities that meet the
NMS designation.86 In addition, the
[[Page 48298]]
Commission believes that application of the Display Rule should also
benefit investors in those securities that do not yet meet the NMS
designation.87 As noted earlier, the Commission believes that the
increased use of limit orders in these securities will lead to a
narrowing of spreads and ameliorate certain anti-competitive practices
that have developed in the Nasdaq market.88 The Commission has
determined that certain practices on Nasdaq have contributed to
artificially wide spreads for OTC securities.89 The display of
customer limit orders in all Nasdaq securities will promote accurate
pricing and convey the true buying and selling interest in such
securities.
---------------------------------------------------------------------------
\86\ To date, approximately 4,000 Nasdaq securities have
qualified for the NMS designation. In order to qualify as an NMS
security, transaction reports are required to be reported on a real-
time basis pursuant to an effective transaction reporting plan
approved by the Commission. See 17 CFR 240.11Aa2-1 and 11Aa3-1.
\87\ As discussed below, the Display Rule will apply only to
``covered securities.'' At the present time, the Commission does not
believe the rule should be extended to securities for which market
makers are not required to quote continuous firm two-sided markets,
such as OTC Bulletin Board securities.
\88\ See supra discussion at section III.A.2.a.
\89\ 21(a) Report, supra note 28.
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A few commenters believe that the Display Rule was proposed solely
to address problems in the OTC market, and accordingly there is no need
for a uniform rule applicable to exchange markets.90 As noted
previously, the Commission's intention is to create a minimum standard
for the handling of limit orders across all markets, consistent with
market transparency, competition, and best execution principles.
Currently, the national securities exchanges do not handle limit orders
uniformly, and in fact the non-display of retail-size limit orders is
permitted under certain circumstances. The rule will ensure that
investors benefit from the display of limit orders, no matter where an
order is sent for execution.91 A minimum standard also addresses
concerns regarding the prevalence of hidden limit orders.92 The
Commission believes, therefore, that a market-wide limit order display
requirement is most consistent with the duty of best execution and the
expectations of investors.
---------------------------------------------------------------------------
\90\ See, e.g., BSE Letter; NYSE Letter; RPM Letter; Letter from
David E. Humphreville, Executive Director, The Specialist
Association, to Jonathan G. Katz, Secretary, SEC, dated February 2,
1996 (``Specialist Assoc. Letter'').
\91\ See, e.g., Greene Study & Greene Study II, supra note 51.
\92\ See generally McInish & Wood Study, supra note 46 (hidden
limit orders result in, among other things, artificial price
improvement statistics and inferior order executions); Traders
Accuse Specialists of Holding Back Limit Orders, Investment Dealers'
Digest, 8, (February 14, 1994) (some traders have continued to
accuse NYSE specialists of hiding limit orders even after the NYSE
issued an Information Memo reminding specialists of their duties);
Greene Study and Greene Study II, supra note 51 (one explanation for
the significantly lower bid-ask spreads in the 1994-95 sample than
in the 1990 sample, and the increase in the percentage of
transactions at the quoted prices from the 1990 sample to the 1994-
95 sample, may be that NYSE specialists were more diligent in
reflecting the limit order book in their quotes as per Information
Memo 93-12); Amex Letter (rule would help eliminate hidden limit
orders); CSE Letter (elimination of hidden limit orders will
eliminate illusion of superior price improvement); Investors
Research Letter (hidden limit orders are not justified).
---------------------------------------------------------------------------
ii. Distinction Between Quotes and Orders
Some commenters maintain that the rule blurs the distinction
between quotations and orders.93 One commenter states that limit
orders represent only a finite trading interest while quotes represent
the ``actual'' market for a security; thus, displaying limit orders
would not reflect the ``true'' state of the market and impair the
quality of quotation information.94 The commenter suggests that a
separate limit order file would be more appropriate in light of these
distinctions.95 In this vein, several commenters mention the
NASD's proposed NAqcess system,96 suggesting that the Commission
postpone implementation of the Display Rule until the Commission has an
opportunity to assess the effects of NAqcess.97 A few commenters
suggest the implementation of an industry-wide consolidated limit order
book as an alternative or a logical outgrowth of the Display
Rule.98
---------------------------------------------------------------------------
\93\ See, e.g., Letter from Raymond L. Aronson, Senior Managing
Director, Bear, Stearns & Co. Inc., to Jonathan G. Katz, Secretary,
SEC, dated February 1, 1996 (``Bear Stearns Letter''); Instinet
Letter; Letter from Carol L. Cunniff, Executive Vice President,
Ruane, Cunniff & Co., Inc., to Jonathan G. Katz, Secretary, SEC,
dated February 23, 1996 (``Ruane Letter''); Letter from Charles R.
Schwab, Chairman and Chief Executive Officer, The Charles Schwab
Corporation, to Jonathan G. Katz, Secretary, SEC, dated January 25,
1996 (``Schwab Letter''). But see Schwab II Letter (supporting the
Display Rule).
\94\ Ruane Letter.
\95\ Id. See also Bear Stearns Letter (discussion of proposed
central limit order file for The Nasdaq Stock Market so as to
preserve distinction between dealer quotes and agency or proprietary
orders).
\96\ See supra note 45.
\97\ See, e.g., Letter from A.B. Krongard, Chief Executive
Officer, Alex. Brown & Sons, Inc., to Jonathan G. Katz, Secretary,
SEC, dated February 29, 1996 (``Alex. Brown Letter''); Letter from
Albert G. Lowenthal, Chairman of the Board, Fahnestock & Co., Inc.,
to Jonathan G. Katz, Secretary, SEC, dated January 15, 1996
(``Fahnestock Letter''); Jefferies Letter; Letter from Gerard S.
Citera, Deputy General Counsel, First Vice President, PaineWebber
Incorporated, to Jonathan G. Katz, Secretary, SEC, dated February 9,
1996 (``PaineWebber Letter''); Schwab Letter; STA Letter; Letter
from Charles Snow, Counsel, Securities Traders Association of New
York, to Jonathan G. Katz, Secretary, SEC, dated January 30, 1996
(``STANY Letter''); see also Letter from C. Robert Paul, III,
Associate General Counsel, Dean Witter Reynolds, Inc., to Jonathan
G. Katz, Secretary, SEC, dated January 31, 1996 (``Dean Witter
Letter''); Goldman Sachs Letter.
\98\ See, e.g., DOJ Letter; MJT Letter; Schwab Letter; Letter
from Junius W. Peake, Monfort Distinguished Professor of Finance,
University of Northern Colorado, to Jonathan G. Katz, Secretary,
SEC, dated January 15, 1996 (``Peake Letter''); Letter from Jeffrey
P. Ricker, CFA, to Jonathan G. Katz, Secretary, SEC, dated January
15, 1996 (``Ricker Letter''); Letter from Peter W. Jenkins,
Chairman, and Holly A. Stark, Vice Chairman, Institutional
Committee, Securities Traders Association, to Jonathan G. Katz,
Secretary, SEC, dated January 19, 1996 (``STAIC Letter'').
---------------------------------------------------------------------------
The Commission believes that the display of limit orders is an
essential component of accurate price discovery. A quote provides
market participants with information regarding a market maker's or
specialist's trading interest at a given price. A market maker or
specialist could be willing to purchase or sell additional shares above
its quoted size.99 Entry of a customer limit order that improves
the quote serves a similar purpose. A limit order accurately represents
trading interest for a specific volume of a security at the limit
price. There are few practical differences between customer limit
orders and a market maker's quotation that is firm only for its quoted
size. Nonetheless, the proposed rule was not intended to equate
customer limit orders with market maker quotes. Instead, the proposed
rule was designed to facilitate greater transparency of customer
trading interest, with the expectation that orders would have an
increased opportunity for best execution without the interaction of a
dealer. In the Commission's opinion, these objectives are more
difficult to achieve if customer trading interest is not routinely
represented in publicly displayed quotes. The Commission notes that the
Display Rule provides other means by which a market maker or specialist
may comply with the requirements of the rule in the event a specialist
or market maker elects not to display customer trading interest in its
quote.100
---------------------------------------------------------------------------
\99\ Under Commission rules, the market maker's quote is only
required to be firm up to its published size. See 17 CFR 240.11Ac1-
1(c)(2).
\100\ For example, a market maker or specialist may deliver a
customer limit order immediately upon receipt to another market
maker or specialist, or to an ECN or an exchange or association
sponsored system pursuant to the rule. Section 240.11Ac1-4(c) (5)
and (6).
---------------------------------------------------------------------------
Further, the Commission does not agree with the suggestion that the
Commission postpone the adoption of the Display Rule until the
Commission has had an opportunity to evaluate the NASD's NAqcess
proposal.101 Although
[[Page 48299]]
the NASD has argued that limit orders entered into NAqcess, as
proposed, would result in greater display of OTC limit order prices,
there is no assurance that market makers will enter such orders into
NAqcess rather than hold the orders internally.102 Therefore, the
Commission believes that the Display Rule is necessary to ensure
display of these orders in the OTC market.103 If approved, NAqcess
can assist in compliance with the Display Rule to the extent that the
system incorporates customer limit orders in the consolidated quote
stream, thereby allowing market makers to enter limit orders in NAqcess
rather than displaying limit orders in their quotes.104 As noted
earlier, the Commission has identified important benefits associated
with limit order display. Accordingly, the Commission believes that it
is not necessary to observe the effects of NAqcess in order to
determine the benefits of the limit order display requirement.
---------------------------------------------------------------------------
\101\ The Commission notes that the proposed NAqcess system is a
significant and controversial proposal which has generated
approximately 1,100 comment letters. The Commission is in the
process of reviewing the comments and has yet to decide what action
to take on the proposal.
\102\ See NAqcess Releases, supra note 45. As noted above, limit
orders not entered in NAqcess would be provided with market-wide
price protection.
\103\ In any event, NAqcess will not address at all the issues
of disparate limit order handling practices or hidden limit orders
in the exchange markets.
\104\ See Section 240.11Ac1-4(c)(5).
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iii. Liquidity
Several commenters assert that application of the Display Rule to
Nasdaq securities could reduce liquidity in the Nasdaq market.105
These commenters believe that market maker profits may decline due to
narrowed spreads or increased compliance costs, with the result that
many firms will decide not to make the necessary capital commitment to
continue their market making operations. The commenters conclude that
as the number of market makers in a security declines, liquidity will
be adversely affected, leading to wider spreads. Moreover, some
commenters believe that the decrease in liquidity will impair the
capital formation process, especially for securities that are not
mature enough for auction trading.106
---------------------------------------------------------------------------
\105\ See, e.g., Alex. Brown Letter; Bear Stearns Letter; Dean
Witter Letter; Letter from Robert F. Mercandino, Senior Vice
President, Dillon, Read & Co., Inc., to Jonathan G. Katz, Secretary,
SEC, dated March 15, 1996 (``Dillon Letter''); Jefferies Letter;
Lehman Letter; Letter from Robert J. McCann, Managing Director, Co-
Head, Global Equity Markets, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to Jonathan G. Katz, Secretary, SEC, dated January 26,
1996 (``Merrill Letter''); NASD Letter; PaineWebber Letter; Letter
from David P. Semak, Vice President Regulation, PSE, to Jonathan G.
Katz, Secretary, SEC, dated January 15, 1996 (``PSE Letter''); SIA
Letter.
\106\ See, e.g., NASD Letter; SIA Letter.
---------------------------------------------------------------------------
At least one commenter states that the usefulness of limit orders
could be diminished by the refusal of some market makers to accept such
orders, or by the imposition of high commission costs charged to recoup
lost profits on spreads.107 Other commenters believe, however,
that it will be difficult for market makers to increase their
commissions for limit orders.108 They believe commission charges
would not compensate for lost trading profits or prevent the ebb of
market liquidity.109
---------------------------------------------------------------------------
\107\ Letter from David K. Whitcomb, Professor of Finance and
Economics, Rutgers University Graduate School of Management, to
Secretary, SEC, dated January 12, 1996 (``Whitcomb Letter'').
\108\ See, e.g., Letter from Irving M. Pollack, Alan B.
Levenson, and Robert H. Rosenblum, Fulbright & Jaworski L.L.P., on
behalf of Herzog, Heine and Geduld, Inc., to Jonathan Katz,
Secretary, SEC, dated January 16, 1996 (``HHG Letter''); STA Letter.
\109\ Id.
---------------------------------------------------------------------------
Other commenters believe the proposed rule will not have a negative
impact on market liquidity. One commenter explicitly states that the
benefits of the proposed rule would outweigh any potential adverse
effects on liquidity.110 Another commenter says that the proposed
rule would not result in any significant reduction in market making
activity.111 The CSE notes that it has not noticed any negative
effects on market liquidity as a result of the implementation of its
own limit order display rule.112 Yet another commenter states that
although it currently does not trade OTC securities, it expects that
many market participants, including the commenter, would begin trading
such securities if the proposed rule was adopted, thereby increasing
market liquidity.113
---------------------------------------------------------------------------
\110\ Lehman Letter.
\111\ Letter from Daniel G. Weaver, Ph.D., Assistant Professor
of Finance, Marquette University, to Jonathan G. Katz, Secretary,
SEC, dated January 10, 1996 (``Weaver Letter'').
\112\ CSE Letter.
\113\ The commenter noted further that it does not currently
trade OTC securities because it cannot be sure that its order will
be represented to the whole market. Estep Letter.
---------------------------------------------------------------------------
The display of limit orders is designed, among other objectives, to
publicize accurate market interest and increase quote
competition.114 The Commission understands that certain costs,
including a diminution in market maker profits, are associated with
this increased market transparency. For example, a market maker that
holds a customer limit order has, in effect, a private ``option'' to
execute the order as principal. The longer this ``option'' remains
open, the more time the market maker has to determine whether it can
profit from executing the order as principal.115 This private
market maker ``option,'' however, is potentially detrimental to the
execution opportunities for the limit order. The Display Rule will
limit this ``option'' and expose the order to market-wide trading
interest. Moreover, increased price competition from limit orders may
reduce market maker profits through the narrowing of spreads.116
As a result, the Display Rule may force less efficient competitors to
stop making markets in some of the securities they now quote.
---------------------------------------------------------------------------
\114\ See Market 2000 Study, at Study IV.
\115\ The Commission recognizes that there is also a cost
associated with holding that limit order, because a market maker is
required to execute that limit order if it has engaged in a
transaction for its own account that would have satisfied the limit
order. See Manning I & II, supra note 24.
\116\ See supra notes 53-55 and accompanying text (display of
customer limit orders in market maker quotes will act to eliminate
certain trading behavior on Nasdaq and foster quote competition).
---------------------------------------------------------------------------
Although the rule could lead to a reevaluation by some market
makers of the services they wish to provide, after considering the
available evidence, and in light of its experience, the Commission does
not believe that there will be a significant negative impact on the
markets for covered securities. The Commission is not convinced that
the loss of some market competitors in securities with many market
makers would impair liquidity in these securities.117 The
Commission believes that customer orders are the ultimate source of
liquidity to the markets, and that adoption of a rule that improves the
handling of such orders will have the effect of enhancing market
liquidity.118 The Commission believes that a limit order display
requirement will encourage new limit orders in securities to be
entered, thus providing additional liquidity to the market from
customers.119 The potential of limit orders to narrow quotes also
may encourage the entry of additional market
[[Page 48300]]
orders.120 The Commission believes that the additional liquidity
due to narrower spreads and increased customer orders will outweigh any
potential loss of liquidity provided by market makers.
---------------------------------------------------------------------------
\117\ See, e.g., STAIC Letter (limit orders are critical to
market liquidity).
\118\ The Commission does not thereby denigrate the contribution
OTC market makers provide in a dealer market. The Commission notes,
however, that most market makers provide primarily intra-day
liquidity to customers, and generally seek to end the trading day
with a limited inventory position in order to minimize inventory
risk. Customer limit orders represent buying or selling interest at
specified prices for their stated duration, which may be longer than
intra-day. Market makers holding customer limit orders rely in part
on these limit orders in quoting their own prices to buy and sell
securities.
\119\ See Greene Study & Greene Study II, supra note 51 (limit
orders affect the quoted spread and provide liquidity); NASD Study,
supra note 21 (limit orders, like market maker quotes, supply
liquidity to the markets); OEA Data, supra notes 50 and 52.
\120\ See NASD Study, supra note 21 (those investors that demand
immediate execution, e.g. those entering market orders, will pay
less for executions due to the augmented liquidity supplied by limit
orders); Greene Study and Greene Study II, supra note 51 (limit
orders provide liquidity to traders that demand immediacy of
execution and may contribute to reduced trading costs); OEA Data,
supra notes 50 and 52 (display of limit orders narrows spreads,
improves price discovery, and increases market depth for a variety
of securities, including those NYSE securities that are thinly
traded).
---------------------------------------------------------------------------
As noted above, some commenters expressed concern regarding the
effect of the Display Rule on the availability of liquidity to small
issuers.121 In response to these comments, the Commission's OEA
examined market maker participation in 4,839 Nasdaq issuers over a one
month period in 1996. The findings indicate that: (1) the median number
of market makers in a security is not appreciably lower for initial
public offering (``IPO'') issuers or for securities with the smallest
market capitalization; (2) broker-dealers that participated in IPO
underwriting syndicates were active participants in aftermarket
trading, but were not alone in providing significant market maker
liquidity; and (3) in Nasdaq securities with the smallest market
capitalization ($2 million or less), the single most active market
maker in an issue typically participated in one-third or fewer trades.
Thus, there is no convincing evidence that Nasdaq issuers, including
IPO issuers, are dependent for liquidity on any one market maker. The
pattern of market making activity indicates that significant liquidity
is provided by market makers who are not the ``most active'' market
makers in a security. Because there does not appear to be high
concentration in market making, and because of the Commission's belief
that customer order flow is a critical source of market liquidity, the
Commission believes that the proposals adopted today will not unduly
impact liquidity for small or new issuers.
---------------------------------------------------------------------------
\121\ This concern also was raised in the context of the ECN
Amendment to the Quote Rule.
---------------------------------------------------------------------------
Furthermore, Commission experience has been that enhancements to
transparency result in improved liquidity.122 The Commission
believes that these improvements are attributable, at least in part, to
the impact of transparency on market integrity and investor confidence.
In addition, while market maker profits per trade may be reduced as
spreads are narrowed, increased volume over time may result in stable
profit levels.123
---------------------------------------------------------------------------
\122\ In several instances in the past, commenters have claimed
that other Commission initiatives to increase transparency would act
to reduce liquidity; others have warned that such initiatives would
decrease the competitiveness of the U.S. markets in relation to
foreign counterparts. These claims, however, have not been borne
out. For example, many industry participants argued that the NASD's
adoption of its ``Manning'' rules would severely impact market
liquidity. See Market 2000 Study. However, there has been no
evidence offered to the Commission of adverse liquidity consequences
caused by these limit order protections, and the Commission is not
aware of any significant diminution in liquidity. Further, as
discussed in the Market 2000 Study, other transparency initiatives,
such as the adoption of real-time transaction and quotation
reporting, have resulted in increases in the competitiveness and
liquidity of both listed and OTC equity markets despite market maker
protestations to the contrary prior to adoption of these
initiatives. See Id. at Study IV. See also Simon & Colby, supra note
58. Even the creation of Nasdaq itself was met with much opposition.
The result of this major structural change was far from the
predicted ``death knell'' of the OTC market. Rather, OTC market
strength and liquidity have flourished since Nasdaq's inception.
Based on the Commission's experience with other market structure
initiatives, therefore, the Commission believes that improvements in
order handling, market transparency, and efficiency will likely
improve market liquidity.
\123\ Although the display requirement may decrease a market
maker's per trade profit due to narrowed spreads, the Commission
believes that this decrease will be made up for in part by expected
increases in trading volume attributable to enhanced liquidity and
pricing efficiency. See supra note 24. The Commission believes this
potential impact on market maker profits is justified in light of
the benefits that will accrue to investors and the markets as a
whole. Moreover, even if market makers' profits from trading do
decline, market makers may be able to obtain increased revenues from
commissions or other fees charged directly to customers. Because
these other revenue sources are more transparent to customers than
are revenues from market maker trading with customers on a
proprietary basis, increased reliance on these other revenue sources
will enable customers to make more informed trading decisions.
---------------------------------------------------------------------------
It also may become feasible for market makers to charge customers
commissions for handling limit orders, even if that is not the current
practice today. As noted earlier, some commenters claim that the
Display Rule will have a disparate impact on wholesale Nasdaq market
makers in that such market makers would not be able to offset the
increased costs associated with limit order display through charges or
commissions.124 The Commission believes, however, that the systems
costs associated with the Display Rule should not be overly
burdensome,125 nor should systems costs or any reduced market
maker profitability from declining spreads be more extensive for
wholesale market makers than for integrated market makers. Although
exchange specialists and integrated firms may find it easier than
wholesale firms to charge commissions initially, the Commission notes
that wholesale firms are not prohibited from attempting to compensate
for handling limit orders, either through negotiated fee arrangements,
or reducing any payment made for order flow for limit orders.126
---------------------------------------------------------------------------
\124\ See, e.g., HHG Letter.
\125\ See Memorandum from Stephen L. Williams, S.L. Williams Co.
to Richard R. Lindsey, Director, Division of Market Regulation, SEC
(July 29, 1996) (``Williams Study'').
\126\ The level of these fees, of course, would be determined by
competitive forces in the marketplace. Any fees passed on to non-
broker-dealer customers would have to be disclosed in a clear
fashion to the customer, and otherwise comply with applicable law.
For example, NASD Rule 2440 states, in part, that if a member acts
as agent for a customer in a transaction, the customer shall not be
charged more than a fair commission or service charge, taking into
consideration all relevant circumstances. See also NASD Regulatory &
Compliance Alert Vol. 7, No. 4 (December 1993). At least one
commenter argued that because spreads are ascertainable from public
quotations and commissions are not, a rule that encourages charging
commissions does not satisfy the goal of increased transparency. See
Letter from Bruce C. Hackett, Managing Director, Salomon Brothers
Inc., to Jonathan G. Katz, Secretary, SEC, dated January 25, 1996
(``Salomon Letter''). The Commission notes, however, that Rule 10b-
10 under the Exchange Act requires customer confirmations to
disclose commissions and, for listed and Nasdaq securities, the
difference between the reported price and the price to the customer.
Based on this disclosure, execution costs could actually become
better known to customers if explicit fees are charged. Therefore,
the Commission believes that the Display Rule will allow a customer
to more easily monitor the execution quality of its limit orders,
even if subject to fees for limit order executions. In addition,
this situation should foster competition with respect to the amount,
if any, firms will charge for the execution of a customer limit
order.
---------------------------------------------------------------------------
iv. Discretion
Several commenters are concerned that the Display Rule would
eliminate their discretion to determine the best way in which to
execute a customer's order. The commenters also claim that customers
rely on the judgment of a market professional in choosing whether to
display a limit order.127 For example, the NYSE believes that its
current procedures allow broker-dealers to achieve the best prices for
their customers.128 Other commenters suggest that if the rule were
amended to require the display of representative size, a dealer would
retain some discretion on
[[Page 48301]]
how best to execute the order.129 To preserve discretion, at least
one commenter argues that the rule should apply only when the customer
requests that its order be displayed.130
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\127\ See, e.g., NYSE Letter; RPM Letter; Specialist Assoc.
Letter.
\128\ See, e.g., NYSE Letter; Specialist Assoc. Letter.
According to the NYSE, a customer can choose to benefit from the
display of its order or to benefit from relying on the specialist's
discretion, depending on whether the order is sent to the post via
SuperDOT, or is manually submitted. The NYSE also notes that
enabling a specialist to use discretion in the handling of limit
orders is important in light of the fact that the NYSE defines a
limit order as an order to buy or sell at a specified price, or at a
better price, if obtainable after the order is represented in the
trading crowd. See NYSE Rule 13.
\129\ See, e.g., Madoff Letter; NASD Letter; SIA Letter.
\130\ Jefferies Letter.
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The Commission believes that the rule appropriately establishes a
presumption that limit orders should be displayed, unless such orders
are of block size, the customer requests that its order not be
displayed, or one of the exceptions to the rule applies. The exception
allowing a customer to request that its limit order not be displayed
gives the customer ultimate control in determining whether to trust the
display of the limit order to the discretion of a market professional,
or to display the order either in full, or in part, to other potential
market interest.131
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\131\ See discussion of the exceptions to the Display Rule at
section III.A.3.c., infra. See also Sec. 240.11Ac1-4(c)(2);
Sec. 240.11Ac1-4(c)(4) (permitting a customer with a block size
limit order to request that the order be displayed pursuant to the
Display Rule). The Commission does not mean to imply that a
specialist or OTC market maker that is not displaying a limit order
pursuant to the request of its customer may not change its quotation
in that security based on the specialist's or market maker's own
trading interest.
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v. Systems Burdens
Based on their belief that compliance with the Display Rule would
result in a large increase in quotation traffic, a number of commenters
maintain that the rule would require major overhauls of the order
handling systems used by brokers, market makers and markets. For
example, one commenter believes that it would be impossible to comply
with the rule without additional automated systems.132 The
commenter concludes that the costs associated with new systems and
additional staff necessary to monitor a more volatile market would
contribute to wider spreads and higher commissions.133 In
addition, one SRO claims that quotation traffic must be kept at
manageable levels in order to allow entities to continue to manually
process limit orders, thus eliminating the need for entities to bear
the costs associated with automation of such orders.134 Other
commenters also note their concern over the potential operational costs
associated with the rule.135 The STA states that an in-depth
review is needed to determine the costs for new equipment and
technology necessary to comply with the rule.136
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\132\ PaineWebber Letter.
\133\ Id.; see also Bear Stearns Letter (noting that the display
rule would increase the volatility of quotes and, as a result,
market makers would have a difficult time keeping up with the rapid
changes in bids, offers, and quote sizes).
\134\ PSE Letter.
\135\ See, e.g., Alex. Brown Letter; Bear Stearns Letter;
Jefferies Letter.
\136\ STA Letter.
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A few commenters are concerned that the increased quotation traffic
that may be associated with the rule could pose a threat to the
integrity of the central quotation system.137 One commenter
suggests that the rule be suspended for the first 30 minutes of
trading.138 Another commenter argues that modifying the rule to
require only the display of representative size could act to alleviate
some of the traffic concerns.139
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\137\ See, e.g., Letter from Thomas J. Jordan, Financial
Information Forum, to Jonathan G. Katz, Secretary, SEC, dated
January 12, 1996 (``FIF Letter''); PaineWebber Letter; PSE Letter.
This concern was expressed with respect to the proposal that the
Commission adopt both the Display Rule and Price Improvement Rule.
The fact that the Commission has deferred action on the Price
Improvement Rule, as discussed below, should substantially diminish
any system capacity concerns. Moreover, the Commission's decision
not to require display of de minimis orders also should minimize
system capacity concerns.
\138\ FIF Letter. According to FIF, the heaviest traffic volume
usually occurs within the first 30 minutes of trading.
\139\ PSE Letter. The PSE notes, however, that the rule, even if
modified, still may result in an increase in staffing costs. Id.
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The Commission recognizes that achieving greater transparency for
limit orders depends upon the existence of systems that are capable of
the smooth and efficient display of trading interest. The Commission
believes that the Display Rule will not substantially increase the
quotation burden for exchange markets, where systems currently exist
for the display of quotes.140 In the OTC market, the Display Rule
will result in additional quotation entries for market makers that
display customer limit orders in their quotes. The Commission believes,
however, that current systems can handle the additional volume, or can
be expanded at moderate cost to handle the additional volume.141
Further, the Commission notes that the Display Rule contains an
exception to the display requirement for limit orders of de minimis
size priced at the NBBO when the market maker's or specialist's quote
matches the NBBO.142 The Display Rule also allows a specialist or
OTC market maker several ways to comply with the rule by routing the
order elsewhere without displaying the limit order in its own quote by
transmitting a customer limit order to an exchange-or association-
sponsored system or to a qualifying ECN.
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\140\ For example, SuperDOT data indicates that 57% of all
customer trades originating from orders routed through SuperDOT are
limit orders. Of these limit orders, 20% narrowed the NYSE quote.
See supra note 52. According to the NYSE, 93% of such orders are
reflected in the NYSE quote within two minutes of receipt. See supra
note 36 and accompanying text (teleconference). See also CSE Letter
(costs associated with implementing such a system are minimal,
especially in light of the benefits to the public); Paperwork
Reduction Act discussion at section VII, infra.
\141\ The Commission notes that many small to medium broker-
dealers utilize shared trading systems that enable such broker-
dealers to streamline their OTC market making and back office
responsibilities. Subscribers to such systems benefit by sharing
costs associated with the application of improved technologies,
rather than creating and updating systems of their own. Therefore,
it is assumed that any changes deemed necessary to these shared
systems to facilitate efficient compliance with the Display Rule
also would be shared by all subscribers.
In addition, the Commission specifically evaluated the costs
associated with implementation of the Display Rule. Based on this
evaluation, the Commission concluded that most market makers will
not be required to invest substantial amounts of money in systems
development in order to comply with the Display Rule as adopted. See
Williams Study, supra note 125. See also CSE Letter (costs of
implementing a system for display of limit orders are minimal).
\142\ See, Sec. 240.11Ac1-4(b)(1)(ii). See also Sec. 240.11Ac1-
4(b)(2)(ii).
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Additionally, a few commenters believe that the Commission should
give more consideration to the Display Rule's impact on automatic
execution systems.143 These commenters express concern that a
market maker could be exposed to multiple transactions from its own
customers in the firm's automatic execution system, which executes
orders at the NBBO, even if the NBBO represents a customer limit order
as opposed to the price at which a market maker is willing to trade.
They claim this result is unfair, especially if the automatic system
has a minimum share requirement that exceeds the customer limit order.
---------------------------------------------------------------------------
\143\ See, e.g., Dillon Letter; HHG Letter; Merrill Letter;
PaineWebber Letter; Schwab Letter.
---------------------------------------------------------------------------
The Commission acknowledges the concern of some commenters
regarding the rule's interaction with automated execution systems.
However, because customer limit orders reflect actual trading interest,
it has been the Commission's intention to enhance customer order
executions throughout the markets by requiring the display of these
customer limit orders.144 Where a limit order represents the best
quote, a
[[Page 48302]]
market maker can respond by sending its customer order to the market
maker displaying the limit order at the NBBO, thereby attempting to
execute the limit order setting that price and removing it as the
NBBO.145 Moreover, where the size of a limit order represented in
the best quote is smaller than the size eligible for execution in an
automated execution system, the Commission believes that it is not
inconsistent with best execution principles for market makers and
specialists using automated execution systems to take into account the
size of the limit order quote in determining the price at which an
order, or portions thereof, should be automatically executed. The
Commission believes, however, that in such a case the market maker or
specialist should provide the customer order an execution at the
displayed price at least up to the displayed size of the limit
order.146 For example, if customer limit orders compose the NBBO
of 10 \1/4\-10 \1/2\ (100 x 300), and a market maker receives a
market order to sell 1,000 shares via an automatic execution system,
the market maker may automatically execute 100 shares of the order at
10 \1/4\, and the remaining portion of the order at the next best bid.
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\144\ The Commission recognizes that SROs may have rules
regarding the minimum quotation sizes associated with a specialist's
or market maker's quote. The Commission believes that SROs should
consider amending such rules and modifying certain systems to allow
a specialist or market maker to quote in sizes smaller than the
minimum quotation size when such quote represents a customer limit
order. With these changes, a specialist or market maker that
displays a customer limit order in its quote pursuant to the Display
Rule would not be responsible for executing as principal any
additional shares at the limit price where the size of the customer
limit order is less than the minimum quotation size set by the SRO.
\145\ The Commission notes that the NASD's NAqcess system, as
proposed, would permit market makers to send orders, including
proprietary orders, to other market makers through the system. See
supra note 45. See also ITS Plan. Moreover, the Commission believes
that the NASD should consider modifying its SOES system to allow OTC
market makers to route customer orders for execution against limit
orders displayed by another market maker in the same security.
\146\ If the market maker or specialist attempted but was unable
to execute the displayed limit order through a reasonable and
efficient means, such as sending an order through an automated
system for an OTC security, the market maker or specialist would not
be expected to give that limit order price to its customer.
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3. The Operation of the Rule as Adopted 147
The rule as adopted applies to: (i) every member of an exchange
that is registered by that exchange as a specialist or has been
authorized by an exchange to perform functions substantially similar to
that of a specialist (``specialist''); and (ii) OTC market
makers.148 The rule as adopted applies to specialists that trade
on the floor of an exchange; 149 third market makers; 150
members of a national securities association that are OTC market
makers; 151 and specialists that trade an OTC security pursuant to
unlisted trading privileges (``UTP'').152 These market makers are
required to reflect immediately in their bid or offer the price and the
full size of each customer limit order they hold at a price that would
improve their bid or offer in the security.153 In addition, all
market makers covered by the rule are obligated to reflect in their
quotes the full size of a customer limit order that: (1) is priced
equal to their bid or offer; (2) is priced equal to the national best
bid or offer for the security; and (3) represents more than a de
minimis change in relation to the size associated with their bid or
offer.154
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\147\ SRO rules that impose more stringent standards would
continue to apply.
\148\ Although the Commission consolidated certain sections of
the proposed rule for clarity, the rule as adopted applies to the
same entities identified in the proposed rule.
\149\ Section 240.11Ac1-4(b)(1).
\150\ Section 240.11Ac1-4(b)(2).
\151\ Section 240.11Ac1-4(b)(2).
\152\ Section 240.11Ac1-4(b)(1).
\153\ Section 240.11Ac1-4(b)(1)(i) and (b)(2)(i). The Commission
wants to clarify that references to a specialist's or OTC market
maker's bid or offer include instances where the bid or offer is a
proprietary quote, as well as instances where the bid or offer
represents a customer limit order. Further, if a market maker is not
quoting publicly (e.g., a market maker that does not meet the 1%
threshold of the Quote Rule), it still must publish a quotation that
displays the limit order, or avail itself of one of the exceptions.
Moreover, the Commission notes that some commenters suggest that the
rule should require broker-dealers that are not specialists or OTC
market makers to immediately transmit limit orders they receive to
an entity or system that will display the orders in a manner
consistent with the rule. See, e.g., CSE Letter; Madoff Letter;
Whitcomb Letter. Also, at least one commenter believes that
institutional firms trading in block size should be considered ``OTC
market makers'' for purposes of the rule and subject to the display
requirement. Amex Letter. See generally infra notes 191-193 and
accompanying text. The fact that the Commission has not adopted
these suggestions as part of the Display Rule does not relieve
broker-dealers which receive such orders from compliance with their
obligation to obtain best execution for those orders.
\154\ Section 240.11Ac1-4(b)(1)(ii) and (b)(2)(ii).
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a. ``Covered Securities'' and ``Customer Limit Orders''
Rule 11Ac1-4 applies to ``customer limit orders'' in ``covered
securities.'' A covered security is defined as any reported security
and any other security for which transaction reports, last sale data or
quotation information is disseminated through an automated quotation
system that is sponsored by a registered securities association. This
definition is designed to encompass all exchange-listed securities,
Nasdaq National Market securities and Nasdaq SmallCap
securities.155
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\155\ Securities listed on regional exchanges that do not
substantially meet NYSE or Amex original listing criteria do not
satisfy the definition of ``covered security.'' Such securities are
not ``reported securities'' as that term is defined, nor do they
meet the other elements of the definition of covered security. OTC
Bulletin Board (``OTCBB'') securities also do not satisfy the
definition of covered security. The Commission has determined not to
extend the display requirement to any of those securities at the
present time.
---------------------------------------------------------------------------
The Commission received several comments regarding the application
of the rule to Nasdaq securities. Some commenters believe that the rule
should not extend to all Nasdaq securities, and that some measure of
liquidity should be used to determine which Nasdaq securities should be
subject to the rule.156 For example, one commenter suggests
limiting the rule's application to the top 250 Nasdaq National Market
securities with the highest average daily trading volume over the
previous calendar quarter.157 In contrast, another commenter
favors the inclusion of Nasdaq SmallCap securities within the
definition of ``covered security.'' 158 Further, at least one
commenter suggests that the rule apply not only to all Nasdaq
securities, but also to OTCBB securities.159
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\156\ See, e.g., Bear Stearns Letter; Lehman Letter; Merrill
Letter; NASD Letter; SIA Letter.
\157\ SIA Letter.
\158\ PSE Letter.
\159\ Ricker Letter.
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As noted above, the Commission believes that the Display Rule
should apply equally to exchange-traded as well as non-exchange-traded
securities. In addition, the Commission believes it is appropriate to
include all Nasdaq securities within the definition of ``covered
security.'' The Commission believes that, regardless of the current
trading volume of a particular security, the investors in any security
can benefit from the uniform display of customer buying and selling
interest if all quotations in that security are required to be firm. As
noted previously,160 data analyzed by the Commission shows that
limit orders are used frequently for transactions in NYSE securities
with ADTVs under $100,000. On average, 63% of customer orders in such
securities are limit orders. Of those limit orders, 30% narrowed the
NYSE quote and 32% matched the quote. This data indicates that the
display requirement may lead to increased customer trading interest in
securities that are currently thinly traded.161
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\160\ See supra notes 50 and 52.
\161\ As stated previously, because dealers are not required to
register as OTC market makers in OTCBB securities and are not
required to enter and maintain continuous firm two-sided quotations
in OTCBB securities, the Commission does not believe that the
Display Rule should be extended to such securities at this time.
---------------------------------------------------------------------------
The Commission reiterates that limit order display is not solely an
issue of improved transparency. The Display Rule will improve the
handling of customer orders across all markets and increase the
probability that a customer limit order will be executed. Therefore,
the Commission believes that a uniform limit order display requirement
is
[[Page 48303]]
closely related to a broker-dealer's ability to obtain best execution
for limit orders.
The Commission recognizes, however, that the rule represents a
significant change for the OTC market. The Commission, therefore, has
determined to provide a phase-in period for application of the rule to
customer limit orders in Nasdaq securities.162 The Commission
believes that the phase-in period will allow the Commission to monitor
the effects of the rule on the most liquid Nasdaq securities first,
while ensuring that customer limit orders in all Nasdaq securities will
receive the benefits of the rule within one year of its adoption. This
schedule also will provide OTC market makers with time to adjust their
systems to comply with the rule's requirements.163
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\162\ See description of the phase-in at section III.A.3.d.,
infra.
\163\ See, e.g., Amex Letter.
---------------------------------------------------------------------------
Under the rule, a customer limit order includes any order to buy or
sell a covered security at a specified price not for the account of a
broker or dealer. Customer limit orders transmitted from one broker-
dealer to another for execution are included in the definition.
Although some commenters believe that the rule should be extended to
orders for the account of a broker or dealer, the Commission does not
believe such extension is appropriate at this time. The Commission
acknowledges that the display of all limit orders, including those of a
broker or dealer, would further enhance transparency.164 Requiring
the display of broker-dealer limit orders, however, would be a
significant extension of the rule that could change its impact on
market maker participation and increase its operational burdens.
Therefore, the Commission believes that the effects of the rule should
be observed, and additional comment should be solicited, before the
rule is expanded.165
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\164\ The Commission also is sensitive to the fact that
providing suitable opportunities for broker-dealers, including
options market makers, to lay off risk is an important component of
overall market liquidity and efficiency. See Manning II, supra note
24.
\165\ The Commission notes that other actions recently taken by
the Commission address certain anti-competitive behavior in the
Nasdaq market that heretofore may have negatively impacted the
ability of some broker-dealers, including options market makers, to
efficiently perform their market making function. See 21(a) Report,
supra note 28.
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b. Size
As noted above, some commenters expressed concern regarding the
requirement that specialists and OTC market makers display the full
size of a customer limit order. These commenters suggest that the rule
only require the display of representative size.166 They argue
that the use of representative size would preserve the ability of a
specialist or OTC market maker to exercise some discretion in
determining the best execution of the order.167
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\166\ See, e.g., BSE Letter; CSE Letter; Madoff Letter; NASD
Letter; NYSE Letter; PSE Letter; SIA Letter; Specialists Assoc.
Letter; see also LJR Letter (questioning whether the display of
size, at least with respect to institutional orders, would be
consistent with best execution obligations).
\167\ See, e.g., Madoff Letter; NASD Letter; NYSE Letter; SIA
Letter; Specialists Assoc. Letter.
---------------------------------------------------------------------------
Other commenters, however, believe that the full size of a customer
limit order should be required to be displayed.168 Such commenters
argue that the display of full size is an important element in the
Commission's effort to improve transparency and, therefore, no dealer
discretion should be permitted unless a customer expressly requests
that its order not be displayed, or expressly grants discretion,
pursuant to the Display Rule.169
---------------------------------------------------------------------------
\168\ See, e.g., Amex Letter; CHX Letter; D.E. Shaw Letter.
\169\ See, e.g., Amex Letter; CHX Letter; D.E. Shaw Letter; ICI
Letter.
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The Commission continues to believe that the display of full size
is important to improved transparency. The display of full size will
provide the most accurate picture of the depth of the market at a
particular price.170 The Commission believes that size, as well as
price, is a factor in attracting order flow and that the display of
full size increases the likelihood that a limit order will be executed.
The Commission, however, understands that there may be instances where
a customer would not want its order displayed, or does not want the
full size of its order displayed. The Display Rule, therefore, still
contains an exception for a customer that decides to rely on the
discretion of a broker-dealer rather than to take advantage of the
display requirement for its limit order.171 The Display Rule also
permits a customer to state explicitly what portion, if any, the
customer wants displayed.172 Furthermore, the Display Rule
contains other exceptions to the display requirement that will ease any
potential operational burdens associated with the display of full
size.173
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\170\ A few commenters believe that all customer limit orders
should be displayed, including the size of those orders that equal
the specialist's or OTC market maker's bid or offer, but are not
equal to the NBBO. See, e.g., CHX Letter; Letter from Edward J.
Johnsen, Vice President and Counsel, Morgan Stanley & Co., to
Jonathan G. Katz, Secretary, SEC, dated January 16, 1996 (``Morgan
Stanley Letter''); Peake Letter; Weaver Letter. The Commission
believes, however, that the burden associated with the commenters'
suggestion would outweigh the corresponding benefit to market
transparency. Of course, the rule represents a floor, rather than a
ceiling. An exchange, association, or broker-dealer may determine to
adopt more stringent display requirements. Requiring display of size
when the limit order is away from the NBBO and equals the market
maker's or specialist's quote would provide some additional market
information but also would require market makers not quoting at the
NBBO to change their quote size on an ongoing basis. Although some
market makers or specialists may choose to do so to be prepared if
their quotation becomes the NBBO, on the whole the Commission
believes the increased transparency that would result from this
updating would not outweigh the burdens imposed by a display
requirement.
\171\ Section 240.11Ac1-4(c)(2).
\172\ Id.
\173\ As noted above, a specialist or OTC market maker has the
ability to execute a customer limit order upon receipt; transmit the
order to another exchange member or OTC market maker that will
display the limit order in accordance with the rule; or transmit the
order to an exchange or association sponsored system pursuant to the
rule. Additionally, a specialist or OTC market maker may transmit an
order to an ECN that provides for public display of limit orders and
provides access to these orders. Moreover, the rule contains an
exception to the display requirement for certain orders of de
minimis size.
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The following example illustrates the application of the Display
Rule where a customer limit order improves the price of a specialist's
or market maker's quote. Assume that a market maker covered by the rule
is quoting 10-10\1/2\ (2,000 x 2,000) when it receives a customer limit
order in a covered security to buy 4,000 shares at 10\1/4\. Under the
rule, the market maker must change the price and size associated with
its quote to 10\1/4\-10\1/2\ (4,000 x 2,000). If this new quote
represents the NBBO, the Display Rule would require the market maker to
increase the size associated with the quote upon the receipt of
additional customer limit orders. For example, if the market maker
subsequently accepts another customer limit order to buy 4,000 shares
at 10\1/4\, the market maker must change its quote to 10\1/4\-10\1/2\
(8,000 x 2,000).
The rule as adopted contains a de minimis standard applicable in
situations where a customer limit order equals a specialist's or market
maker's displayed price and that price is equal to the NBBO. One
commenter states that the use of representative size would eliminate
the Commission's need to rely on a de minimis standard.174 Another
commenter believes that the rationale underlying the de minimis
standard demonstrates that the display of size does not benefit public
customers.175 Some commenters also believe that the de minimis
standard should be clarified or even eliminated.176
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\174\ CSE Letter.
\175\ Dean Witter Letter.
\176\ See, e.g., Amex Letter; CHX Letter; Schwab Letter.
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The Commission proposed the de minimis standard to strike a balance
[[Page 48304]]
between the benefits of increased transparency and operational burdens
that might arise under the display requirement in displaying limit
orders irrespective of size. The de minimis standard was intended to
reduce the burdens of displaying the smallest of limit orders where the
frequent updating of the quote for smaller orders would not result in
significant improvements in quotation size. The Commission believes
that the size of a customer limit order should be considered de minimis
if it is less than or equal to 10% of the displayed size associated
with a specialist's or OTC market maker's bid or offer.177
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\177\ Any SRO may set more stringent display requirements
through its own rules.
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The Commission believes that this de minimis standard will ease
potential operational burdens associated with the display of additional
size in a specialist's or OTC market maker's quote. The following
example illustrates the application of the de minimis standard.
Assume a market maker's quote is 10-10\1/2\ (1,000 x 1,000), and
the NBBO is 10-10\1/4\ when the market maker receives a customer limit
order to buy 2,000 shares at 10. Under the rule, the market maker is
obligated to change the size of its quote immediately to 10-10\1/2\
(3,000 x 1,000).178 In this case, the 2,000 share order size is
more than de minimis in relation to the size associated with the market
maker's quote. If the limit order was for 100 shares, however, the
market maker would not be required to change its quotation size because
the order is de minimis in relation to its quote.179
Alternatively, the market maker could voluntarily display the
additional 100 shares.
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\178\ If the original 1,000 shares displayed represents the
market maker's proprietary quote and, consistent with Rule 11Ac1-1,
the market maker no longer wishes to trade for its own account at
10, the market maker may quote at 10-10\1/2\ (2,000 x 1,000).
\179\ The Commission stresses that all other orders previously
considered de minimis and not displayed must be added to the order
under consideration for purposes of the de minimis calculation.
Therefore, in the case of a 100 share limit order to buy at 10,
where the market maker had a previous 100 share limit order to buy
at 10 that was not displayed pursuant to the de minimis standard,
both orders must be considered together for purposes of making the
de minimis calculation. Because 200 shares is more than 10% of the
displayed size of 1,000, the market maker must include the 200
shares in its quote.
The Commission notes that if an OTC market maker chooses not to
display a de minimis limit order, the NASD's interpretation
regarding limit orders would prohibit the market maker from trading
ahead of the limit order. See Manning I & II, supra note 24. In
addition, the NASD has indicated that market makers must establish
and consistently follow policies regarding the priority in which
limit orders received from customers, which would include de minimis
orders, will be executed. See Special NASD Notice to Members 95-43
(June 5, 1995).
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c. Exceptions
The rule requires the ``immediate'' display of certain customer
limit orders. To satisfy this requirement, a specialist or OTC market
maker must display the limit order immediately upon receipt unless
there exists an applicable exception to the display requirement. Some
commenters have asked for clarification of the ``immediate'' display
requirement.180 The Commission is mindful that some measure of
time is needed for specialists or market makers to display limit orders
in the quote. Assuming that a specialist or OTC market maker does not
rely on one of the exceptions to the Display Rule, however, such
specialist or OTC market maker must display the order as soon as is
practicable after receipt which, under normal market conditions, would
require display no later than 30 seconds after receipt.181
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\180\ See, e.g., Amex Letter; D.E. Shaw Letter; NYSE Letter; PSE
Letter.
\181\ The Commission stresses that specialists and OTC market
makers still are under an obligation to protect the customer limit
order even during the time the limit order is not displayed. See,
e.g., Manning I & II, supra note 24 (prohibiting trading ahead of
customer limit orders). It should also be noted that this standard
would supersede SRO rules that are less stringent with regard to the
time in which limit orders are to be displayed. Those rules that
impose more stringent standards may continue to apply.
---------------------------------------------------------------------------
There are seven exceptions to the general requirements of the rule.
The first exception applies to any customer limit order that is
executed upon receipt of the order.182 If the order is executed
upon receipt, then no duty arises under the rule.
---------------------------------------------------------------------------
\182\ Section 240.11Ac1-4(c)(1).
---------------------------------------------------------------------------
The second exception applies to any limit order that is placed by a
customer who expressly requests that the order not be
displayed.183 This request may take place on an order by order
basis, or may be agreed to prospectively. Most commenters that
addressed the issue were in favor of the exception.184 The
Commission included this exception because there could be instances in
which a customer prefers to exclude its order from public display. For
example, a customer with a large limit order could wish to let its
broker work the order rather than display the entire order. This
exception gives the customer the right to decide if the order should be
displayed in its entirety, in part, or not at all.185 The
Commission notes that under this exception, a customer may leave the
decision to display an order to the discretion of a broker-dealer.
Therefore, rather than instructing a broker-dealer not to display an
order, a customer, consistent with this exception, may instruct the
broker-dealer to use its discretion in determining whether to display
the order. Although allowing some orders to not be displayed or to be
displayed partially in the system reduces transparency, the Commission
believes this exception is appropriate to give investors flexibility in
deciding how their orders should be handled.
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\183\ Section 240.11Ac1-4(c)(2).
\184\ But see, e.g., Madoff Letter; Morgan Stanley Letter.
\185\ Any portion of a customer limit order that is not
displayed pursuant to this exception shall not be included in the
calculation for determining whether any other limit order is de
minimis. See supra note 179.
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The exception to the rule requires a customer to expressly request
that an order not be displayed.186 A customer request that an
order be placed in a particular non-public trading system would not, by
itself, be deemed to be a non-display request. The Commission expects
that most retail customers will want their limit orders displayed
pursuant to the rule. Thus, the Commission has written the rule to
require specialists and OTC market makers to assume that retail
customers wish to have their orders displayed unless the customer
specifically requests that the order not be displayed.
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\186\ At least one commenter believes that documentation of such
customer requests should be required. CHX Letter. Although the
Commission does not believe it necessary to mandate a particular
method of record keeping, the Commission expects the compliance
departments of individual firms to discharge their responsibilities
in such a manner as to allow adequate supervision of compliance with
the customer's request not to display or to display pursuant to
discretionary authority provided by the customer.
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The exception also permits any customer to negotiate with its
broker-dealer an individual agreement regarding the display of its
limit orders either on an order-by-order basis or prospectively.
Standardized disclaimers or contractual language in broker-dealer new
account agreements, however, would not be deemed to be an individual
request by a customer that its order or orders not be displayed.
The third exception applies to odd-lot orders.187 The rule
does not require the display of an order for less than a unit of
trading as established by the rules of the exchange or association. In
the event that a round-lot limit order represented in the quote is
partially filled and, as a result, the remainder of the order would
then be deemed an odd-lot order, the remainder of the order may be
treated as an odd-lot for purposes of this exception. For example,
assume a
[[Page 48305]]
market maker is quoting at the NBBO (10\1/4\-10\3/8\ (200 x 1000)) and
is representing a 200 share customer limit order to buy when a market
order to sell 150 shares is received. Upon execution of 150 shares of
the 200 share customer limit order, the market maker is not required to
display the remaining 50 shares of the order at 10\1/4\.188
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\187\ Section 240.11Ac1-4(c)(3).
\188\ The market maker still will have best execution
obligations with respect to the remaining odd-lot portion of the
customer limit order.
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The fourth exception applies to block size orders.189 Orders
of at least 10,000 shares or for a quantity of stock having a market
value of at least $200,000 need not be displayed in accordance with the
rule, unless the customer so requests.190 The Commission
recognizes that the display of block size orders would add to market
transparency. In practice, however, the handling of block size orders
differs from other orders. For example, in the OTC market, market
makers often negotiate terms and conditions with respect to the
handling of block size orders, and display of block size orders may
impact market maker quotations in a security more than would smaller
limit orders.191 Further, one of the major objectives in proposing
the Display Rule was to improve the handling and execution
opportunities afforded to customers that lack the power to negotiate
better terms. Because most investors that trade in block size have such
power, the Commission has chosen not to mandate the display of block
size orders, unless the customer so requests.192 The Commission is
satisfied that the current definition strikes an appropriate regulatory
balance by requiring a presumption in favor of display for those orders
requiring enhanced protection, while not extending the presumption to
those orders less likely to need such protection. Of course, the
Commission may reevaluate its treatment of block size orders at a later
date.
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\189\ Section 240.11Ac1-4(c)(4).
\190\ This block definition is consistent with the current
definition used in NYSE Rule 127.10. Some commenters, however,
suggest that the parameters for such orders be increased or made
flexible depending on the liquidity of a particular security. See,
e.g., D.E. Shaw Letter; PSE Letter; Schwab Letter. Still others
believe that there should be no exception for orders of block size.
Instead, these commenters want such orders to be included within the
scope of the rule so as to add to market transparency. See, e.g.,
Amex Letter; ICI Letter; Lehman Letter; Peake Letter; Ricker Letter.
One commenter suggests the use of a ``block indicator'' to give a
specialist or OTC market maker the option of displaying the full
size of the order or using the indicator to identify the quote as
representing a block size order. Lehman Letter.
\191\ See, e.g., Manning II, supra note 24.
\192\ Customers placing block orders, however, may request that
the order be displayed in accordance with the requirements of the
rule; a specialist or OTC market maker that accepts the order will
be obligated to honor such a request. Section 240.11Ac1-4(c)(4). The
Commission expects that adequate procedures will be developed to
ensure compliance with a customer request. See supra note 186.
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As proposed, the fifth exception would have applied to a limit
order that is delivered immediately to an exchange or association
sponsored system that displays limit orders and complies with the
requirements of the rule with respect to that order.193 This
exception did not relieve a specialist or OTC market maker from its
display obligation for orders it received through exchange or
association facilities, unless the facility itself displayed the
order.194
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\193\ Section 240.11Ac1-4(c)(5). A facility would not be deemed
to comply with the requirements of the Display Rule if the highest
priced buy orders and lowest priced sell orders entered by a
specialist or OTC market maker in the facility for a particular
security were not included in calculating the best bid and offer for
the market and incorporated in the consolidated quote.
\194\ One commenter argues that the exception permits
specialists and OTC market makers to become ``fair weather
dealers,'' effectively allowing them to selectively withdraw from
the national market system, which creates a misleading picture of
liquidity. Madoff Letter. The Commission believes, however, that the
exception provides a specialist or OTC market maker with an
appropriate amount of discretion in handling a customer limit order
while ensuring that orders at the best price are displayed to the
marketplace.
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In the Proposing Release, the Commission requested comment on
whether to extend this exception from display to instances where
customer limit orders are sent to ECNs or PTSs by a specialist or OTC
market maker.195 As discussed below in connection with the
amendments to the Quote Rule, the Commission is amending the Quote Rule
to require specialists and OTC market makers to include priced orders
they enter into ECNs in the bids and offers they communicate to their
exchange or association for reflection in their published quotations,
when such orders improve their published quotations.196 In
recognition of the concerns raised by commenters, the Commission also
has included an alterna
FR Doc. 96-23210 Order Execution Obligations
tive to the amendment designed to preserve the
anonymity of specialists and OTC market makers that is currently
provided by certain ECNs, while still publicizing in the public
quotation stream better prices entered into ECNs. The ECN display
alternative in the Quote Rule is available only if the ECN provides for
public dissemination of the price and full size of the orders entered
by specialists and OTC market makers to an exchange or association and
provides access to other broker-dealers to trade at those prices which
is equivalent to that provided in the market where the prices are
disseminated.197
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\195\ See, e.g., Letter from James Lynch, General Counsel, ITG,
Inc., to Jonathan G. Katz, Secretary, SEC, dated, January 15, 1996
(``POSIT Letter'') (not supporting the extension of the exception);
PSE Letter (extension of exception should be contingent on access
provided by ECNs); Whitcomb Letter (doubtful that exception could be
extended in today's environment); see also Madoff Letter (market
makers and specialists should be able to represent a portion of the
size of a customer limit order in other markets or ECNs, but the
best price and some size should be reflected in their quote).
\196\ See Sec. 240.11Ac1-1(c)(5)(i)(A); see also Amendments to
the Quote Rule discussion at section III.B.2.c.ii., infra.
\197\ As discussed, the Commission expects the SROs to work
expeditiously with ECNs that wish to avail themselves of this
alternative, and is prepared to act if necessary to ensure the
effectiveness of the ECN display alternative, prior to the effective
date of the Quote Rule amendments. See Introduction and Summary,
supra; see also Sec. 240.11Ac1-1(c)(5)(ii); Amendments to the Quote
Rule discussion at section III.B.2.c.iii., infra.
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The Commission believes that ECNs that provide their best
specialist and market maker prices to the public quotation system and
provide ready access to their prices can provide an effective means for
specialists and OTC market makers to ensure that customer limit orders
are handled in a manner consistent with the Display Rule. In view of
the ECN display alternative in the Quote Rule, the Commission believes
it is appropriate to extend the exception in the Display Rule to orders
entered into ECNs that comply with the Quote Rule alternative.198
Accordingly, a specialist or OTC market maker that delivers a customer
limit order to an ECN will be deemed to have satisfied its display
obligation with regard to that order if the ECN complies with the
requirements of the new alternative in the Quote Rule.199 The
proposed exception for limit orders entered into exchange or
association sponsored systems contemplated that such orders would be
transparent and accessible. Therefore, expanding the exception to
include the use of ECNs that provide for the requisite transparency and
accessibility is consistent with the rule as proposed.
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\198\ See Amendments to the Quote Rule discussion at section
III.B.2.c.i., infra, for a description of the ECN definition; see
also Sec. 240.11Ac1-1(a)(8); Sec. 240.11Ac1-4(a)(8).
\199\ Section 240.11Ac1-4(c)(5). See also, Amendments to the
Quote Rule discussion on accessibility at section III.B.2.c.iii.,
infra. Additionally, a specialist or OTC market maker may be
relieved of its display obligation if it delivers the customer limit
order to an exchange or association sponsored system that complies
with the new alternative in the Quote Rule. Section 240.11Ac1-
4(c)(5).
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The Commission notes that this exception to the Display Rule
maintains the benefits, including increased transparency, provided to
customer limit orders under the rule. The
[[Page 48306]]
exception ensures that customer limit orders will have equivalent
public disclosure whether they are sent to an ECN that complies with
the alternative or displayed directly in a specialist's or OTC market
maker's quote.200
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\200\ An OTC market maker or specialist choosing to enter
customer limit orders for display through an ECN must still evaluate
whether the customer order is likely to obtain best execution
through display in that ECN. See section III.C.2., infra.
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The sixth exception applies to a limit order that is delivered to
another exchange member or OTC market maker that complies with the
display requirements of the rule with respect to that order.201
For example, a market maker that receives a limit order subject to the
display requirement under the rule may immediately send the order to
another market maker in the security if the other market maker will
display the order in accordance with this rule.202
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\201\ Section 240.11Ac1-4(c)(6).
\202\ One commenter believes that the rule should require a
specialist or OTC market maker to obtain assurances that a
customer's limit order will be displayed in accordance with the rule
before such an order is sent. MJT Letter. But see PSE Letter;
Salomon Letter. As noted earlier, the Commission believes that it is
best left to a firm's compliance department to decide on the
necessary assurances that the order will be displayed in conformance
with the rule.
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The seventh exception applies to ``all-or-none limit orders.'' An
``all-or-none limit order'' is an order accompanied by the customer's
instruction that the order is to be executed in its entirety or not at
all.203 Although this exception was not included in the proposed
rule, the Commission believes that exempting all-or-none limit orders
is necessary to avoid operational difficulties regarding partial
executions at the public quote.204 In this regard, all-or-none
limit orders typically are not displayed in the exchange markets
today.205 The Commission believes, therefore, that this exception
is consistent with the goals and objectives of the Display Rule.
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\203\ See, e.g., NYSE Rule 13.
\204\ For example, if an all or none order to buy 1,000 shares
at 10\1/4\ were displayed in the quote and represented the NBBO, a
subsequent market order to sell 500 shares could not be matched
against the all or none order.
\205\ See, e.g., NYSE Rule 13.
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Finally, a new provision has been included that enables the
Commission to exempt, conditionally or unconditionally, any
transactions that it may determine are not encompassed within the
purposes of the Display Rule. The Commission believes that this
exemptive authority provides flexibility in applying the Display
Rule.206
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\206\ Section 240.11Ac1-4(d).
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d. Effective Date and Phase-In
The Display Rule will become effective on January 10, 1997. As of
this date, the Display Rule will apply to exchange-traded securities.
Moreover, this date will mark the beginning of the first phase-in for
Nasdaq securities. As of this date, the Display Rule will apply to the
1,000 Nasdaq securities with the highest average daily trading volume
in the previous quarter.
The second phase-in date will be on March 28, 1997. From this date
forward, the Display Rule will apply to the next 1,500 Nasdaq
securities with the highest average daily trading volume over the
previous quarter.207
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\207\ Any security already covered by the rule will not be
included as part of the calculation of the securities to be included
in any subsequent group. Therefore, if a security is included as one
of the 1,000 securities in the first group, such security will not
be counted as one of the next 1,500 securities in the second group
(even if such security's average daily trading volume over the
previous calendar quarter would otherwise place it in the second
group).
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The third phase-in date will be on June 30, 1997. From this date
forward, the Display Rule will apply to the next 2,000 Nasdaq
securities with the highest average daily trading volume over the
previous quarter.
The final phase-in date will be on August 28, 1997. From this date
forward, the Display Rule will apply to all remaining Nasdaq
securities.
Although the Commission believes that the Display Rule should apply
equally to exchange-traded and non-exchange-traded securities, the
Commission understands that the Display Rule will more significantly
impact current order handling procedures for Nasdaq securities in light
of existing practices in that market. The phase-in period will allow
the Commission to monitor the effects of the Display Rule on successive
groups of Nasdaq securities while ensuring that all covered securities
receive the benefits of the display requirement within one year of the
Display Rule's adoption.
B. Amendments to the Quote Rule
1. Background
Public quotation reporting for equity securities is governed by the
Commission's Quote Rule,208 as well as by exchange and NASD rules.
These rules require registered exchanges and securities associations to
file quotation reporting plans with the Commission that provide for the
collection and transmission of quotation information on a real-time
basis for securities covered by the Quote Rule.209 Market makers
and exchange specialists communicate their quotes to the NASD or to an
exchange pursuant to these plans and the NASD and exchanges in turn
make this information available to vendors for dissemination to the
public.210
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\208\ 17 CFR 240.11Ac1-1. See also Securities Exchange Act
Release No. 14415 (January 26, 1978), 43 FR 4342 (February 1, 1978)
(``Quote Rule Adopting Release'').
\209\ Rule 11Ac1-1(b)(1), 17 CFR 240.11Ac1-1(b)(1)
(dissemination requirements for exchanges and associations).
\210\ Rule 11Ac1-2, 17 CFR 240.11Ac1-2 (``Vendor Display Rule'')
requires vendors of market information to display quotation
information in a non-discriminatory manner.
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The Quote Rule requires the collection and public dissemination of
the best bid, best offer, and size for each market quoting any security
covered by the Quote Rule, as well as the consolidation of those
markets' quotations and public dissemination of the national
``consolidated'' best bid and offer (``NBBO'').211 These
quotations must be firm, and a market maker or specialist generally is
obligated to execute an order at a price at least as favorable as its
published bid or offer up to the size of its published bid or
offer.212 Broker-dealers covered by the Quote Rule, including
dealers trading listed securities in the OTC market (i.e., third market
makers), must supply quotations to their exchange or association for
dissemination to quotation vendors.
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\211\ Rule 11Ac1-1(b)(1), 17 CFR 240.11Ac1-1(b)(1). Pursuant to
the Quote Rule and the Joint Consolidated Quotation Plan (``CQS
Plan''), the inside quotations collected and calculated by the
exchanges and Nasdaq for exchange-listed securities are consolidated
and disseminated to vendors by SIAC, the exclusive processor for
consolidated quotations in listed securities. Similarly, Nasdaq is
the exclusive processor for quotations in Nasdaq National Market
(``Nasdaq NMS'') securities. Nasdaq collects and consolidates inside
quotations furnished by OTC market makers and by exchanges pursuant
to a Joint Self-Regulatory Organization Plan that provides for
exchange trading of Nasdaq securities. Nasdaq then disseminates to
vendors the inside bid and offer in Nasdaq NMS securities, and
disseminates to various subscribers more specific information
concerning the individual market maker and exchange quotes in each
Nasdaq security. The terms ``consolidated quote'' and ``publicly
available quotation,'' when used with respect to information
disseminated by exchanges and Nasdaq via their exclusive processors,
refer to the quotes that SIAC or Nasdaq furnishes to vendors for
dissemination to the public. The terms ``public quote'' or
``publicly available quote,'' when used with respect to a specialist
or market maker, refer to the bid and offer that the specialist or
market maker has furnished to its exchange or association for
inclusion in the consolidated quote. The term ``public quotation
system'' refers to this entire structure through which SROs collect
quotations from market participants, and the exclusive processors
collect, process, and disseminate those quotations to vendors.
\212\ Rule 11Ac1-1(c)(1), 17 CFR 240.11Ac1-1(c)(1). This is
referred to as the broker-dealer's ``firmness'' requirement.
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The 1975 Amendments identified the need for a prompt, accurate and
reliable
[[Page 48307]]
central quotation reporting system.213 The Quote Rule, in
particular, was designed to facilitate the NMS by requiring specialists
and market makers publishing quotes to provide these quotes to a
central system so they could be made available to the public. Congress
considered the public availability of quotation information to be
critical to fair and competitive markets because published quotations
provide investors, their brokers, and other market participants with
essential information about the condition of the market. This
information assists investors in making investment decisions and in
finding the best market for a security, while making it possible for
investors to evaluate the quality of their executions.
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\213\ Senate Report, supra note 31. Cf. H.R. Rep. No. 229, 94th
Cong., 1st Sess. 29 (1975) (``Conference Report'') (noting that the
conference committee adopted the Senate's provisions on the NMS with
minor revisions).
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Since the 1975 Amendments and the adoption of the Quote Rule, there
have been dramatic changes in the markets and the technologies used by
market participants. To ensure that the Quote Rule keeps pace with the
evolution of the securities markets and continues to ensure the public
availability of accurate, reliable, and comprehensive quotation
information, the Commission has determined that certain amendments to
the Quote Rule are necessary and appropriate in furtherance of the
objectives of the Exchange Act.
The Commission proposed an amendment to the Quote Rule to require
specialists and market makers to reflect in their public quotes any
better priced orders they place in certain systems that are not
currently integrated into the NMS. In particular, the ECN amendment is
intended to incorporate within the public quotes any better priced
orders broadly displayed by market makers and specialists through ECNs.
This amendment is being adopted with modifications to address concerns
raised by some commenters. Specifically, in order to provide
specialists and market makers with an alternative method to meet the
ECN display requirement, the Commission is adopting an alternative
suggested in the proposing release that deems a specialist or market
maker in compliance with the ECN amendment if the ECN provides the best
prices entered into the ECN by market makers or specialists for each
covered security to an exchange or association for inclusion in the
public quotation system and provides access to those prices equivalent
to the access currently available to other quotes published by the
exchange or association. In addition, the Commission is amending the
Quote Rule to expand the categories of securities covered by certain
existing Quote Rule provisions. The quotation requirements that
previously applied to substantial specialists and market makers in only
certain exchange-listed securities now will apply to substantial
specialists and market makers in all exchange-listed securities.
Further, certain Quote Rule provisions that previously applied to
market makers electing to quote particular Nasdaq securities now will
apply to market makers electing to quote any Nasdaq security. The
Commission is adopting these amendments substantially as proposed,
along with minor technical amendments to the Quote Rule that are
discussed more fully below.
2. Public Dissemination of Market Maker and Specialist Prices in ECNs
a. Basis for the ECN Amendment
Over 20 years ago, the Commission noted that an essential purpose
for the establishment of the NMS was ``to make information on prices,
volume, and quotes for securities in all markets available to all
investors, so that buyers and sellers of securities, wherever located,
can make informed investment decisions and not pay more than the lowest
price at which someone is willing to sell, or not sell for less than
the highest price a buyer is prepared to offer.'' 214 At the time,
the lack of consolidated quote information made it difficult to
ascertain the different prices that were often available in the various
markets for a particular security. This lack of transparency as to the
best prices among competing markets was widely recognized as preventing
investors and their brokers from ascertaining accurate trading interest
for a security and obtaining the best prices for their orders.215
To address these concerns, Congress directed the Commission to
facilitate the creation of a national market system that would link the
various markets trading a security. The price and quotation
transparency resulting from the Commission's ensuing NMS initiatives
has produced extremely liquid, successful, and, in most cases,
competitive markets.
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\214\ Securities and Exchange Commission, Statement of the
Securities and Exchange Commission on the Future Structure of the
Securities Markets (February 2, 1972) (``Future Structure
Statement'') at 9-10, 37 FR 5286, 5287 (February 4, 1972) (emphasis
added). See also Securities and Exchange Commission, Policy
Statement of the Securities and Exchange Commission on the Structure
of a Central Market System (1973) at 25-28.
\215\ See Senate Report, supra note 31.
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As discussed in the Proposing Release, the Commission for many
years has been concerned that the development of so-called ``hidden
markets,'' in which a market maker or specialist publishes quotations
at prices superior to the quotation information it disseminates on a
general basis, impedes these NMS objectives.216 Over the course of
the last decade, certain trading systems that allow market makers and
specialists to widely disseminate significant trading interest to
certain market participants without making this trading interest
available to the public market at large have become significant markets
in their own right. Although offering benefits to some market
participants, widespread participation in these hidden markets has
reduced the completeness and value of publicly available quotations
contrary to the purposes of the NMS. Because these systems are not
registered as exchanges or associations, they are currently not
required to integrate into the public quote the prices at which their
subscribers, including subscribing market makers and specialists, are
willing to trade.217 The use of these systems by market makers and
specialists to quote prices not incorporated into the NMS has resulted
in fragmented and incomplete dissemination of quotation information.
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\216\ See Proposing Release at 4.
\217\ Certain ECNs may be registered with the Commission as
broker-dealers and indeed perform various brokerage functions.
Nevertheless, the Commission recognizes that in providing a
mechanism by which system subscribers can (1) broadcast prices to
other system subscribers and (2) trade with one another at those
prices, these systems also function as securities markets.
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Certain markets, in particular ECNs that allow subscribers 218
to enter priced orders that are widely disseminated to third parties
219 and permit such orders to be executed in whole or in part
through the system, communicate orders that are closely analogous to
quotations. These ECNs, in effect, allow market makers and specialists
to display different prices to different market participants.
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\218\ ECN subscribers may include institutional investors,
broker-dealers, and market makers. ECNs provide their services to
subscribers for a fee or commission equivalent. Some ECNs (such as
SelectNet) have been available only to broker-dealers and not to
investors generally.
\219\ ''Third parties'' in this context refers to subscribers or
any other entities (such as customers of subscribers) that receive
information from the ECN concerning any priced order entered into
the ECN by another subscriber.
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Although these ECNs can facilitate the execution of their
subscribers' orders and allow institutions to participate
[[Page 48308]]
directly in price discovery, the display of better prices privately in
ECNs reduces the reliability and completeness of consolidated
quotations, the accuracy of which continues to be an essential element
of the NMS. These private markets have resulted in fragmented
quotations and a reduction in the reliability of public quotations as
an accurate indicator of market makers' and specialists' best prices,
the identical situation that prompted Congress to adopt the NMS
amendments in 1975. The unavailability of full market maker and
specialist quotation information prevents investors and their brokers
from ascertaining the true trading interest for a security, and
obtaining the best price for market orders, and prevents investors from
monitoring the efforts of their brokerage firms to obtain best
execution for their orders.
The Commission's analysis of the trading activity in these ECNs has
produced clear evidence of the existence of a two-tiered market in
which market makers routinely trade at one price with retail customers
and at better prices with ECN subscribers.220 For example,
analysis of trading activity in the two most significant ECNs in the
Nasdaq market, Instinet and SelectNet, reveals that approximately 85%
of the bids and offers displayed by market makers in Instinet and 90%
of the bids and offers displayed on SelectNet were at better prices
than those posted publicly on Nasdaq.221 Furthermore,
approximately 77% of the trades executed on Instinet and 60% of the
trades executed on SelectNet occurred at prices between the Nasdaq best
bid and offer. Market makers participated on at least one side of
approximately 90% of the trades in these ECNs. The trading activity in
Instinet, which comprised approximately 17% of trades and 15% of the
volume in Nasdaq securities, represents a significant portion of the
overall market for Nasdaq securities.222
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\220\ For example, a market maker with a public offer
constituting the best public offer of 20\3/4\ might offer to sell
shares in an ECN at 20\5/8\. If the market maker did not change its
public offer to reflect this improved selling price, public
customers buying from the market maker would pay the higher price of
20\3/4\ for the security because they do not have access to the
market maker's price in the ECN.
\221\ The Commission's analysis is based on Instinet and
SelectNet data for the months April through June 1994. See 21(a)
Report at notes 48-52 and accompanying text and Appendix at notes
18-28 and accompanying text.
\222\ More trading volume now occurs on Instinet than on any of
the organized U.S. stock markets other than the NYSE and Nasdaq. In
1994, trading volume on Instinet totalled approximately 10.8 billion
shares with an approximate dollar volume of $282 billion. In
comparison, Nasdaq traded approximately 74 billion shares, with an
approximate dollar volume of $1,449 billion. Id. at note 50 and
accompanying text.
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The Commission's recent investigation into various trading
practices in Nasdaq stocks revealed that the existence of this two-
tiered market facilitated the maintenance of wide spreads on Nasdaq. As
discussed in the 21(a) Report, Nasdaq market makers engaged in a
widespread course of conduct that resulted in artificially wide spreads
in a large percentage of Nasdaq stocks. The maintenance of wide spreads
was made possible at least in part by the fact that ECNs like Instinet
and SelectNet did not affect the prices at which market makers traded
with the general public, thus allowing market makers to attract trading
interest at prices inside the spread without adjusting their Nasdaq
quotes. Integrating the better prices market makers quote in ECNs
should significantly limit the types of uncompetitive practices
identified in the investigation without limiting the usefulness of
these systems as efficient alternative mechanisms for negotiating
transactions.
The Commission firmly believes that all investors should have an
opportunity to have their orders filled at the best prices made
available by market makers. Consistent with Congress's goals for a NMS,
these opportunities must be made available to all customers, not just
those customers who, due to size or sophistication, may avail
themselves of prices in ECNs not currently linked with the public
quotation system. The vast majority of investors may not be aware of
the better prices widely disseminated by market makers or specialists
through ECNs and many do not have the ability to route their orders
directly or indirectly to such systems. As a result, many customers,
both institutional and retail, do not always obtain the benefit of the
better prices entered by a market maker or a specialist into an ECN.
Brokers frequently use the consolidated quote as the benchmark for
automated execution of customer orders and for the starting point in
negotiating execution prices with institutional investors.223
Consolidated quotations in listed stocks are provided by CQS to
vendors, who then provide this information to the public. In approving
the CQS as the mechanism to serve this vital function, the Commission
stressed that it would expect broker-dealers to take into account
pricing information made available through the CQS in fulfilling their
best execution obligations.224 Similarly, for OTC securities,
Nasdaq disseminates to market makers, vendors, and investors multiple
market maker quotations, and a ``best'' bid and offer derived from
these quotations. As broker-dealers and markets have developed
automated order-routing and order execution systems, they have relied
on these consolidated quotes in pricing and executing customer orders
routed through their systems.225 Including the prices entered into
ECNs by market makers and specialists in the consolidated quotation
will help broker-dealers using these automated systems to provide their
customers' orders with improved executions, and will improve
institutions' ability to ascertain true market prices.
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\223\ Some commenters argue that the ECN amendment focuses on
expanding the availability of these systems to small investors, and
ignores the fact that small investors already benefit from these
systems in that institutional subscribers in ECNs primarily
represent the collective interests of small investors, e.g., through
mutual funds and 401(k) plans. See, e.g., CALpers Letter; Dillon
Letter; Instinet Letter; LJR Letter; Northern Trust Letter; SIA
Letter; STAIC Letter. The objectives of the ECN amendment, however,
are not limited to improving market transparency and accessibility
for small investors. Comprehensive and transparent information about
market conditions is critical to efficient and competitive markets
for all investors, whether retail or institutional. Indeed, while
large institutional investors often have access to ECNs, the public
quotes nevertheless frequently serve as a benchmark for their
negotiations with market makers. In any event, while retail
investors directly account for a significantly smaller percentage of
trading volume than institutional investors, they still account for
half of the direct equity investment in U.S. markets. NYSE 1995 Fact
Book at 57. The Commission recognizes that direct retail
participation provides critical liquidity and therefore limited
access and transparency to the best prices available undermines the
efficiency of our markets and jeopardizes public confidence in their
fairness.
\224\ See Securities Exchange Act Release No. 15009 (July 28,
1978), 43 FR 34851 (declaring the CQS Plan temporarily effective);
Securities Exchange Act Release No. 16518 (Jan. 22, 1980), 45 FR
6521 (permanently approving the CQS Plan).
\225\ See discussion of best execution principles, infra section
III.C.2.
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In light of the stated fundamental purposes of the 1975 Amendments
and clear evidence of a two-tiered market, the Commission believes it
is imperative to amend the Quote Rule to ensure the public
dissemination of accurate quotes that represent the best prices that
market makers and specialists widely disseminate. Thus, the ECN
amendment is intended to integrate into the public quote the prices of
market makers and specialists that are now widely disseminated to ECN
subscribers but are not available to the rest of the market.226
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\226\ Several commenters characterize ECNs as ``wholesale''
markets, and argue that the ECN rule would require market makers to
trade with retail customers at wholesale prices. See, e.g., Davis
Letter; Instinet Letter; LJR Letter; Merrill Letter. The Commission
notes that market makers are compensated by the spread between their
bid and offer prices, and nothing in the ECN rule prevents market
makers from buying at the bid from one customer and selling at the
offer to another.
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[[Page 48309]]
Most commenters support the Commission's goal of improving the
quality of quotation information made available to the public, although
many raise questions, discussed below, about the proposal. In
particular, and as discussed below, some commenters expressed concern
about the potential impact of the rule on benefits provided to the
market as a whole by ECNs. Upon review of the comments received, the
Commission has determined that it is appropriate to adopt the proposed
ECN amendment. Furthermore, in response to the concerns noted, and to
facilitate compliance with the ECN amendment, the Commission has
included the ECN display alternative that permits a market maker or
specialist to comply with the amendment through an ECN that meets two
conditions. First, the ECN into which the market maker or specialist
enters its order must ensure that the best prices market makers and
specialists have entered therein are communicated to the public
quotation system. Second, the ECN must provide brokers and dealers
access to orders entered by market makers and specialists into the ECN,
so brokers and dealers that do not subscribe to the ECN can trade with
those orders. The ECN display alternative therefore allows a market
maker or specialist to comply with the ECN amendment directly by
changing its quote, or alternatively by using an ECN that meets the
above two conditions.
As discussed above, the Commission expects the SROs to work
expeditiously with ECNs that wish to avail themselves of the ECN
display alternative to develop rules or understandings of general
applicability. The Commission is prepared to act as necessary to ensure
implementation of the ECN display alternative prior to the effective
date of the Quote Rule.
b. Response to Comments 227
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\227\ This section includes a discussion of the principal
arguments advanced by the commenters. A more detailed discussion of
the comments is provided in the Summary of Comments.
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The Commission solicited comment on whether the proposed amendment
achieves the goals of deterring fragmented markets and promoting
improved quotations. The Commission also invited comment on whether
there are any feasible alternatives to the rule, and on possible
business or economic justifications for permitting market makers and
specialists to publish prices in ECNs that differ from their public
quotations. The Commission requested comment on the competitive effects
of the proposal on existing ECNs, subscribers, and users.228 In
addition, the Commission solicited comment on alternatives to the
proposal that would minimize any negative effects, yet still achieve
the Commission's goals. The Commission specifically asked whether ECNs
should, as an alternative, furnish market makers' and specialists' best
prices to the applicable exchange or association for further
dissemination, and provide access to those prices through some form of
linkage.229
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\228\ The Commission also specifically solicited comment on
whether exceptions to the rule would be appropriate, particularly if
a customer requests that the market maker refrain from publicly
disseminating its order. The Commission also solicited comment on
whether market makers should be required to disseminate publicly the
full size of orders placed in ECNs. The Commission received only
minimal response to these questions, which is discussed in the
Summary of Comments.
\229\ See Proposing Release at 28-29.
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i. General Comments
The Commission received numerous comments on the ECN proposal. Many
commenters support the proposal as an important initiative designed to
further investor protection by improving publicly available quotation
information and assuring best execution of customer orders.230
Some commenters recognize that a number of brokers and dealers have
adopted the practice of placing superior priced orders in ECNs without
including these better prices in their public quotes.231 These
commenters agree that the Commission should be concerned that some
retail investors may have neither knowledge nor access to the best
available prices under these circumstances.232 They voice general
support for the rule, and recommend one or more mechanisms 233 by
which the Commission could ensure that public quotes contain the best
prices otherwise widely disseminated by market makers and specialists.
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\230\ See, e.g., DOJ Letter; Lehman Letter; Madoff Letter; Amex
Letter; NASD Letter.
\231\ See, e.g., Amex Letter; DOJ Letter; Madoff Letter; RPM
Letter.
\232\ See, e.g., Letter from Gerri Detweiler, Policy Director,
National Counsel of Individual Investors, to Jonathan G. Katz,
Secretary, SEC, dated January 22, 1996 (``NCII Letter''); Goldman
Sachs Letter; PaineWebber Letter; SIA Letter; Madoff Letter; Lehman
Letter; DOJ Letter.
\233\ See discussion of alternative approaches, infra at section
III.B.2.b.iv.
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ii. Impact on ECNs, Market Makers and Specialists, and Institutions
Some commenters express concern that the amendment could negatively
impact services provided by ECNs and caution the Commission not to
diminish the benefits provided by ECNs to the market as a whole. Some
commenters argue that, under the proposal, market makers and
specialists that use ECNs would lose the anonymity that these
commenters believe is crucial to successfully execute large trades for
institutional investors.234 Some commenters anticipate the
adoption of the ECN amendment prompting a potential decline in the use
of certain ECNs.235 In addition, some commenters contend that this
amendment, because of the impact on ECNs and their subscribers, will
lead to a loss of liquidity in both ECNs and the public markets
236 and to a decline in the variety of available trading options
which could be detrimental to all investors.237 Other commenters
argue that the proposal would effectively double the risk of a
specialist or market maker that enters orders into an ECN because the
specialist or market maker could be simultaneously responsible for
multiple executions based on its disseminated quote as well as its ECN
order.238 Moreover, at least one commenter argues that quotes,
bids, offers, and orders have historically had different meanings and
that the proposal's treatment of priced orders as quotes confuses the
essence of the terms, thereby resulting in inadvertent anti-competitive
effects.239 Some commenters also argue that the better prices
frequently available in ECNs reflect the lower costs of doing business
in those systems, and therefore, it would be inappropriate to require
market
[[Page 48310]]
makers and specialists to match their ECN prices in their public
quotes.240
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\234\ See AZX Letter; Instinet Letter; ICI Letter; Investors
Research Letter; NASD Letter; Ruane Letter; STAIC Letter; Letter
from Edward G. Shufro, Partner, Shufro, Rose & Ehrman, to Jonathan
G. Katz, Secretary, SEC (``Shufro Letter''); Sutro Letter.
\235\ See Goldman Sachs Letter; STA Letter; AZX Letter; Instinet
Letter; Schwartz and Wood Letter; Ruane Letter.
\236\ See DOJ Letter; STA Letter; Alex. Brown Letter; Letter
from Jeffrey L. Davis, Economists Incorporated, to Jonathan G. Katz,
Secretary, SEC, dated October 25, 1995 (``Davis Letter''); Dillon
Letter; Instinet Letter; Merrill Letter. (citing the ``deleterious
effects concerning liquidating inventory and replacing necessary
capital'' at pp. 7-8); Schwartz and Wood Letter; Letter from Mary
Kay Wright, Second Vice President and Senior Equity Trader, The
Northern Trust Company, to Jonathan G. Katz, Secretary, SEC, dated
February 28, 1996 (``Northern Trust Letter'').
\237\ See Letter from Anthony R. Gray, Chairman and CIO, STI
Capital Management, to Jonathan G. Katz, Secretary, SEC, dated
February 12, 1996 (``STI Capital Letter''); Ruane Letter; DOJ
Letter; and LJR Letter.
\238\ See, e.g., Merrill Letter.
\239\ See Instinet Letter. Instinet also bases much of its
arguments on its regulatory identification as a broker-dealer.
Instinet argues that the proposal targets its ECN operations for
treatment different from other broker-dealers. The Commission notes
that Instinet (and similar systems) provides to its customers ECN
services that are significantly different from the services provided
by other broker-dealers to their customers. Specifically, Instinet,
without discretion, publicizes subscriber orders and enables other
subscribers to trade with these orders at their stated price.
\240\ See, e.g., Dillon Letter; HHG Letter; LJR Letter; Merrill
Letter; STA Letter; Goldman Sachs Letter.
There appear to be counter arguments. For example, there is no
reason to suppose that adverse selection costs--that is, the risks
of trading with an informed trader--are any lower in ECNs, whose
subscribers typically can include market makers, other broker-
dealers, institutional money managers, hedge funds, momentum
traders, and options market makers. Second, because traders can more
easily mask their identities and thus their trading motives in ECNs
than in the primary market, informed traders may prefer to trade in
ECNs. These higher information asymmetries would be expected to lead
to higher, rather than lower, trading costs. Finally, ECNs often
impose transactions charges that may not otherwise be incurred by
dealers trading in the primary market.
Furthermore, it does not appear that the better prices available
in ECNs can be explained by differences in the size of orders and
transactions given that the average order size and trade size in one
ECN (Instinet) is substantially similar to the average size of
quotes and trades in the primary market. In any event, the
Commission generally would not expect larger size orders to receive
better prices in view of the considerable literature suggesting that
in equities markets, larger orders tend to get worse prices because
of the risk of trading with an informed trader. See, e.g., David
Easley and Maureen O'Hara, 19 J. Fin. Econ. 69, (No. 1, September
1987).
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The Commission agrees with commenters that ECNs provide certain
valuable benefits to their subscribers. It also recognizes the benefits
competing systems bring to the market as a whole, particularly systems
that take advantage of new technologies to offer improved trading
opportunities. The Commission, therefore, has adopted an alternative
method of compliance with the ECN requirement discussed in the
proposing release to reduce the amendment's potential impact on
existing ECNs and their subscribers, and to maintain incentives and
opportunities for new ECNs to enter the marketplace.241 The
Commission continues to believe it is important that the best prices of
orders entered into these markets by market makers and specialists are
properly integrated into the public market so that all market
participants can benefit from the price discovery taking place within
these markets.
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\241\ The Commission believes that although the ECN amendment
may marginally reduce the incentive of some subscribers to
participate in an ECN, on the whole the effect on ECNs should not be
so significant as to affect their viability. Moreover, given the
availability of the ECN display alternative, which is designed to
minimize any potentially detrimental effects of the rule on ECNs,
the Commission believes that the benefits of the amendment to
investors of publicizing the better prices entered by market makers
and specialists outweigh the limited likely costs to ECNs. Many of
the comments received that addressed the ECN proposal raised concern
about the importance of preserving the anonymity offered by these
systems. See, e.g., Alex. Brown Letter; AZX Letter; Dillon Letter;
Estep Letter; ICI Letter; Instinet Letter; NASD Letter.
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In its comment letter, the NASD stated its view that the proposal
could discourage market makers' use of ECNs because a market maker
placing an order in an ECN at a better price would have to
simultaneously change its quote, thereby telegraphing its interest. In
proposing a solution to this situation, the NASD specifically referred
to the ECN alternative noting ``* * * this problem can be addressed
without discouraging market maker use of ECNs through the approach
suggested by the Commission as a possible alternative, i.e., by
reflecting the better ECN prices in the inside market display, rather
than in individual quotes.'' 242
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\242\ NASD Letter at 14.
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In response to the concerns raised by the NASD and other
commenters, the ECN display alternative is designed to preserve the
benefits associated with the anonymity that some ECNs currently offer
to subscribing market makers and specialists and their
customers.243 This alternative will ensure that the best prices of
market makers and specialists are publicly disseminated and that non-
ECN-subscribing brokers and dealers can trade with the ECN orders
represented by those prices. Under the display alternative, the best
prices and sizes of orders entered into an ECN by specialists and
market makers would be publicly disseminated while the specialists and
market makers themselves would remain anonymous. This alternative not
only preserves anonymity, but also eliminates the risk that a market
maker or specialist could be exposed to multiple executions at the ECN
price.244
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\243\ The Commission recognizes that in certain securities,
specific market makers or specialists may be viewed as price leaders
for those securities. Therefore, if the market knows that one of
those firms has changed its quote, other market makers or
specialists are likely to follow that price change and frustrate the
first's firms ability to obtain an execution at the improved price.
The ability to place an anonymous order in an ECN allows the firm to
change its price without triggering corresponding price changes from
other market makers or specialists and thereby increases its
potential to obtain an execution at the improved price.
\244\ Certain commenters fear that, as originally proposed, the
amendment would have an adverse impact on institutional investors
which currently subscribe to ECNs. These commenters appeared to
believe that the ECN amendment would seriously harm ECNs, and thus
harm institutional users. See, e.g., ICI Letter; Ruane Letter. The
Commission does not believe that the amendments will significantly
interfere with the operations of ECNs. Moreover, the Commission
believes that as adopted, particularly with the addition of the ECN
display alternative, ECNs will continue to be able to provide
services to institutional investors of similar value to those they
provide today. The Commission also believes that the benefits of the
amendments, including increased market maker competition and
decreased fragmentation, will flow to all investors, institutional
as well as retail. See 21(a) Report.
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The ECN amendment, as proposed, sought to minimize the potential
impact on market makers, specialists, and ECNs by requiring a market
maker or specialist to display in its public quote only the size
required by its exchange or association, rather than the actual size of
any order the firm places into an ECN. This part of the amendment is
being adopted as proposed for orders for the accounts of market makers
and specialists. However, for customers' orders entered into an ECN by
a market maker or specialist that are smaller than the quote size
required by the market maker's or specialist's exchange or association,
the Commission has amended the rule to allow market makers and
specialists to display only the customer's order size.245 The
requirement to display no more than the required size for market
makers' and specialists' own orders should reduce any disincentives to
use ECNs that could otherwise result from the ECN amendment, and
responds to the concern that disclosure of the full size of the order
in the market maker's or specialist's quote could impede its ability to
execute the order.246 Moreover, permitting the display of customer
orders of less than the minimum quote size should reduce the potential
burden on a specialist or market maker of having to publish a public
quote for more than the customer's order size when the customer's order
is for less than the minimum quotation size required by the
specialist's or market maker's exchange or association.
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\245\ As discussed supra in footnote 144, SROs may wish to allow
market makers or specialists to quote in sizes smaller than the
minimum quotation increment when the quote represents a customer
limit order.
\246\ The Commission received several comments that support this
aspect of the proposal. See, e.g., Lehman Letter; and Smith Barney
Letter. These commenters believe that display of full size in a
market maker's quote could impair the quality of an execution
obtained for a customer because the display in the public quotation
system is broader than the display in the ECN.
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Market makers and specialists who avail themselves of the ECN
display alternative will be required to furnish to the public quotation
system the full size of the best buy and sell orders they enter into
the ECN. The Commission believes that the display of full size by the
ECN will help inform the public market of the true trading interest
entered by specialists and market makers, without impeding the
execution of these orders by disclosing the identity of the specialist
or market maker placing the order. Under the ECN display alternative,
the market maker or specialist will be able to continue to represent
the order on an anonymous basis both in the ECN and in the public
[[Page 48311]]
quote, substantially reducing any negative impact of the amendment on
ECN users.
Where the order entered by the market maker or specialist is on
behalf of a customer, the display of full size under the ECN display
alternative is consistent with the requirement under the Display Rule,
which requires market makers and specialists to display the full size
of their customer limit orders. Therefore, the full size of customer
limit orders will be displayed whether the specialist or market maker
displays the order itself or enters the order into an ECN complying
with the ECN display alternative.247
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\247\ The Commission notes that the exceptions under the Display
Rule for limit orders of block size and for limit orders that a
customer has asked not to be displayed will not apply to customer
limit orders entered by a market maker or specialist into an ECN. If
entered into an ECN, these orders must either be reflected in the
market maker's or specialist's own quote or displayed via the ECN
alternative. As discussed previously, the Commission believes that a
customer should have discretion to permit a market maker or
specialist to handle its limit order without public display, and
large limit orders should not be required to be displayed unless the
customer makes a request. However, the Commission does not believe
these orders should be withheld from public display if they are
being displayed in an ECN. The Commission believes that if these
orders, when handled by market makers or specialists, are displayed
widely through an ECN to the ECN's subscribers, then they should
also be displayed to the public generally. Moreover, limiting
display to only one market would be inconsistent with Congress's
goal for a NMS in which trading interest in disparate markets would
be consolidated and publicly disseminated.
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The Commission believes that the concerns expressed by some
commenters about a potential loss of liquidity resulting from the
proposal have been substantially addressed by the alternative adopted
today. Because this alternative preserves the anonymity some ECNs
afford to the users of their systems, the proposal maintains incentives
for subscribers to continue participating in such systems. In fact, a
market maker or specialist, who presumably wants its orders executed at
prices it is widely displaying through the ECN, should benefit from
attracting greater trading interest by having the prices of its orders
displayed to the entire market.
Finally, under the proposal, priced orders of institutions and
other non-market makers entered directly into ECNs would not be
required to be reflected in the public quote. Some commenters
criticized the proposal because it did not require the inclusion of all
better priced orders in the public quote. This result, however, is
consistent with existing quotation principles. Institutional bids,
offers, and orders handled independent of a market maker historically
have been outside the scope of the Quote Rule, and the Commission's
proposal was not intended to expand the scope of the Quote Rule in this
respect.248 Furthermore, the Commission believes that, although
institutional investors' direct orders in ECNs provide valuable
liquidity, the amendments will substantially strengthen the public
quotation system by publishing orders entered by market makers and
specialists without creating new requirements for orders not controlled
by market makers or specialists.249 Nevertheless, the Commission
will continue to monitor closely issues involving the display of prices
published by institutions in light of the Quote Rule and its
objectives.
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\248\ The fact that ECNs will continue to contain institutional
investors' orders priced better than the public quotes will provide
another incentive for market participants to continue to participate
in those systems.
\249\ The Commission notes that, as described in the
Commission's 21(a) Report, institutions trading with dealers or
others accounted for less than 20% of trades in one ECN (Instinet).
See Appendix to the 21(a) Report at A-11.
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iii. Technology and Innovation
Some commenters predict that the proposal may have a chilling
effect on technological innovation, primarily because the proposal
applies only to ECNs and not to all available communication
technologies that may be used for disseminating interest to buy and
sell a particular number of shares at a specified price.250 Some
commenters argue that the proposal is anti-competitive and otherwise
antithetical to the purposes of the Exchange Act because it will deter
future technological advances in automated trading environments by
favoring less automated trading methods (e.g., telephone
transactions).251
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\250\ See DOJ Letter; SIA Letter; Instinet Letter; Schwab
Letter; STI Capital Letter; Sutro Letter.
\251\ See, e.g., Instinet letter.
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The Commission is cognizant of the importance of the continued
development of innovative trading systems and services. New
technologies have expanded the ways in which investors' buying and
selling interest can be brought together and have fostered additional
competition in the securities markets. The Commission believes that
this competition should be encouraged. Nonetheless, to promote
competition, efficiency, and transparency in the securities markets,
and insure the integrity of publicly available information, the
Commission believes it is appropriate to set minimum standards that
apply to the entry of the functional equivalent of quotations by market
makers and specialists in trading systems.252 Indeed, consistent
with the Commission's experience with previous NMS initiatives,253
these minimum standards will permit and foster the development of new
technologies that improve the public availability of trading
information, while discouraging practices that are inconsistent with
the purposes of the 1975 Amendments. The Commission believes that the
Quote Rule as amended will not unduly diminish the beneficial services
provided by existing ECNs, nor will it stifle the development of new
trading technologies or new ECNs.
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\252\ The Commission notes that the focus of the proposal is not
on any particular system or systems but, rather, on the types of
orders that are the fundamental equivalent of quotations, and the
fragmented market that results when the prices of these orders are
not integrated into publicly available quotations.
\253\ See Simon and Colby, supra note 58. The Commission also
notes the growth in technologies over the past twenty years,
including broker-dealer and exchange automated execution systems,
that clearly rely on, and were facilitated by, successful operation
of NMS and joint industry initiatives such as the Quote Rule, CTA,
and the ITS Plan.
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iv. Alternative Approaches
In the Proposing Release, the Commission suggested alternatives to
the proposal, and solicited comment on these alternatives. The
Commission also invited commenters to suggest possible alternatives.
The Commission specifically asked whether it should require ECNs to
furnish prices to the applicable exchange or association for public
dissemination and to provide some access, such as a linkage, to the
prices in the ECN.254 A number of commenters supported this
approach.
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\254\ See Proposing Release and e.g., NASD Letter.
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The NASD recommended, as an alternative to the proposed rule, that
the better ECN price be reflected in the inside market, rather than in
individual quotes. Under the alternative described by the NASD, an ECN
would report its best market maker or specialist inside prices to the
SRO that is the primary market in the security. The NASD also
recognizes that more assured access to orders in the ECNs would be
necessary under this option.255 Similarly, one commenter agreed
that the inside market available to the public should reflect the best
bid and offer prices whether in a market maker's quote or in a market
maker's order on an ECN. The Commenter suggested that this could be
accomplished by requiring quotations in ECNs to be made part of the
public quotation and by separately identifying the ECN into which the
order is entered rather than the market maker that
[[Page 48312]]
placed the order.256 Finally, certain commenters state that
expanding ITS to include orders entered into ECNs would be a better
alternative to the proposal.257
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\255\ See NASD Letter.
\256\ Morgan Stanley Letter. See also, PaineWebber Letter
(recommending that priced orders in ECNs be included in the NBBO).
\257\ See, e.g., STAIC Letter; ICI Letter.
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The Commission believes that the ECN display alternative adopted
today is consistent with these suggested alternatives and will minimize
many of the asserted negative effects of the rule. The adopted
provision provides an alternative to an ECN that disseminates
specialists' and market makers' best prices to the public quotation
system. Thus, the amendment enables a market maker or specialist to
comply with the Quote Rule either directly by sending to its exchange
or association the prices of orders it places into ECNs that improve
the market maker's or specialist's public quote, or indirectly by using
an ECN that transmits the best prices entered therein by market makers
and specialists for publication in the public quotation system.
The ECN display alternative is consistent with the alternative
recommended by the NASD because the adopted provision enables the
specialists' or market makers' best prices in ECNs to be consolidated
with the exchange's or association's best prices for dissemination
within the consolidated quotes. In addition, the adopted amendment
requires the ECNs to provide an equivalent means of access to those
best prices.
The Commission recognizes that this alternative may reduce the
content of information that is publicly available because under the ECN
display alternative, the identity of the market maker or specialist
that entered the better priced order in the ECN will be
withheld.258 The Commission believes this result is justified
because the inside prices and full sizes of orders entered by market
makers and specialists will be in the public quotation system to inform
the entire market of these prices and ECNs will provide equivalent
access to those prices. Moreover, the Commission believes the benefits
of facilitating the use of ECNs, by permitting the continued anonymity
of market makers and specialists, more than offset the reduced
information available on the identity of a particular market maker or
specialist.
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\258\ The Commission also notes that under the alternative, a
specialist or market maker that puts an order into an ECN that is
priced better than that specialist's or market maker's public quote,
but is not the best priced quote from any specialist or market maker
in the ECN, will not have its better priced order reflected in the
public quote. The prices will be displayed, however, if the better
price in the ECN is executed or withdrawn and the lower specialist's
or market maker's priced quote then becomes the best priced quote.
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As an alternative to the ECN amendment, certain commenters
suggested that enforcement of best execution principles would be
sufficient to protect public investors.259 As discussed in more
detail in section III.C.2., the Commission does not believe this is a
practical alternative because ECNs do not provide broker-dealers with
automated links and thus may not be reasonably available for the
handling of retail orders on an automated basis. Furthermore, investors
and their brokers cannot efficiently ascertain if they have received
the best prices for their orders if publicly available prices do not
reflect the best prices at which specialists and market makers are
willing to trade. Under these circumstances, providing customers the
best executions available can be achieved most effectively by ensuring
that the consolidated quotes systematically include the better prices
that market makers and specialists have entered into an ECN.
---------------------------------------------------------------------------
\259\ See, e.g., Instinet Letter.
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Finally, certain commenters argue that, as an alternative to
adopting the ECN proposal, the Commission should defer any action until
further study is completed on the use of ECNs because the Proposing
Release provides insufficient data regarding whether customers
currently get the best available price, or market maker and specialist
use of ECNs results in harm to customers.260 The Commission has
determined to go forward with the amendments now because of compelling
concerns presented by two-tiered markets. Many of the commenters to the
proposed rules also recognize these concerns. Furthermore, as part of
its recently concluded Nasdaq investigation, the Commission has
conducted an extensive analysis since the proposals were published that
supports the Commission's proposal and clearly evidences the existence
of a ``two-tiered'' market in which customer orders are executed at
publicly available prices inferior to prices contemporaneously
available in existing ECNs.261 Moreover, Commission data shows
that the pricing opportunities available in at least two ECNs (Instinet
and SelectNet) are not limited to block trades, but extend to smaller
orders executed in the system.262 The Commission believes,
therefore, that further study is not necessary to address a structural
disparity in market information that disadvantages investors who lack
access to ECNs.
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\260\ See, e.g., Instinet Letter, asserting that the Commission
should obtain and study data on this matter and that, absent such
data, adoption of the proposed amendment is unwarranted.
\261\ As discussed previously, the Commission believes the data
it has reviewed supports the need for prompt adoption of the ECN
amendment to the Quote Rule. See supra notes 222 and 223, and
accompanying text. Given the strong evidence that investors would
benefit from public dissemination of the hidden prices that are
broadly disseminated to subscribers in these systems, the Commission
believes that it is appropriate to adopt the amendments to the Quote
Rule.
\262\ As noted above, the Appendix to the 21(a) Report states
that average trade size for Nasdaq NMS securities on Instinet was
approximately 1,600 shares for the period studied, while the average
trade size generally in the securities was approximately 1,900
shares. See Appendix to the 21(a) Report at A-8.
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c. Operation of the Rule Amendment
i. Definition of the Term ``Electronic Communications Network''
The proposed amendment did not specifically define the term
``electronic communications network.'' The Commission did state,
however, that priced orders that market makers and specialists enter
into certain ECNs are bids and offers for the purposes of the Quote
Rule.263 The proposal applied to systems that widely disseminate
priced orders to third parties and permit such orders to be executed
against in whole or in part. The Commission further explained that the
term ``electronic communications network'' was intended to include
continuous auction trading systems, but was not intended to include
crossing systems or broker-dealer internal order routing systems.
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\263\ As a result, relevant provisions of the Quote Rule, such
as the obligation on exchanges and associations to disseminate
quotes, and the firmness requirement placed on a market maker or
specialist who furnishes the quotes, become operative with respect
to a security when a market maker or specialist enters an order for
that security into an ECN. See section III.B.2.c.v., infra.
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Several commenters suggested the need for a definition of the term
``electronic communications network.'' 264 The Commission agrees
that it is appropriate to define the term in the Quote Rule and has
decided to adopt a definition that reflects the fundamental
characteristics of an ECN as discussed in the Proposing Release.
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\264\ See Goldman Sachs Letter; Instinet Letter; Schwab Letter.
In addition, one commenter argues that ECNs should include SRO stock
crossing systems and all non-market-maker broker-dealers. NYSE
Letter.
---------------------------------------------------------------------------
As discussed earlier, the objective of the ECN amendment is to
incorporate within the consolidated public quote firm prices quoted by
market makers and specialists in securities markets that widely
disseminate those prices but are not registered as exchanges or
associations and thus are not integrated
[[Page 48313]]
into the NMS. Therefore, the Commission has defined the term ``ECN'' as
an electronic system that widely disseminates to third parties 265
orders entered therein by a market maker or specialist, and permits
such orders to be executed against in whole or in part. The definition
specifically excludes any system that crosses multiple orders at one or
more specified times at a single price set by the system and that does
not allow orders to be crossed or executed against directly by
participants outside of such times. This exclusion is consistent with
statements made in the Proposing Release that it was not the
Commission's intention to cover crossing systems because these systems
do not communicate to multiple market participants the prices at which
system subscribers are willing to trade. Rather, the excluded crossing
systems themselves establish an internal trading price for subscribers
on an episodic basis.266
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\265\ The Commission intends the term ``third parties'' to refer
to subscribers to the ECN, other than the ECN and the market maker
or specialist that is entering its priced order into the ECN. The
ECN also may disseminate to others, including non-subscribers.
\266\ The Commission notes that broker-dealers that publish
quotes through a vendor are already covered by the rule.
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The ECN definition also excludes any system operated by, or on
behalf of, a market maker or specialist that executes customer orders
primarily for its own account as principal, other than as riskless
principal. This exclusion is intended to ensure that, as discussed in
the Proposing Release, internal broker-dealer order routing systems in
which the market maker trades primarily with customer orders on a
principal basis are not ECNs within the scope of the amendment. The
exclusion would not except from the ECN definition systems that involve
multiple market makers or specialists competing as principal in a
security or that cross multiple market maker and customer orders.
Furthermore, the Commission believes the definition should be read
broadly to include systems that match orders internally and deliver the
matched order to some other market for execution. Thus, the term
``permits such orders to be executed against'' should not be read to
exclude systems where a narrow technical reading of ``executed'' is the
only reason that the system would not fall within the ECN definition.
For example, if a system puts buy orders and sell orders together for
execution, completes all necessary elements of the trade, and then
sends the matched pair to an exchange or association merely to print
the terms of the trade on the Consolidated Tape, the system would be an
ECN.
ii. ``Priced Orders'' in ECNs
Under this definition, the Commission intends to include in the
public quotation system firm prices for securities entered by market
makers or specialists, whether such firm prices are labeled as
``quotes'' or ``orders.'' The Commission believes that priced orders
entered by market makers or specialists into ECNs where the orders are
widely disseminated and executable are the functional equivalent of
market maker or specialist quotations, and like quotations, play a key
role in the price discovery process. The Commission thus believes that
these ``quotation-equivalents'' should be made part of the public
quote.
Although some commenters argue that priced orders entered into ECNs
are more closely parallel to prices communicated over the telephone to
other market makers than to market quotes, the Commission recognizes a
fundamental distinction between limited communication of price in
bilateral telephone negotiations and broad exposure of firm prices to
multiple participants in a market.267 Accordingly, prices
communicated by telephone are excluded because these prices generally
are not widely disseminated to other parties for execution. The rule
also would not cover indications of interest that do not constitute
firm prices.
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\267\ The Commission recognizes that market makers and
specialists may be willing to trade with certain customers at
better, negotiated prices, such as when market makers negotiate with
customers over the telephone. In contrast, however, the prices
quoted by market makers and specialists in ECNs are widely
disseminated to market participants. In adopting the ECN amendment,
the Commission is reaffirming the NMS principle that prices
advertised in one market must be integrated into the national
market--that is, the consolidated public quote.
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In this connection, the Commission intended the term ``priced
order,'' which is deemed under the ECN amendment to be a bid or offer,
to encompass commitments to buy or sell a security at a particular
price for a particular number of shares. The Commission also does not
intend the term ``priced orders'' to include interest to buy or sell a
security where price or the number of shares is not specified to system
subscribers, unless the price or size is otherwise understood as part
of the system's operation.268 The ECN amendment would, however,
include priced orders entered into an ECN by a market maker or
specialist that are visible only to some system subscribers if these
orders can be executed agai
FR Doc. 96-23210 Order Execution Obligations
nst in the ECN. The ECN amendment is
intended to require the public display of priced orders entered into
ECNs by market makers and specialists where these priced orders are
similar to quotations. Accordingly, the Commission does not intend the
ECN amendment to apply to a priced order that is entered into an ECN by
a market maker or specialist merely in order to execute against an
existing order visible in the ECN, and not entered to elicit other
buying or selling interest. If, however, the order entered by the
market maker or specialist does not in fact execute immediately in full
against an existing order but rather is itself disseminated as an open
order in the ECN, the market maker or specialist must comply with the
requirements of the ECN amendment with respect to the order.
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\268\ The definition of an ECN specifically excludes any system
that crosses multiple orders at one or more specified times at a
single price set by the ECN (by algorithm or by any derivative
pricing mechanism) and does not allow orders to be crossed or
executed against directly by subscribers outside of such times. See
11Ac1-1(a)(8).
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In order to ensure that customers consistently receive the benefit
of better prices entered into ECNs, a market maker or specialist
entering an all-or-none or minimum size order for its own account into
an ECN would be required to include this price in its public quote, or
disseminate the price via the ECN display alternative, and thereby
publicly display the order for the full number of shares for execution
in whole or in part. Although the execution of an all-or-none order is
typically conditioned on execution of the entire size of the order, the
Commission believes that allowing market makers to avoid public display
of an unconditional quote when using this type of order could seriously
undermine the purposes of the rule.269 The rule will permit,
however, a market maker or specialist to enter an all-or-none customer
order into an ECN without requiring public display of the quote for
that order where the customer specifically requests that the order be
executed on an all-or-none basis. This latter provision accommodates
the desire of some customers to trade only at a specific size
associated with a specific price.
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\269\ All-or-none and minimum size orders are rarely used by
market makers and specialists in ECNs and are prohibited from being
included in the public quotes by the registered exchanges and
Nasdaq.
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iii. ECN Display Alternative
Pursuant to the amendment as adopted, a priced order entered by a
market maker or specialist into an ECN that widely disseminates the
order is deemed to be a bid or offer for the
[[Page 48314]]
purposes of the market maker's or specialist's quotation reporting
obligations under the Quote Rule. As a result, specialists and market
makers are required to include such orders in the bids and offers they
communicate to their exchange or association for inclusion in the
published quotations made available by the exchange or
association.270
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\270\ An OTC market maker that places priced orders for
execution into any ECN will in effect be making an election to
communicate quotations to its association bids, offers and quotation
sizes in the security. See 11Ac1-1(a)(25)(ii)(B).
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As discussed above, in response to the concerns of some commenters,
the adopted amendment includes an alternative to the specialist or
market maker itself revising its public quotation to reflect its better
priced order entered in an ECN. This alternative allows the ECN to act
as an intermediary in communicating to the public quotation system the
best price and size of orders for each security that have been entered
into the ECN by a specialist or market maker. To communicate the
quotations publicly, the ECN must submit the best price entered by a
specialist or market maker to an exchange or association, or to a
securities information processor acting on behalf of one or more
exchanges or associations.
The alternative reduces the impact of the amendment on specialists
and market makers because they have a choice regarding how to comply
with their obligation. This alternative also reduces the impact of the
amendment on ECNs by offering these systems an opportunity to provide
additional services to their subscribers, and creating an opportunity
to generate additional order flow from non-subscribers. At the same
time, more accurate prices are provided through public quotation
systems than are currently available.
Under this alternative, consistent with the goals of the initial
proposal, the ECN must comply with two conditions. First, the ECN must
provide the best prices and sizes that market makers or specialists
have entered in the ECN to the public quotation system for inclusion in
the consolidated quotation. The market maker or specialist responsible
for the price does not have to be identified.271 The ECN must,
however, at a minimum, publicly identify itself as the originating
system for these prices. Accordingly, if a market maker puts an order
that improves the NBBO into an ECN and the ECN disseminates that price
to the public quotation system, the disseminated price must either be
identified as originating from the market maker or from the ECN.
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\271\ An ECN that does not offer the option of anonymity to its
subscribers could choose to include the identity of the market maker
or specialist with the prices furnished to the SRO for public
dissemination. As discussed below, the ECN also must provide access
to these prices.
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Second, the ECN must provide non-subscriber brokers and dealers
with a means of access to those prices entered in the ECN by market
makers and specialists. This access must be equivalent to the access
that would have been available for the relevant security if these
prices had been published in the market makers' or specialists'
quotation.272 The extent and form of this access will depend on
the form(s) of access available in the market to which the ECN supplies
the bids and offers for public dissemination.273
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\272\ For access to be ``equivalent'', the ECN must enable non-
subscribing broker-dealers to execute against the ECN's published
best price to the same extent as would be possible had that best
price been reflected in the public quote of a specialist or market
maker. The ECN, however, may impose charges for access to its
system, similar to the communications and systems charges imposed by
various markets, if not structured to discourage access by non-
subscriber broker-dealers.
\273\ The extent and form of the access will not necessarily be
the same as the access available in the market to which the
specialist or market maker would otherwise supply its bid and
offers.
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For example, market makers in Nasdaq NMS and SmallCap securities
typically can be reached through the telephone and through the NASD's
Small Order Execution System. Therefore, an ECN that chooses, pursuant
to the alternative, to act as an intermediary for its market maker and
specialist subscribers for Nasdaq NMS and Smallcap securities would
have to be prepared to receive and execute telephone orders from
broker-dealers against those market makers' and specialists' orders
entered in the ECN. The ECN will have to execute these orders promptly
at the prices the market makers and specialists have entered into the
ECN. In addition, because a market maker with the best price in a
Nasdaq NMS security is subject to SOES executions, this equivalent
access condition would require the ECN to provide broker-dealers who
use SOES with equivalent automated access to the best priced market
maker orders in the ECN. This could be accomplished either through an
electronic linkage to SOES or by other means agreed upon with the NASD.
For example, the ECN could supply the NASD with an identifier for the
market maker who entered the best priced order, which the NASD could
use in assigning SOES executions to that market maker.274
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\274\ As discussed supra section II., the NASD has proposed a
new facility, NAqcess, which, as part of its proposed services,
would widely disseminate priced orders for execution in whole or in
part. Supra note 45. As proposed, Naqcess would publish its best
prices in the Nasdaq quotation system stream and would be accessible
to all NASD members for order entry and execution against those
orders. Thus, NAqcess, as proposed, would appear to make prices
entered by market makers into NAqcess available, and provide
equivalent access under the alternative. Therefore, a market maker
that entered its best priced order into NAqcess would comply with
the requirements of the ECN amendment without reflecting the order
in the market maker's own quote. Moreover, a market maker that
entered an order into another ECN at a price better than its quote
could satisfy the requirements of the ECN amendment by entering an
order reflecting this price into NAqcess, even if the other ECN does
not directly provide the price to the public quotation system,
because this use of NAqcess, as proposed, would meet the
requirements of the amendment. Similarly, an ECN availing itself of
the ECN display alternative could provide prices directly to
NAqcess. The ECN and the NASD also could develop mechanisms to
ensure public anonymity of market makers that use ECNs, while
providing to the NASD the identity of the market makers that are at
the inside quote solely for the purpose of direct order-routing
between NAqcess and the market maker.
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Similarly, in exchange-listed securities, the degree of access that
the ECN must offer would depend on the current access that the market
receiving the information from the ECN offers to broker-dealers in the
relevant type of security. If the ECN communicates prices for exchange-
listed securities to an exchange, the specialist or market maker orders
in the ECN must be accessible to broker-dealers in the same manner as
quotes on that exchange. This access would include any automated
execution features offered to broker-dealers by the exchange. The ECN
must provide to the exchange, or to the exchange specialist in each
security, access to the market maker or specialist orders in the ECN.
Such access must provide broker-dealers with the ability to enter and
obtain executions for their orders at least as promptly as that
exchange offers to its own members through its order-routing and
execution systems. Because the ITS Plan applies to exchange-trading of
listed securities, orders received from other markets through ITS must
have the same ability to trade with ECN orders whose prices are
displayed through the exchange as they have with the exchange's own
quotations. For instance, if the exchange specialist typically receives
incoming ITS commitments and executes them manually, the ECN must at a
minimum enable the incoming ITS commitment to be manually entered into
the ECN for execution.
If the ECN instead provides orders in exchange-listed securities to
the NASD for inclusion in the public quotation system, the orders must
be as accessible to broker-dealers as the quotes published by third
market makers in
[[Page 48315]]
exchange-listed securities. At a minimum, these prices must be included
as part of the third market quotation display and identified as
originating from a named market maker or from a named ECN. For non-Rule
19c-3 securities, broker-dealers must be able to contact the ECN by
telephone and have an order promptly entered into the ECN for
execution. For Rule 19c-3 securities, the ECN also must be accessible
through the ITS/CAES linkage, operated by the NASD, in the same manner
as other third market maker quotes in those securities.275
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\275\ As discussed below concerning expansion of the ITS/CAES
linkage, currently non-Rule 19c-3 securities may not be traded via
the ITS/CAES linkage.
---------------------------------------------------------------------------
Under the ECN display alternative, the ECN must furnish to an
exchange or association the full size associated with the best priced
orders placed in the ECN by market makers and specialists to buy and to
sell a security. This full size requirement under the alternative is
intended to give the public information about the depth of the market
at the ECN prices, while maintaining the anonymity of market makers and
specialists. For example, if an ECN is furnishing quotation information
to Nasdaq under this alternative, and a market maker enters a 4,000-
share order into the ECN at a price that is better than other market
maker or specialist prices for that security in the ECN, the ECN will
be required to provide Nasdaq that price and size of 4,000 shares as a
quotation for public dissemination. If 2,500 shares of this order is
executed, the ECN must display the remaining 1,500 shares. If two
market makers enter 4,000-share orders for a security at the same
price, which is the best price in the ECN for that security, the ECN is
required to show all 8,000 shares publicly. In contrast, if a market
maker enters a 100-share order for a Nasdaq security at the best price
in the ECN for that security, the alternative requires the ECN to
furnish the price for only 100 shares, even though NASD rules require
Nasdaq market makers to display no less than 1000, 500, or 200 shares
in Nasdaq, depending on the characteristics of that security.
The Commission recognizes that the means of providing equivalent
access will vary for different markets, and that ECNs operating under
the ECN display alternative that currently do not provide access to
their systems to non-subscribers will have to develop methods to
provide this access. Meeting this requirement may be achieved in a
variety of ways, including a linkage between ECNs and one or more of
the SROs. The Commission believes an SRO that accepts the prices
provided by an ECN for publication should be authorized to impose
reasonable rules related to the public dissemination of those prices
upon market makers and specialists who avail themselves of this
alternative. The rules an SRO imposes in this regard, however, may not
establish standards for the dissemination of these prices that are more
burdensome for market makers and specialists using ECNs than the SRO
rules that apply to quotations delivered directly to the SRO by
specialists and market makers.
The Commission looks forward to working closely with all market
participants to effect the necessary market developments to ensure that
this alternative method of compliance with the Quote Rule is made
possible. In order to ensure prompt implementation of the necessary
changes before the effective date of the rule amendments, the
Commission requests each SRO, individually or jointly as signatories to
the CQS Plan, to notify the Commission in writing by October 28, 1996
regarding its willingness and its plan to afford ECNs the opportunity
to communicate, for inclusion in the public quotation system, the
prices of market makers and specialists.
In order to implement the changes to the Quote Rule under new
subsection (c)(5), the prices sent to an ECN by market makers and
specialists will have to be displayed in the public quotations
disseminated by SROs, and order routing or access linkages will have to
be in place. After hearing from the SROs, the Commission will determine
whether it will be necessary to use its authority under Section
11A(a)(3)(B) of the Exchange Act to require the SROs to act jointly to
provide means to accomplish these objectives.
iv. Minimum Price Variations
In the Proposing Release the Commission recognized that there may
be different minimum price variations in any given security between the
SROs providing a market for the security and ECNs through which the
security is also traded. Currently most exchange-listed securities tend
to be quoted and traded with a minimum price variation of \1/8\ point
or \1/16\ point.276 Nasdaq securities can be publicly reported in
variations as low as \1/64\, and can be quoted in minimum variations as
low as \1/32\, depending on the price at which the security
trades.277 Some ECNs allow priced orders in variations as low as
\1/256\; other systems provide for orders priced in decimals as small
as one cent.
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\276\ NYSE Rule 62 provides that bids or offers in stocks
selling above one dollar per share may not be made at a variation of
less than one-eighth of a dollar or twelve and a half cents; Amex
Rule 127 allows for one-sixteenth spreads for stocks priced under
ten dollars, and one-eighth spreads for stocks priced ten dollars
and over.
\277\ The NASD does not have a minimum variation policy for
Nasdaq stocks. Nasdaq, however, is designed to process quotes and
trades in particular minimum variations.
---------------------------------------------------------------------------
Most commenters did not address the issue of ECN minimum price
variations. Some commenters that did address the issue, however,
recommended that the ECN quote be rounded for public dissemination
either downward from or upward to better prices in increments of \1/16\
or smaller.278 Other commenters recommended rounding in
decimals,279 while still others strongly opposed the use of
decimals.280 One commenter asserted that non-standard increments
(i.e., increments not approved by the primary market for the relevant
security) should be prohibited in non-primary markets.281 To
address situations where the priced order in an ECN is at a non-
standard increment, the Commission has determined that it is
appropriate to interpret the ECN amendment to allow market makers and
specialists to comply with the amendment (either individually or
through the ECN) by rounding up or down to the nearest fraction
accepted by the market disseminating the quote provided by the
ECN.282 The Commission believes, however, that rounding is
appropriate only if the rounded public quotes are accompanied by an
identifier that marks the quote as rounded.283 Market makers,
specialists, and ECNs will be permitted to round the prices of ECN buy
orders
[[Page 48316]]
down to the nearest quote increment, and round the prices of ECN sell
orders up to the nearest increment. For example, under this
interpretation, if a market maker or specialist enters a priced buy
order into an ECN at 10\5/16\ and the market receiving the price from
the ECN for dissemination has a minimum quote increment of \1/8\, a bid
of 10\1/4\ will be displayed in the public market and identified as a
rounded price. This result reflects an SRO rule that prohibits
dissemination of quotes in \1/16\ variations. If the market maker or
specialist already is bidding publicly at 10\1/4\ when it enters the
10\5/16\ buy order in an ECN, the market maker or specialist publishing
a quote must reflect the ECN order by identifying its 10\1/4\ bid as
rounded.
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\278\ See, e.g., NASD Letter; Lehman Letter; Instinet Letter.
\279\ See, e.g., Letter from Leslie M. Marx, Assistant Professor
of Economics and Management, and Eugene Kandel, William E. Simon
Graduate School of Business Administration, University of Rochester,
to Commissioner Steven Wallman, SEC, dated November 27, 1995 (``Marx
and Kandel Letter''), concluding that the markets should move toward
decimal pricing.
\280\ See CHX Letter.
\281\ See Madoff Letter.
\282\ The Commission believes this alternative is preferable to
imposing particular trading increments on the markets. At the same
time, however, this alternative will provide the markets with an
incentive to voluntarily move towards finer trading increments.
\283\ In order to facilitate compliance with the rule, it will
be necessary for SROs to provide a means for rounded prices to
include a ``rounded'' identifier that makes clear that a better
price is available in the ECN. The Commission notes that SROs, and
the public quotation system, may not currently have such a field
available for identifying quotations as rounded. The Commission,
therefore, requests that the SROs work jointly to modify the public
quotation system to ensure that specialists, market makers, and ECNs
that are disseminating rounded prices have the ability to
distinguish those rounded quotes.
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In addition, market makers and specialists entering orders into
ECNs that are reflected at rounded prices in the public quote will be
expected to give their customers an execution at the superior non-
rounded price. Thus, the market maker or specialist quoting a rounded
price of 10\1/4\ to reflect a 10\5/16\ buy order must give a customer
sell order an execution at 10\5/16\ up to the published size.
Similarly, an ECN providing market maker or specialist prices pursuant
to the rounding alternative must execute an incoming order at the non-
rounded price. The Commission recognizes that it may not be feasible
for market makers or specialists that have not entered the rounded
order into an ECN to determine, in an efficient manner, the actual
price of the better order in the ECN. This may particularly be true
with respect to market makers or specialists operating automated
execution systems. The Commission believes that it is appropriate in
such instances for such market makers and specialists that did not
enter the rounded order to execute orders at the displayed rounded
price.284
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\284\ See also, section III.C.2. for a discussion of best
execution, infra.
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The Commission recognizes that this interpretation will allow
prices in ECNs that are denominated in non-standard quotation
increments not to be fully displayed, but believes this interpretation
is appropriate to accommodate ECN prices in the existing public
quotation system without imposing uniform trading increments.285
The rounding identifier will inform investors that a better price is
behind the rounded quote. Thus, even though the actual price cannot be
readily displayed, investors will be aware of, and will be able to
obtain, the better price in the ECN or from the market maker or
specialist.
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\285\ If primary markets in the future allow narrower quotation
increments, these ECN prices between the existing quotation
increments could be more accurately displayed in the public quote.
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v. Effect on the Voluntary Aspect of the Quote Rule
If an OTC market maker uses an ECN that does not rely on the
alternative of communicating that market maker's best prices to the
public quotation system, then the market maker must publish in its own
quote that better priced order entered into the ECN. Once a market
maker publishes a quote through its association to reflect a priced
order it entered into an ECN, pursuant to Rule 11Ac-1(c)(5)(i)(A), it
will be deemed to have elected to publish quotations in that
security,286 and will therefore be subject to the quotation
provisions of the Quote Rule. Moreover, pursuant to certain existing
SRO rules,287 withdrawal of that quotation after the ECN order has
been executed or withdrawn prevents the market maker from immediately
reinstating quotes in that security.288 As a practical matter,
once electing to quote, a withdrawal then precludes the market maker
from continuing to enter priced orders for the security in an ECN
because of the SRO prohibition on re-entering quotes after withdrawal.
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\286\ 17 CFR 240.11Ac1-1(b)(5), as amended. See also, 17 CFR
240.11Ac1-1(a)(25), 17 CFR 240.11Ac1-1(c)(4)(ii), and 11Ac1-
1(c)(5)(ii), as amended, acting jointly to ensure that OTC market
makers publish quotations pursuant to the Quote Rule in securities
they trade via ECNs.
\287\ See NASD Manual, Marketplace Rules, Rule 4600 et. seq.,
Nasdaq Market Maker Requirements (requiring members to maintain
continuous two-sided quotations in the Nasdaq securities for which
they are registered as market makers). See also, ITS Plan, Section
6(A)(i)(B), Furnishing Quotations (requiring each ITS Participant to
furnish the current bid-asked quotation emanating from its floor or,
in the case of the NASD, the best bid and offer emanating from ITS/
CAES market makers in eligible securities). Unexcused withdrawal of
quotations violates these NASD rules and ITS provisions.
\288\ This will be true even if the market maker traded less
than 1% of the share volume in the security in the previous quarter
because the 1% threshold of the Quote Rule for mandatory quotes
would not exempt the market maker from disseminating quotes once the
market maker has ``elected'' to quote the security by using the ECN.
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The Commission solicited comment on this aspect of the ECN
proposal. Although most commenters were silent concerning this issue,
certain comments indicate confusion as to the effect on market makers
who currently use ECNs but who do not voluntarily quote under the
existing Quote Rule.289 The Commission, therefore, reiterates that
the combined operation of the ECN amendment and SRO rules may require a
market maker or specialist who enters an order into an ECN that does
not rely on the ECN display alternative, and publishes a quote
reflecting that price, to continue to publish quotes in the public
market regardless of the number of shares traded by the market maker or
specialist in the security during the previous quarter.
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\289\ See, e.g., Madoff Letter; Instinet Letter. In its comment
letter, Instinet notes that some market makers that make a
continuous market in a security, but do not normally publish
quotations in that security, will now be required to disseminate
quotations for that security if the market maker places a priced
order for that security on an ECN. The Commission recognizes this
result, but notes the ECN display alternative of allowing such
market makers to continue to place orders in a security into an ECN
without having to directly publish quotes in that security.
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In determining whether a market participant will be required to
publish quotes after entering orders in an ECN, the Commission notes
that, with respect to any given security, the quote rule requirements
only apply if the market participant falls within the definition of the
term ``OTC market maker'' for that security. To be an OTC market maker,
the participant must hold itself out as willing both to buy and sell on
a regular or continuous basis.290
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\290\ Rule 11Ac1-1(a)(8), as amended.
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The ``OTC market maker'' definition is not intended to capture
subscribers who enter orders into ECNs on one side of the market to
limit or offset their risk, such as options market makers who use ECNs
to hedge their positions in the securities underlying the options they
trade. They would not be required to publish public quotes in a
security simply because they had entered an order for the security into
an ECN, unless they regularly or continuously hold themselves out as
willing to buy and sell the security. An entity that holds itself out
via contract, marketing, or other communications with its customers, as
being willing both to buy and sell a specific security on a regular or
continuous basis would be an ``OTC market maker'' for the security.
This latter market maker's entry of a superior priced order into an ECN
for a security that itself does not publish quotes would compel the
market maker to publish a quote and potentially, depending on SRO
rules, trigger on-going quotation obligations.
vi. Exemptive Relief
Finally, the Commission is amending Section (d) of the Quote Rule
concerning exemptive relief. Under that section, the Commission
previously could exempt from the provisions of the Quote Rule, either
conditionally or on specified terms and conditions, any responsible
broker or dealer (which now will include a specialist or market
[[Page 48317]]
maker under the ECN amendment), exchange, or association if the
Commission determined that such an exemption was consistent with the
public interest, the protection of investors and the removal of
impediments to and perfection of an NMS. The Commission is adding a
provision allowing it to exempt an ECN from the definition in the rule.
The Commission did not solicit comment on expanding its authority to
grant exemptive relief in this manner. The Commission believes,
however, that the added exemptive authority is appropriate because it
provides flexibility in applying the ECN amendment.
3. Amendments to the Quote Rule Concerning Definitions
a. Introduction
In the Proposing Release the Commission proposed to expand the
Quote Rule's existing requirements to include quotation information
from broker-dealers that, while internalizing order flow, hold
themselves out as willing to buy and sell on a regular or continuous
basis. This expansion of the Quote Rule would be accomplished by
amending the definition of OTC market maker. The Proposing Release also
recommended that quotation requirements be imposed on substantial
broker-dealers in non-Rule 19c-3 securities by amending the definition
of subject security, and on broker-dealers in Nasdaq SmallCap
securities by amending the definition of covered security.291 In
putting forward this proposal, the Commission noted that some dealers
quote on a selective basis, choosing not to display quotes for
securities that they actively trade because these securities are
subject only to the voluntary quote provisions of the Quote Rule.
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\291\ OTC market makers and specialists are not required by the
Quote Rule to provide continuous two-sided quotations for any Nasdaq
security. As amended, an OTC market maker or specialist may make an
election, pursuant to paragraph (b)(5)(i) of the Quote Rule, to
collect, process, and make available quotations for Nasdaq NMS or
Nasdaq SmallCap securities. The Commission is soliciting comment on
a proposed amendment which would require continuous two-sided
quotations from OTC market makers and specialists responsible for
more than 1% of the aggregate transaction volume for a Nasdaq
security. See Companion Release.
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The amendments adopted by the Commission today are substantially
the same as those proposed.292 The Commission believes these
amendments will benefit investors by improving price discovery and
liquidity, and increasing competition between OTC market makers and
specialists. The Commission further believes that these amendments are
in keeping with Congress's directive that the Commission use its
rulemaking authority to remove impediments to competition.
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\292\ The only substantive difference between the amendments as
adopted today and as proposed is the definition of the term ``OTC
market maker.'' The definition as proposed read ``* * * sell to a
customer * * *'' but has been modified to read ``* * * sell to its
customers * * *.'' Rule 11Ac1-1(a)(13), 17 CFR 240.11Ac1-1(a)(13).
See infra note 308.
In addition to the amendments discussed in detail herein, the
Commission is making technical, non-substantive amendments to the
Quote Rule. The terms ``association'', ``revised bid or offer'', and
``revised quotation size'' will be separately defined in the rule.
The definition of ``exchange-traded security'' has been revised to
exclude OTC securities traded on an exchange pursuant to unlisted
trading privileges. The definition of ``plan processor'' has been
amended to reflect the appropriate cross-reference. The definition
of ``principal market'' has been removed from the Quote Rule because
it is no longer applicable. In addition, the definitions have been
arranged in alphabetical order.
Paragraph (b)(1)(i) of the rule has been reorganized to
separately set forth the exclusions in subparagraphs (A) and (B).
Paragraph (b)(1)(iii) has been eliminated and the substance of the
provision has been incorporated into paragraphs (b)(1)(i) and
(b)(1)(ii).
The Commission is also amending the definition of the term
``reported security'' as it appears in Rule 11A3-1(a)(4). The
amendment alters the form but not the meaning of the term or its
application. The amendment will make the term consistent with the
definition of ``reported security'' in the Quote Rule.
The amendments to Rule 11Ac1-1(a) are being adopted
prospectively. Outstanding Quote Rule interpretations and no-action
letters continue to be operative, to the extent that the positions
taken therein are not materially in conflict with the amendments
adopted today. Persons seeking clarification regarding the status of
outstanding no-action letters should contact the Office of Market
Supervision, Division of Market Regulation, Securities and Exchange
Commission.
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b. Basis for Amendments to Rule 11Ac1-1(a)
i. Amendment to 11Ac1-1(a)(25) (Definition of a ``Subject Security'')
The Commission is amending the Quote Rule's definition of subject
security to require continuous two-sided quotations from OTC market
makers and exchanges that are responsible for more than 1% of the
volume in a non-Rule 19c-3 security. The Commission believes that this
amendment removes an impediment to competition that exists under the
current rule. Broker-dealers that held themselves out as willing to buy
and sell non-Rule 19c-3 securities on a regular or continuous basis
were not previously required to disseminate quotation information
unless they transacted the largest percentage of the aggregate trading
volume in a particular security. Consequently, regardless of the volume
transacted by other exchanges or OTC market makers, the primary market,
which was the market responsible for transacting the largest percentage
of the aggregate trading volume, was the only market participant
required to disseminate quotations in these securities.293
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\293\ An OTC market maker or specialist, although not the
principal market for a listed security, could elect to disseminate
quotes for the security. Under the amended 11Ac1-1(a)(25) an OTC
market maker or specialist may still elect to disseminate quotations
if it is responsible for 1% or less of the volume in that security.
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As noted in the Proposing Release, third market trading in non-Rule
19c-3 securities has increased considerably since the Quote Rule was
last amended.294 Third market trading in Rule 19c-3 securities now
accounts for a greater number of stocks and a more substantial
percentage of U.S. trading volume than it did when the Commission
initially established disparate regulatory treatment under the Quote
Rule for Rule 19c-3 securities and non-Rule 19c-3 securities.295
In view of the growth of third market trading volume, the Commission
believes that requiring all broker-dealers trading more than 1% of the
volume in a listed security to publish quotations will provide more
accurate and comprehensive quotation information for non-Rule 19c-3
securities.
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\294\ Third market maker trading interest is more concentrated
in non-Rule 19c-3 securities, as evidenced by the fact that the
percentage of third market quotes in non-Rule 19c-3 securities (36%)
is greater than that for Rule 19c-3 securities (28%). See
Fragmentation vs. Consolidation of Securities Trading: Evidence of
the Operation of Rule 19c-3, Office of Economic Analysis, SEC, at 5
(March 29, 1995) (``Fragmentation vs. Consolidation'').
\295\ Third market trading volume has grown, at least in part,
because the universe of securities subject to Rule 19c-3 has
increased considerably. For example, nearly 60% of the stocks listed
on the NYSE are subject to Rule 19c-3, accounting for approximately
48% of the total NYSE volume. See Fragmentation vs. Consolidation at
4-5.
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The Commission believes that disparate regulatory requirements for
Rule 19c-3 and non-Rule 19c-3 securities can no longer be justified by
differences in the trading of the two types of securities. Moreover,
the Commission finds that differences in regulatory treatment have
impaired transparency. Because of the growth of third market trading in
non-Rule 19c-3 securities, the absence of quotes revealing the
substantial third market makers in a security and the prices they are
prepared to publicly quote results in the consolidated quotations in
the security being incomplete.296 The Commission therefore
believes that significant dealers in non-Rule 19c-3 securities should
become subject to the same standards required for trading
[[Page 48318]]
Rule 19c-3 securities.297 As a result of this amendment, market
participants will have more complete information about significant OTC
market makers and specialists in a security and the prices at which
they are willing to trade. The majority of commenters who addressed the
amendment to Rule 11Ac1-1(a)(25) endorse the Commission's proposal to
end the disparity between Rule 19c-3 securities and non-Rule 19c-3
securities, noting that there is no basis for continuing to draw a
regulatory distinction between Rule 19c-3 and non-Rule 19c-3
securities, and that the extension of the Quote Rule will provide
meaningful information about significant market makers in listed
securities.298 One commenter asserts that requiring quotations
from all significant OTC market makers will succeed in improving the
quality of the NMS for all listed securities while at the same time
leveling the playing field for all market makers.299
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\296\ See, e.g., supra note 294.
\297\ OTC market makers that trade a significant volume in non-
Rule 19c-3 securities have not been subject to the same requirements
as third market makers that meet the 1% threshold for Rule 19c-3
securities. For example, an OTC market maker meeting the 1%
threshold is required to quote in a Rule 19c-3 security and
therefore must register as a CQS market maker with the NASD. NASD
Manual, Rule 6320. CQS market makers are subject to the NASD's CQS
market maker rules, which include firm and continuous two-sided
quote obligations and mandatory participation in the ITS through
Nasdaq's Computer Assisted Execution System. NASD Manual, Rules 6320
and 6330.
\298\ See, e.g., Amex Letter; Blume Letter; BSE Letter; CHX
Letter; CSE Letter; NASD Letter; PSE Letter; Alex. Brown Letter;
Schwab Letter; D.E. Shaw Letter; Dean Witter Letter; Lehman Letter;
Madoff Letter; Merrill Letter; PaineWebber Letter; Salomon Letter;
Smith Barney Letter; STA Letter.
There were some commenters who did not support the extension of
the Quote Rule's requirements to non-Rule 19c-3 securities. See,
e.g., NYSE Letter; and Specialists Assoc. Letter, which note that
the Commission, rather than expanding the Quote Rule to include non-
Rule 19c-3 securities, should re-examine the validity of Rule 19c-3.
See, e.g., Letter from Alexander H. Slivka, Executive Vice-
President, National Securities Corporation, to Jonathan G. Katz,
Secretary, SEC, dated October 25, 1995 (``NSC Letter''); Fahnestock
Letter; Letter from Samuel Lieberman, President, Rothschild
Lieberman Ltd., to Jonathan G. Katz, Secretary, SEC (``Rothschild
Letter''); Letter from Mark T. DeFelice, Vice President, Roosevelt &
Cross, Inc., to Jonathan G. Katz, SEC, dated January 24, 1996
(``Roosevelt Letter''), which note that the extension of the
quotation requirements to include non-Rule 19c-3, will have an
impact on small firms. See infra note 307.
\299\ Madoff Letter.
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Nevertheless, many commenters suggest modifications to the 1%
volume threshold. Some commenters suggest that Nasdaq, on behalf of all
third market makers, should be viewed as one market participant, and
that once its volume exceeds 1% for a listed security, all OTC market
makers in that security should be required to maintain continuous two-
sided quotations.300 Other commenters believe that the Commission
should adopt a ``continuousness of execution'' standard rather than a
rigid 1% volume threshold.301 This suggestion would require a
dealer to quote if it executes orders on a regular or continuous basis,
even if it accounts for less than 1% of the volume, while excluding
from quotation requirements a dealer that executes a few large trades
that account for more than 1% of the volume. The NYSE suggests an
additional threshold, to be used in the alternative with the 1% of
volume threshold.302 This alternative would have the effect of
requiring public quotations from market makers who, while not
accounting for more than 1% of the aggregate transaction volume, have
an active retail business in small-sized trades.
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\300\ See PSE Letter; Specialists Assoc. Letter.
A comparable alternative is to require quotations from all OTC
market makers who account for more than 1% of the Nasdaq-reported
volume in a security. See Investors Research Letter.
In the same vein, two commenters suggest that once an OTC market
maker or specialist displays a quotation in a listed security, it
should be subject to the requirements of the rule. See BSE Letter;
CSE Letter.
The NYSE and CSE suggest further application of the rule to
include brokers and their private trading systems. See NYSE Letter;
CSE Letter.
\301\ See CHX Letter; Fahnestock Letter; Jefferies Letter;
Salomon Brothers Letter; STA Letter. See also Rothschild Letter.
\302\ NYSE Letter. See also RPM Letter; Specialists Assoc.
Letter.
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The Commission believes that extending the 1% threshold based on
quarterly aggregate trading volume to non-Rule 19c-3 securities is a
reasonable method to improve the scope of quotation information to
include significant OTC market makers and specialists. This 1%
threshold, currently in effect for Rule 19c-3 securities, has proved
effective in supplying comprehensive quotation information to the
market at large. Moreover, based on the increase in third market
trading volume for these securities, the Commission does not believe
this standard is unduly burdensome on OTC market makers or
specialists.303 Rather, the Commission believes this threshold
strikes a balance between requiring the dissemination of all quotation
interest and accommodating those specialists and OTC market makers that
are small entities. The Commission believes that OTC market makers and
specialists that account for 1% or less of the aggregate volume are not
active enough to justify the additional expense of providing continuous
quotation display.304
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\303\ The Commission seeks to avoid imposing burdens on market
participants that are not necessary to achieve the Quote Rule's
objective of reliable public quotations from all significant markets
in a security. The Commission notes that the 1% threshold for
quotations in Rule 19c-3 securities has not impaired trading in
these securities. Since the Quote Rule was amended, OTC market
makers' volume in Rule 19c-3 securities has increased. See
Fragmentation vs. Consolidation at 4-5. The Commission has no reason
to believe that imposing mandatory quotations on specialists and OTC
market makers that are responsible for more than 1% of the volume in
a non-Rule 19c-3 security will affect market making in these
securities.
\304\ A few commenters expressed concern that the amendment to
the Quote Rule would have a detrimental impact on small firms. See
Fahnestock Letter; NSC Letter; Roosevelt Letter; Rothschild Letter.
The Commission believes the requirement that a dealer must transact
greater than 1% of the volume in a security before quotations are
mandated prevents the rule from becoming unnecessarily burdensome on
small firms. For example, a firm would not have to publish
continuous two-sided quotations in AT&T unless it transacted more
than 1% of the aggregate transaction volume, which the Commission
considers more than modest volume.
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Similarly, the Commission believes that applying the 1% threshold
to the total over-the-counter volume in a listed security would extend
the quotation requirements to inactive market makers. The Commission
questions whether the added quotation information would justify the
added burden.305 The Commission also believes that reliance on
something other than a numerical standard in this circumstance would
lead to confusion in the marketplace. Accordingly, the Commission
believes the ``greater than 1% aggregate trading volume'' threshold for
mandatory quotations continues to be appropriate.
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\305\ In a related release issued today, the Commission is
proposing an amendment that would require continuous two-sided
quotations from OTC market makers and specialists provided that the
OTC market maker or specialist is responsible for more than 1% of
the aggregate transaction volume for a security included on the
Nasdaq Stock Market. See Companion Release for a detailed discussion
on the proposed amendment to the Quote Rule.
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ii. Amendment to 11Ac1-1(a)(13) (Definition of an ``OTC Market Maker'')
Amended Rule 11Ac1-1(a)(13) 306 revises the definition of
``OTC market maker'' to include any dealer who holds itself out as
willing to buy from and sell to its customers, or otherwise, a covered
security for its own account on a regular or continuous basis otherwise
than on an exchange in amounts of less than block size.307
Accordingly, dealers that internalize customer order flow in particular
stocks, by holding themselves out to customers as willing to buy and
sell on an ongoing basis, would fall within the definition even though
they may not hold themselves out to all other market participants. In
addition, dealers
[[Page 48319]]
that hold themselves out to particular firms as willing to receive
customer order flow, and execute those orders on a regular or
continuous basis, also would fall within the definition of an OTC
market maker.
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\306\ 17 CFR 240.11Ac1-1(a)(13).
\307\ The definition, as proposed, read ``* * * sell to a
customer * * * '' but has been modified to read ``* * * sell to its
customers * * *. ''
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This change was in response to the requests of commenters for
consistency in the definition of OTC market maker between proposed Rule
11Ac1-1(a)(13) and proposed Rule 11Ac1-4(a)(9).See, e.g., NASD Letter.
Additionally, the Commission stated in the Proposing Release that
``[a]s in the past, broker-dealers will not be considered to be holding
themselves out as regularly or continuously willing to buy or sell a
security if they occasionally execute a trade as principal to
accommodate a customer's request.'' Proposing Release at 24. The
Commission believes the new language more accurately reflects that
premise.
Most commenters addressing this issue assert that it is appropriate
to include in the definition of OTC market maker those dealers who
internalize customer order flow because they believe that dealers that
hold themselves out to their customers as willing to buy and sell
securities on a continuous basis should be required to publish
quotations.308 One commenter asserts that the amendment will
broaden the definition of who should be required to provide
transparency and liquidity to the NMS to include dealers that transact
business with other firms' order flow and with their own customers,
thus ensuring a minimum level of quotation commitment from those NMS
participants vying for public order flow.309 Some commenters,
however, advocate that more than internalization of order flow should
be required before a dealer is deemed an OTC market maker. These
commenters suggest the Commission adopt some form of a ``holding itself
out'' standard, so that the rule would capture the quotations of
professional liquidity providers but not dealers that occasionally
accommodate a customer's request.310 Other commenters, deeming the
definition too inclusive, suggest the Commission add an exception for
broker-dealers that act solely as agents.311
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\308\ See Amex Letter; BSE Letter; CHX Letter; CSE Letter; D.E.
Shaw Letter; Madoff Letter; NYSE Letter; PSE Letter; RPM Letter; SIA
Letter; STA Letter.
\309\ Madoff Letter.
\310\ See NASD Letter; Jefferies Letter; SIA Letter; PaineWebber
Letter; STA Letter. It should be noted that the amended definition
includes a requirement that the broker-dealer hold itself out to, at
a minimum, its customers on a regular and continuous basis in order
to be an OTC market maker.
\311\ See Fahnestock Letter; Salomon Brothers Letter; Rothschild
Letter; Investors Research Letter.
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One commenter believes that excluding firms that transact primarily
block size orders and therefore account for significant volume is
inconsistent with the Commission's goals for increased
transparency.312 However, several commenters note that block size
orders are excluded from the existing definition of OTC market maker
and argue strongly that it is consistent with the purposes of the rule
to continue to exclude them.313
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\312\ Amex Letter.
\313\ See Fahnestock Letter; Dillon Letter; Goldman Sachs
Letter; Merrill Letter; Salomon Brothers Letter.
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The Commission believes that adoption of the amendment is warranted
to ensure the availability of quotation information that accurately
reflects the interests of all significant market participants.
Increased transparency is fundamental to the fairness and efficiency of
the securities markets. As noted in the Market 2000 Study, enhanced
transparency helps link various market segments.314 Currently, a
dealer can receive order flow from internalization or pre-existing
order routing arrangements but avoid publishing quotations, even when
it accounts for more than 1% of the volume in a non-Rule 19c-3
security, because it is not currently deemed to be an OTC market
maker.315 Allowing significant market makers that deal actively in
securities without publicizing their activity or making available their
prices undermines the NMS goal of transparency. The Commission believes
that those dealers should be classified under the rule as market makers
and be required to publicize their quotations so that investors may
know of, and trade on similar terms with, those market makers.
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\314\ See Market 2000 Study at III-7.
\315\ Although NASD rules require dealers who are registered as
CQS market makers to provide quotations, registration is not
mandated. A dealer in reported securities may elect to disseminate
quotations by registering as a NASD market maker and
``communicating'' its best bids and offers to the association by
entering two-sided quotations in the Nasdaq System. See NASD Manual,
Rule 4611.
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The Commission has considered commenters' suggestions regarding
alternative definitions. In fact, in response to the suggestions of
some commenters, the Commission has modified the proposed amendment to
make clear that more than an isolated transaction is necessary before a
dealer is designated an OTC market maker.
The Commission, in regard to orders of block size, has determined
to continue to exclude dealers that hold themselves out as only willing
to deal in orders equal to or greater than 10,000 shares. Orders of
block size are generally negotiated with the dealer and exposed upon
execution. Block positioners usually do not maintain prices at which
they are willing to buy and sell a particular security; rather, they
make known their role of assisting in the purchase and sale of large
positions in securities at some price. Consequently, these dealers do
not function as typical dealers that maintain a regular or continuous
price quote. The Commission has concluded that requiring quotations
from these dealers would not provide useful price information and
therefore a dealer that acts solely as a block positioner should remain
excluded from the definition.
iii. Amendment to 11Ac1-1(a)(6) (Definition of a ``Covered Security'')
As amended, Rule 11Ac1-1(a)(6) 316 defines ``covered
security'' to include any security for which a transaction report, last
sale data or quotation information is disseminated through an automated
quotation system as described in Section 3(a)(51)(A)(ii) of the
Exchange Act.317 This amendment would extend the Quote Rule
provisions to OTC market makers and exchange specialists quoting in
Nasdaq SmallCap securities.
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\316\ Rule 11Ac1-1(a)(6), 17 CFR 240.11Ac1-1(a)(6).
\317\ 15 U.S.C. 78c(a)(51)(A)(ii).
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The Proposing Release noted that the Quote Rule presently does not
reflect certain developments in the Nasdaq market, including the large
number of securities included on the Nasdaq SmallCap market. Only one
commenter addressed this amendment. That commenter, MJT, expressed
strong support for the proposal, noting that it is both fair and
equitable to apply the Quote Rule to Nasdaq SmallCap
securities.318 The Commission believes it is appropriate to extend
coverage of the Quote Rule to these securities in recognition of the
development of a liquid trading market and increased investor demand
for these securities. NASD rules concerning quotations already require
firm quotations for both Nasdaq SmallCap securities and Nasdaq/National
Market securities.319 Thus, the amendment simply extends coverage
of the Quote Rule requirements to the same range of securities as
[[Page 48320]]
existing NASD firm quote requirements.320
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\318\ MJT Letter.
\319\ See NASD Manual, Rule 4613.
\320\ Section 11A(c)(1) of the Exchange Act grants the
Commission the authority to prescribe, among other matters, rules
and regulations to assure accurate and reliable quotations ``with
respect to any security other than an exempted security.'' The
Commission believes that extending the requirements of the Quote
Rule to Nasdaq SmallCap securities will further these interests. No
new costs should be imposed on market participants because the NASD
rules concerning quotations already treat Nasdaq/National Market and
SmallCap securities similarly.
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c. Response to Other Specific Requests for Comments
In addition to the Quote Rule amendments discussed above, the
Proposing Release solicited comment on whether: (1) revisions are
necessary to an NASD rule that restricts certain computer generated
quotations; 321 and (2) whether the ITS linkage should be expanded
to allow NASD CAES members access to the linkage in non-Rule 19c-3
securities.
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\321\ NASD Manual, Rule 6330. The NASD, however, provides an
automated quotation update capability (``auto-refresh'') as part of
the Small Order Execution System which market makers may elect to
use. Specifically, the quote of a market maker using auto-refresh
will be automatically updated when the market maker exhausts its
exposure limit in the NASD's Small Order Execution System.
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i. Automatic Generation of Quotations
Requiring active third market makers in non-Rule 19c-3 securities
to quote also raises the issue of whether NASD members should continue
to be prohibited from using computer systems to generate quotations
automatically.322 Currently, exchange specialists may use
automated mechanisms to track the NBBO in a security if they maintain a
quotation size of no more than 100 shares.323 OTC market makers,
however, are prohibited by NASD requirements from using automated
quotation tracking systems.
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\322\ See supra note 288, concerning the impact of the ECN
amendment to the 1% rule.
\323\ The 100-share limitation follows the ITS Plan requirement
that no ITS Participant may use an automated computer tracking
system to generate quotes for more than 100 shares in any security
the Participant trades through the ITS system.
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The Commission requested comment on whether computer generated
quotations should be permitted if active third market makers are
required to quote in non-Rule 19c-3 securities, and if so, under what
conditions. Commenters in favor of lifting the NASD's automated
quotation ban believe that worthwhile computer generated quotes should
be permitted.324 For example, one commenter stresses that a ban on
all computer generated quotations impedes technological innovation,
protecting the franchise of inefficient market makers at the expense of
the investing public. Moreover, the commenter asserts, given the same
regulatory environment, there is no reason to believe that firms that
make automated markets will quote away from the market any more than
firms posting quotes manually.325
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\324\ See, e.g., BSE Letter; CSE Letter; D.E. Shaw Letter;
Investors Research Letters; Lehman Letter; Madoff Letter; Merrill
Letter; NSC Letter; NYSE Letter; Smith Barney Letter.
\325\ D.E. Shaw Letter.
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Certain commenters, including the NASD, believe that the ban should
continue in effect. In general, these commenters believe that lifting
the ban could create systems capacity and data traffic problems, and
result in useless quotations that are automatically maintained away
from current market prices.326
---------------------------------------------------------------------------
\326\ See, e.g., Dean Witter Letter; NASD Letter; PSE Letter;
RPM Specialist Letter.
---------------------------------------------------------------------------
Even commenters in favor of lifting the ban tend to believe that,
while some types of computer generated quotes are appropriate, others,
such as quotations automatically maintained away from the best market
quotation, should not be permitted. The NASD, which generally favors
the ban on automated quotes, believes it may be appropriate to revise
its autoquote policy to permit a market maker to automatically update
its quote to match either the best bid or best offer, provided
liquidity is not withdrawn from the contra-side of the quotation. In
this situation, the NASD believes a market maker will be exposed to an
execution and will be genuinely contributing to market liquidity.
The Commission believes that a total prohibition on the use of
computer generated quotes is not appropriate. Such an approach
excessively limits the use of sophisticated trading strategies that
rely on automation in the quotation process for their success, and it
also may act as a competitive disadvantage to market makers and
specialists that would otherwise rely on technology to meet their
quotation obligations more efficiently. In the latter instance, broad
prohibitions on the use of computer generated quotes may cause some
market makers and specialists to restrict the number of stocks in which
they are willing to make markets.
While the Commission recognizes traditional concerns related to the
accessibility of computer generated quotes and the impact of such
quotes on systems capacity, it believes that more can and should be
done in this area. This is particularly true given the enhanced
quotation obligations that will be imposed on some market participants
under the revised Quote Rule. The Commission urges the NASD, ITS
Participants,327 and other interested market participants to
develop revised standards that would permit the use of computer
generated quotes that contribute value to the market. Specifically, the
Commission requests that the NASD and ITS Participants resolve this
issue before the effective date of the Quote Rule amendments. In the
absence of such progress, the Commission recognizes that it will
consider invoking its own authority to address this issue.
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\327\ The ITS Plan also places certain restrictions on the use
of computer generated quotes. See supra note 323. Given the
technologies that have developed during the nearly 20 years that
these ITS Plan restrictions have been in place, the Commission
requests that the ITS Participants review these limitations and
whether they continue to be appropriate, in whole or in part, and
whether new limitations should replace the existing provisions or
whether there should be any ITS Plan limitations on automated
quotes.
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ii. Expansion of ITS/CAES Access
As discussed in the Proposing Release, the uniform application of
the Quote Rule to all exchange-listed securities raises the issue of
the disparate treatment of Rule 19c-3 and non-Rule 19c-3 securities
under the ITS Plan. The Commission solicited comment on this disparate
treatment. The same issue arises with the provision allowing the use of
an ECN as an intermediary in communicating quotes to the public
quotation system if equivalent access is provided.
Currently, the ITS Plan provides access to the ITS System to any
Participant in any Rule 19c-3 security in which the Participant
disseminates continuous two-sided quotations, but excludes OTC market
makers from ITS access for non-Rule 19c-3 securities. In the past,
market makers in non-Rule 19c-3 securities were not subject to
mandatory quote requirements. The amendments to the Quote Rule adopted
today will subject OTC market makers and exchange specialists to the
same quotation requirements for all exchange-listed securities.
The Commission requested comment on whether the Quote Rule
amendments justify an expansion of the linkage between ITS and the
NASD's CAES interface to provide ITS access to and from any market
maker for any exchange-listed security in which that market maker
disseminates continuous two-sided quotations. Numerous commenters
support expanding the linkage in this manner because they believe an
expansion will enhance fair competition and increase opportunities
[[Page 48321]]
for best execution.328 Several commenters also assert that
arguments previously made to exclude OTC market maker quotes in non-
Rule 19c-3 securities from ITS are no longer valid.329
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\328\ See, e.g. D.E. Shaw Letter; Investors Research Letter;
Lehman Letter; NASD Letter; NSC Letter; Madoff Letter; Rothschild
Letter; Schwab Letter; STA Letter.
\329\ See, e.g., Madoff Letter.
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One commenter specifically argues that adoption of the Commission's
proposals should end any objection to the NASD's full participation in
ITS because the operation of the Quote Rule will reduce opportunities
for OTC market makers to trade in ECNs while simultaneously availing
themselves of the voluntary aspect of the Quote Rule, and therefore,
will expand the imposition of NASD quotation requirements upon OTC
market makers. These requirements, according to the commenter, are
equal to those of any other market and add greater transparency and
liquidity to the markets for exchange-listed securities as well as the
NMS.330
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\330\ Id. Madoff states that the NASD now requires every OTC
market maker to conform with NMS principles, respect all other NMS
quotations in listed securities, and not trade through better quotes
in the NMS. Madoff further notes that, in contrast, exchanges do not
impose similar restrictions with respect to trading through off-
exchange quotations.
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Those commenters opposed to the expansion generally believe that
the existing limitation on ITS access is justified in view of
disparities in customer protections afforded by exchanges and exchange
members when compared to customer protections mandated by NASD
rules.331
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\331\ See Amex Letter; BSE Letter; CHX Letter; CSE Letter; PSE
Letter; Specialists Assoc. Letter.
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The Commission recognizes that the expansion of ITS/CAES is a
significant issue of concern to many market participants. The
Commission therefore encourages a continuing dialogue among the ITS
Participants to solve this issue on a timely basis and in a manner
beneficial to the market as a whole.
d. Operation of the Rule With Amended Definitions
i. Amendment to 11Ac1-1(a)(25) (Definition of a ``Subject Security'')
As a result of the amendment adopted today, OTC market makers and
exchange specialists who hold themselves out as willing to buy and sell
non-Rule 19c-3 securities on a regular or continuous basis, and that
account for more than 1% of the quarterly aggregate trading volume,
will be subject to the Quote Rule and required to make continuous two-
sided quotations available to the public, even if they have not
previously elected to register as CQS market makers with the NASD. This
amendment will close a significant gap in the quotation information
that has been available heretofore to market participants and
investors. In a parallel action, the Commission is proposing for
comment an additional amendment to the Quote Rule.332 The
Commission believes that the additional proposal, if adopted, would
further improve transparency by providing investors with quotation
information on Nasdaq securities from significant OTC market makers and
specialists.
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\332\ See Companion Release.
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ii. Amendment to 11Ac1-1(a)(13) (Definition of an ``OTC Market Maker'')
The definition of OTC market maker now includes any dealer holding
itself out as willing to transact business for its own account on a
regular or continuous basis, whether it transacts exclusively with its
own customers or with the customers of other dealers. Those dealers
that hold themselves out to customers as willing to execute orders on a
regular or continuous basis, whether by the internalization of customer
order flow in particular stocks or through arrangements with particular
firms to execute their customer order flow, now fall within the
definition of OTC market maker. Therefore, obligations under the Quote
Rule will now apply to dealers that internalize customer order flow or
hold themselves out to particular firms as willing to execute their
customer order flow, and that execute those orders on a regular or
continuous basis. As in the past, broker-dealers will not be considered
to be holding themselves out as regularly or continuously willing to
buy or sell a security if they occasionally execute a trade as
principal to accommodate a customer's request.
iii. Amendment to 11Ac1-1(a)(6) (Definition of a ``Covered Security'')
The amendment extends the coverage of the Quote Rule to all Nasdaq
securities where the rule had previously applied only to Nasdaq/
National Market securities. As noted previously, NASD rules already
require a dealer that makes a market in a Nasdaq SmallCap security to
provide quotations.333 The Commission, therefore, does not believe
extending the Quote Rule to include securities covered by an existing
NASD rule will result in additional burdens on OTC market makers.
Although the definition of covered security has been amended to include
Nasdaq SmallCap securities, an exchange specialist or OTC market maker
still must make an election, pursuant to paragraphs (b)(5) (i) and
(ii), respectively, of the Quote Rule.334 Accordingly, although
the definition has been amended, an OTC market maker or specialist is
not mandated by the Quote Rule to provide quotations on Nasdaq SmallCap
securities. If, however, an exchange specialist or OTC market maker
makes an election to make available quotations, the firmness
obligations under paragraph (c) of the Quote Rule become operative.
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\333\ See NASD Rule 4613.
\334\ 17 CFR 240.11Ac1-1(b)(5)(i)
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e. Effective Date
The amendments to Rule 11Ac1-1 adopted by the Commission today will
become effective on January 10, 1997.
C. Price Improvement for Customer Market Orders
1. Proposed Rule
In the Proposing Release, the Commission sought comment on a
market-wide Price Improvement Rule for customer market orders. The
proposed rule was designed to apply across exchange and OTC markets to
promote the execution quality of orders by providing increased
opportunities for customer orders to interact at better prices without
the intervention of a dealer. The proposal included a non-exclusive
safe harbor as one means by which a specialist or OTC market maker
could be assured that an order received a sufficient opportunity for
price improvement for purposes of the rule.
The proposed rule was intended to encourage market participants to
take advantage of current technologies and provide customer market
orders with improved access to price improvement opportunities,
regardless of where such orders are routed for execution. Although the
proposed rule would have required specialists and OTC market makers to
provide price improvement opportunities for customer orders, the
Commission did not prescribe any particular method of achieving price
improvement in recognition of the fact that competition can produce
innovative price improvement mechanisms. The Commission proposed a non-
exclusive safe harbor, however, to provide certainty regarding one
alternative by which a specialist or OTC market maker would be deemed
to have satisfied its price improvement obligation.
Under the safe harbor, a specialist or OTC market maker would have
been deemed in compliance with the
[[Page 48322]]
proposed price improvement rule if it exposed, in its quote, a customer
market order at an improved price and provided the customer with a
guaranteed execution at the ``stop'' price.335 This procedure was
designed to promote the interaction of exposed orders at prices better
than the NBBO with orders or trading interest in other markets. The
safe harbor also was intended to lead to increased competitio
FR Doc. 96-23210 Order Execution Obligations
n by
encouraging specialists and OTC market makers to compete more actively
for order flow on the basis of their published quotations. The
Commission made clear, however, that the order exposure procedures set
out in the proposed safe harbor neither would be mandatory, nor the
exclusive means by which to satisfy the obligation to provide an
opportunity for price improvement.
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\335\ The proposed safe harbor provided for an order to be
``stopped'' at the national best bid (for a sell order) or offer
(for a buy order) for the lesser of either the full size of the
order, or the size associated with the national best bid (for a sell
order) or offer (for a buy order).
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Many of the 145 commenters discussed the proposed Price Improvement
Rule. The commenters raise numerous questions and concerns regarding
the proposed rule. For example, some commenters claim that an absolute
rule would reduce the broker-dealer's fiduciary obligation of best
execution to an algorithm, eliminating the exercise of professional
judgment in identifying price improvement opportunities.336
Instead, the commenters argue that customers and market professionals
should be able to use discretion in deciding when and how price
improvement should be sought.337
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\336\ See, e.g., Goldman Sachs Letter; Jefferies Letter; Madoff
Letter; Merrill Letter; NYSE Letter; PaineWebber Letter; PSE Letter.
\337\ See, e.g., CSE Letter; Goldman Sachs Letter; Madoff
Letter; Merrill Letter; NSC Letter; NYSE Letter; PSE Letter.
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In addition, several commenters are concerned that the proposed
safe harbor would become the industry standard. These commenters
believe that, although non-exclusive, the proposed safe harbor would
dictate the minimum acceptable standard to follow, thereby stifling
innovation and competition.338 Many commenters also are troubled
by various technical aspects regarding the application of the safe
harbor. For example, some commenters believe the 30-second exposure
period would be insufficient to allow other market participants to
respond to the exposed order, even with today's technology.339
Other commenters are concerned with the mechanics of the ``stopping''
procedures.340 At least one commenter argues that the requirement
to stop stock blurs the distinction between price guarantees and price
improvement opportunities.341
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\338\ See, e.g., AZX Letter; Blume Letter; HHG Letter; Lehman
Letter; Merrill Letter; Morgan Stanley Letter; NASD Letter; Salomon
Letter; Schwab Letter; Smith Barney Letter; PaineWebber Letter;
Ruane Letter.
Some commenters believe their current operations would satisfy
the rule and, therefore, they would not need to utilize the safe
harbor procedures. See, e.g., Amex Letter; BSE Letter; CHX Letter;
NYSE Letter; PSE Letter.
\339\ See, e.g., Amex Letter; Blume Letter; BSE Letter; CHX
Letter; CSE Letter; NYSE Letter; PSE Letter; Schwab Letter;. But
see, e.g., Letter from Raymond E. Wooldridge, Chief Executive
Officer, Southwest Securities, to Mr. Jonathan G. Katz, Secretary,
SEC, dated January 9, 1996 (``Southwest Letter''); STANY Letter.
\340\ See, e.g., Madoff Letter; MJT Letter; Smith Barney Letter.
\341\ See Sutro Letter.
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The potential costs associated with the proposed rule also concern
many commenters. They claim that necessary systems upgrades would be
expensive.342 In addition, several commenters claim that the
number of quotes generated as a result of the safe harbor would pose a
serious threat to system capacity.343 Many commenters warn that
the increased traffic would reduce trading efficiency, decrease
transparency and increase overall risk.344 Some commenters also
state that market price integrity would be reduced due to the
proliferation of flickering, ephemeral quotations.345
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\342\ See, e.g., Blume Letter; Dean Witter Letter; Fahnestock
Letter; Goldman Sachs Letter; LJR Letter; NASD Letter; PaineWebber
Letter; Ruane Letter; Salomon Letter; Schwab II Letter; SIA Letter.
\343\ See, e.g., Bear Stearns Letter; FIF Letter; Merrill
Letter; PSE Letter; STANY Letter.
\344\ See, e.g., Amex Letter; Bear Stearns Letter; Blume Letter;
FIF Letter; LJR Letter; Madoff Letter; Merrill Letter; Morgan
Stanley Letter; NASD Letter; PSE Letter; Salomon Letter; STA Letter;
STANY Letter; Specialist Assoc. Letter.
\345\ See, e.g., Dean Witter Letter; ICI Letter; Merrill Letter;
Morgan Stanley Letter; NASD Letter; NYSE Letter; PSE Letter; Salomon
Letter; Schwab II Letter; Specialist Assoc. Letter; STANY Letter.
---------------------------------------------------------------------------
A common suggestion from the commenters is that the Commission not
adopt the proposed rule prior to evaluating the effects of the other
initiatives contained in the proposal.346 Some commenters believe
that the amendments to the Quote Rule and the proposed Limit Order
Display Rule should act to narrow spreads by eliciting the true market
for a given security, thereby decreasing the utility and necessity of
seeking better prices for customer orders. According to these
commenters, if such results are achieved through the other initiatives,
the potential costs and significant market operations changes
associated with the proposed Price Improvement Rule would far outweigh
any potential benefit.
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\346\ See, e.g., Bear Stearns Letter; Dean Witter Letter; DOJ
Letter; Goldman Sachs Letter; Lehman Letter; Madoff Letter; Morgan
Stanley Letter; NASD Letter; NSC Letter; Schwab II Letter; SIA
Letter; Sutro Letter.
---------------------------------------------------------------------------
Although the Commission continues to believe that the opportunity
for price improvement can contribute to providing customer orders with
enhanced executions, the Commission has determined to defer action on
the proposed Price Improvement Rule for the present time. The
Commission believes that the other initiatives adopted today will
greatly improve the price discovery process and the opportunity for
customer orders to receive enhanced execution prices. These initiatives
should act to narrow spreads by making available to all market
participants the true buying and selling interest in a given security.
The Commission believes, therefore, that the most appropriate course of
action is to monitor the operation of the initiatives adopted today,
and assess their impact on spreads, the quality of markets, and the
quality of executions. This assessment will enable the Commission to
better determine the need for further Commission action regarding
specific price improvement obligations.
2. Best Execution Obligations
The proposed Price Improvement Rule was designed to complement the
long-standing duties of broker-dealers to seek to obtain best execution
of their customer orders; the Commission did not intend for the
proposed rule to modify this existing best execution
obligation.347 Therefore, the Commission's decision to defer
consideration of the proposed rule in no way should be taken as an
indication that the duty of best execution has been altered.
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\347\ Proposing Release at 49.
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A broker-dealer's duty of best execution derives from common law
agency principles and fiduciary obligations, and is incorporated both
in SRO rules and, through judicial and Commission decisions, in the
antifraud provisions of the federal securities laws.348 This duty
of best execution requires a broker-dealer to seek the most favorable
terms reasonably available under the circumstances for a customer's
transaction.349 The scope of this duty of best execution must
evolve as changes occur in the market that give rise to improved
executions for customer orders, including
[[Page 48323]]
opportunities to trade at more advantageous prices. As these changes
occur, broker-dealers' procedures for seeking to obtain best execution
for customer orders also must be modified to consider price
opportunities that become ``reasonably available.'' 350
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\348\ See Market 2000 Study, Study V at V-1, 2 and sources cited
therein.
\349\ See Market 2000 Concept Release, supra note 10; Market
2000 Study, Study V.
\350\ Proposing Release at 7-10.
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In the past the Commission has recognized the practical necessity
of automating the handling of small orders, and has indicated that
automated routing or execution of customer orders is not necessarily
inconsistent with best execution.351 At the same time, the
Commission has emphasized that best execution obligations require that
broker-dealers routing orders for automatic execution must periodically
assess the quality of competing markets to assure that order flow is
directed to markets providing the most beneficial terms for their
customers' orders.352 While in the past quote-based executions in
OTC securities were generally recognized as satisfying best execution
obligations, the development of efficient new facilities has altered
what broker dealers must consider in seeking best execution of customer
orders.353 The Commission thus noted the importance of the
opportunity for price improvement as a factor in best execution,
speaking in the context of aggregate order handling decisions for both
listed and OTC stocks.354 Therefore, the Commission believes that
routing order flow for automated execution, or internally executing
order flow on an automated basis, at the best bid or offer quotation,
would not necessarily satisfy a broker-dealer's duty of best execution
for small orders in listed and OTC securities.355
---------------------------------------------------------------------------
\351\ Id. at 8.
\352\ Payment for Order Flow Release, supra note 23, at n. 30
and accompanying text; See Securities Exchange Act Release No. 37046
(March 29, 1996), 61 FR 15322 (April 5, 1996) (``CSE Approval
Order''); Securities Exchange Act Release No. 37045 (March 29,
1996), 61 FR 15318 (April 5, 1996) (``BSE Approval Order'').
\353\ Proposing Release at 10.
\354\ Id.; see also Payment for Order Flow Release, supra note
23 at text accompanying notes 31-33. See CSE Approval Order, supra
note 352; BSE Approval Order, supra note 352.
\355\ Proposing Release at 9-10; see also note 360 and
accompanying text (factors relevant to best execution).
---------------------------------------------------------------------------
Both the rule and the amendments adopted today should further
improve a broker-dealer's ability to obtain improved executions for
customer orders. These changes will enhance the public quote by
including in the public quotation system many superior prices not
currently reflected there. The ECN amendment is intended to publicize
superior market maker ECN prices in the public quote, which should make
these prices more easily accessible. Similarly, the Display Rule will
include more customer prices in the public quote through requiring the
display of customer limit orders.
Nonetheless, various markets and market makers may continue to
provide opportunities for executions at prices superior to the enhanced
national best bid and offer for their customer orders.356 For
example, some markets or market makers may continue to offer price
improvement opportunities, based on internal order flow or execution
algorithms. The Commission believes that broker-dealers deciding where
to route or execute small customer orders in listed or OTC securities
must carefully evaluate the extent to which this order flow would be
afforded better terms if executed in a market or with a market maker
offering price improvement opportunities. In conducting the requisite
evaluation of its internal order handling procedures, a broker-dealer
must regularly and rigorously examine execution quality likely to be
obtained from the different markets or market makers trading a
security.357 If different markets may be more suitable for
different types of orders or particular securities, the broker-dealer
will also need to consider such factors.
---------------------------------------------------------------------------
\356\ Id.
\357\ CSE Approval Order, 61 FR at 15329. ``Price improvement''
in this context is defined as the difference between execution price
and the best quotes prevailing in the market at the time the order
arrived at the market or market maker. Any evaluation of price
improvement opportunities would have to consider not only the extent
to which orders are executed at prices better than the prevailing
quotes, but also the extent to which orders are executed at inferior
prices.
---------------------------------------------------------------------------
Where material differences exist between the price improvement
opportunities offered by markets or market makers, these differences
must be taken into account by the broker-dealer. Similarly, in
evaluating its procedures for handling limit orders, the broker-dealer
must take into account any material differences in execution quality (
e.g., the likelihood of execution) among the various markets or market
centers to which limit orders may be routed. The traditional non-price
factors affecting the cost or efficiency of executions also should
continue to be considered; 358 however, broker-dealers must not
allow an order routing inducement, such as payment for order flow or
the opportunity to trade with that order as principal, to interfere
with its duty of best execution.359 Of course, as the Commission
has previously noted, in light of a broker-dealer's obligation to
assess the quality of the markets to which it routes packaged order
flow absent specific instructions from customers, the Commission does
not believe that a broker-dealer violates its best execution obligation
merely because it receives payment for order flow or trades as
principal with customer orders.360
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\358\ See Market 2000 Study, Study V at V-2, 3.
\359\ Payment for Order Flow Release, supra note 23.
\360\ Id.
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Prices superior to the public quote may at times be available in
ECNs, even after adoption of the ECN amendment, based, for example, on
orders of institutional participants and others not covered by the ECN
amendment. Superior prices also may be available in other systems not
classified as ECNs. As the Commission noted in the Proposing Release in
September, 1995, and reiterates today, where reliable, superior prices
are readily accessible in such systems, broker-dealers should consider
these prices in making decisions regarding the routing of customer
orders.361 The Commission recognizes that many of these systems
are less accessible and involve higher costs for broker-dealers than
the public markets. In addition, in many cases it is not currently
feasible to efficiently obtain price information from these systems or
link to these systems on an automated basis. The Commission is not
suggesting that broker-dealers must engage in manual handling of small
orders if necessary to access these systems.362 Nonetheless, the
Commission believes that because technology is rapidly making these
systems more accessible, broker-dealers must regularly evaluate whether
prices or other benefits offered by these systems are reasonably
available for purposes of seeking best execution of these customer
orders. For example, if an ECN provides an automated link that makes it
cost effective for a broker-dealer to access these systems for its
retail orders on an automated basis, the broker-dealer must take the
prices and other relevant costs in that system into account in handling
these customer orders.
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\361\ Proposing Release at 10.
\362\ The Commission has recognized that it may be impractical,
both in terms of time and expense, for a broker that handles a large
volume of orders to determine individually where to route each order
it received. Proposing Release at 8.
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Pursuant to the Display Rule, most customer limit orders at
superior prices will be required to be displayed and
[[Page 48324]]
included in the public quote.363 The display of a limit order by a
market maker directly affects its responsibilities in handling other
customer orders. The Commission has long said that broker-dealers must
consider quotation information contained in the public quotation system
in seeking best execution of customer orders.364 In executing
customer market orders, a market maker must give no less consideration
to the price of its own displayed customer limit order than any other
public quotation price. Therefore, under the new Display Rule, a market
maker that has displayed a customer limit order would be expected to
provide an offsetting customer market order an execution at that limit
price at least up to the size of the limit order.
---------------------------------------------------------------------------
\363\ The Commission notes that the NASD's interpretation
prohibiting market makers from trading ahead of customer limit
orders applies both to displayed and nondisplayed customer limit
orders held by the market maker. See NASD Conduct Rule IM 2110-2
(Trading Ahead of Customer Limit Orders).
\364\ See Quote Rule Adopting Release, supra note 208.
---------------------------------------------------------------------------
In addition, the Commission notes that currently, some market
makers that hold a customer limit order on one side of the market,
priced better than the market maker's own quote, and a customer market
order on the other side of the market, will execute both orders as
principal rather than crossing the two orders. As a result, the market
order customer receives the best bid and offer rather than receiving
the benefit of a better limit order price. In light of the increased
opportunities for price improvement now available and the rules the
Commission is adopting today, the Commission believes that going
forward this practice is no longer appropriate given the broker-
dealer's obligation, as part of its duty of best execution, to its
market order customer.365
---------------------------------------------------------------------------
\365\ Cf., NASD Notice to Members 96-10 (February, 1996) at 43;
NASD Notice to Members 95-67 (August, 1995) at 417.
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In conclusion, although the Commission has determined for the
present to defer final action on the proposed Price Improvement Rule,
the Commission's adoption of the Display Rule and the Quote Rule
amendments should substantially improve public quotations. Moreover,
the Commission firmly believes that broker-dealers, when deciding where
to route or execute customer orders, must carefully consider and
evaluate opportunities for obtaining improved executions.
IV. Authority
As discussed above, the 1975 Act Amendments to the Exchange Act set
forth Congress' goals for a national market system. Several commenters
argue that the proposed rules violate Congress's direction that the
Commission facilitate the establishment of, rather than design, a
national market system.366 Many of these comments were directed at
the proposed Price Improvement Rule and in particular the proposed
price improvement safe harbor. The Commission today is deferring action
on that rule proposal. To the extent that the comments relate to the
rule and amendments adopted today, however, they reflect a fundamental
misunderstanding regarding the purpose of the rules and the
Commission's role in facilitating a national market system.
---------------------------------------------------------------------------
\366\ See, e.g., ABA Letter; Fahnestock Letter; HHG Letter; LJR
Letter; NSC Letter; PaineWebber Letter; RPM Letter; Ruane Letter;
SIA Letter.
---------------------------------------------------------------------------
The Commission's adoption of these rules is fully consistent with
the role that Congress envisioned in 1975 for the Commission.
Congress's direction to the Commission to ``facilitate'' the
establishment of a national market system for securities that
implemented Congressionally enumerated objectives was not intended as a
limitation on the Commission's authority but rather was ``designed to
provide maximum flexibility to the Commission and the securities
industry in giving specific content to the general concept of the
national market system.'' 367 Congress granted the Commission
broad rulemaking authority over the national market system and market
participants and this grant of specific rulemaking authority was not
conditioned on the expectation that the Commission refrain from using
it.
---------------------------------------------------------------------------
\367\ Conference Report, supra note 213, at 92. See Senate
Report, supra note 31, at 8-9 (``the sounder approach appeared * * *
to be to establish a statutory scheme clearly granting the
Commission broad authority to oversee the implementation, operation,
and regulation of the national market system and at the same time to
charging it with the clear responsibility to assure that the system
develops and operates in accordance with Congressional determined
goals and objectives.''). The Conference Committee report on the
1975 Act Amendments indicates that the conferees adopted with minor
revisions the Senate's provisions concerning the national market
system. Conference Report, supra note 213, at 92.
---------------------------------------------------------------------------
Although Congress expressed a preference that where possible the
national market system evolve through the interplay of competitive
forces, it recognized that ``competition may not be sufficient'' and
that in such cases, the Commission should act ``promptly and
effectively to insure that the essential mechanisms of an integrated
secondary trading system [be] put into place * * *.'' 368 Congress
specifically identified in 1975 some of the concerns addressed today
and the Commission has examined these issues on several occasions over
the intervening years in response to evolving market conditions and
technologies. In view of the caution and deliberation with which the
Commission has proceeded over the past 21 years, its actions today
cannot fairly be viewed as arresting natural competitive forces, but
rather should be regarded as an attempt to foster efficiency and
redress shortcomings in the national market system that have developed
since then, or that the securities industry on its own has been unable
to resolve over this time.
---------------------------------------------------------------------------
\368\ Conference Report, supra note 213 at 92.
---------------------------------------------------------------------------
The subject matter of these rule and rule amendments is an area of
the national market system in which Congress itself recognized that the
Commission's expertise and authority were paramount. Indeed, Section
11A was specifically enacted to eliminate ``arguments about the SEC's
authority'' in this area. For that reason, the Commission was given
``pervasive rulemaking power'' with respect to the business of
collecting, processing, or publishing information relating to
quotations for and transactions in securities.369 The rules
adopted today implement Congress' goals as to dissemination of trading
information: ``to insure the availability of prompt and accurate
trading information, to assure that these communications networks are
not controlled or dominated by any particular market center, to
guarantee fair access to such systems by all brokers, dealers and
investors, and to prevent any competitive restriction on their
operation not justified by the purposes of the Exchange Act.'' 370
---------------------------------------------------------------------------
\369\ Conference Report, supra note 213, at 93.
\370\ Senate Report, supra note 31.
---------------------------------------------------------------------------
It bears noting that the standards adopted by the Commission today
are intended to allow markets to adapt and evolve in meeting the
objectives of the national market system; the rules establish
performance standards but do not dictate market structure. With regard
to the Quote Rule, the rules do not determine how non-Rule 19c-3 market
makers may make markets or how electronic communications networks may
operate. Non-Rule 19c-3 market makers are free to operate as they
please so long as they report their quotations to the extent they
execute a certain level of volume in a security. Likewise, market
makers and specialists may place priced orders in ECNs of many
different designs as long as they change their quotes to reflect the
orders in the ECN or the ECNs publicly report the quotes and provide
access to such
[[Page 48325]]
priced orders. With regard to the Limit Order Display Rule, the rule
does not seek to create a central limit order book or central limit
order file. Broker-dealers are free to satisfy the rule in several
different ways, so long as the result is that customer limit orders
priced at or better than the NBBO are publicly displayed.
Some commenters also argue that the proposed rules are contrary to
Congress' direction to assure fair competition between auction and
dealer markets as structures for the trading of securities 371 and
inappropriately introduce auction market principles into dealer
markets. Although requiring display of superior-priced customer limit
orders could be viewed as an auction market principle, such a
requirement does not supplant the basic features of a dealer market or
undermine competition between the exchange and OTC markets. Congress
clearly intended that dealer markets would benefit from use of some
auction market principles 372 and the 1975 Amendments specifically
announce as a goal of the national market system that customer orders
be able to interact without the intervention of a dealer to the extent
that such a goal is consistent with other national market system
objectives.373 At a minimum, where feasible, customer limit orders
should have a meaningful opportunity to interact with customer market
orders.374
---------------------------------------------------------------------------
\371\ See, e.g., Goldman Sachs Letter; Jefferies Letter; Merrill
Lynch Letter; RPM Letter; Schwab I Letter; Schwartz & Wood Letter;
SIA Letter; Specialist Assoc. Letter; see also Exchange Act Section
11A(a)(1)(C)(ii), 15 U.S.C. 78k-1(a)(1)(C)(ii).
\372\ Senate Report, supra note 31, at 16.
\373\ Exchange Act Section 11A(a)(1)(C)(v).
\374\ Exchange Act Section 11A(a)(1)(C)(v).
---------------------------------------------------------------------------
One of the main benefits contemplated by Congress was that the
national market system would enable investors in dealer markets to
execute against another limit order or market order at a better price
than currently being quoted by a dealer for his own account.375
Display of superior-priced limit orders would permit investors to
compete in some cases with market makers and specialists, thereby
increasing the competitiveness of dealer markets in these securities
and enhancing the quality of customer limit order execution. Display of
customer limit orders, however, would not compromise the essential
features of dealer markets. In the absence of any superior-priced
customer limit orders, dealers would continue to compete for market
orders at their published quotations and would be able to execute
against customer limit orders that would otherwise prevent the market
maker from trading with a market order. Further, the widespread use by
OTC dealers of ECNs to trade at prices better than the dealers'
published quotes is of such recent vintage that it can hardly be viewed
as a necessary part of a dealer market structure.376
---------------------------------------------------------------------------
\375\ Senate Report supra note 31, at 16.
\376\ While the rule and rule amendments adopted today function
as an integrated response to the problems the Commission has
identified in the implementation of a NMS, each separately advances
the Congressional goals of market efficiency, fair competition,
transparency, and best execution, and accordingly the Commission
intends that they be treated as severable for purposes of review.
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V. Summary of Final Regulatory Flexibility Act Analysis
This following discussion summarizes the Commission's analysis of
the rules adopted today under the Regulatory Flexibility Act. A
complete final copy of the Final Regulatory Flexibility Act is
available in the Public File.
The rules adopted today by the Commission are intended to allow
markets to adapt and evolve in meeting the objectives of the national
market system. In this regard, the rules establish performance
standards but do not dictate market structure. The Quote Rule does not
dictate how market makers or specialists that trade non-Rule 19c-3
securities may conduct their market making activities or how ECNs may
service their subscribers. Market makers will be able to continue their
regular market making activities so long as they report their
quotations if they trade more than 1% of the transaction volume in a
security. Likewise, market makers and specialists may place priced
orders in ECNs of many different designs as long as they change their
quotes to reflect better priced orders they have entered in ECNs or,
alternatively, such ECNs provide for the public reporting of these
prices and provide access to such priced orders. Moreover, broker-
dealers are free to satisfy the Display Rule in several different ways,
so long as the result is that customer limit orders priced at or better
than the NBBO are publicly displayed in accordance with the rule.
A. Display Rule
The Commission considered several significant alternatives to Rule
11Ac1-4 consistent with the Rule's objectives and designed to minimize
the impact of the rule on small entities. The Commission solicited
comment on, among other things: (i) Whether the display requirement
should be based on a de minimis threshold; (ii) the classes of
securities to which the Rule should apply; (iii) whether to permit
limit orders to be delivered to an exchange- or association-sponsored
system that displays limit orders in accordance with the rule; and (iv)
whether to permit limit orders to be delivered to an ECN or a PTS. The
Commission believes that the rule as adopted imposes a smaller burden
upon small brokers and dealers than do other alternatives considered.
The Commission believes that the ability of brokers and dealers to
send a limit order to another party or system that will display that
order provides all brokers and dealers, including small brokers and
dealers, with the greatest possible flexibility to satisfy the NMS
objectives embodied in the rule in the most economical manner. In this
regard, the Commission decided to expand one of the exceptions to the
display requirement that will permit market makers to comply with the
rule by delivering customer limit orders to an ECN that complies with
the ECN amendment to the Quote Rule. Furthermore, the Commission added
a new exemptive provision that enables the Commission to exempt any
responsible broker or dealer, ECN, exchange, or association from the
requirements of the Display Rule.
The Commission considered allowing display of a representative size
of a limit order rather than the full size, but concluded that display
of the full size will provide the most accurate picture of the depth of
the market at a particular price. The Commission does not believe that
it is practicable to exempt small entities from the Display Rule
because to do so would be inconsistent with the Commission's statutory
mandate to protect investors. In that regard, the Commission believes
that the pricing and size conventions documented in the 21(a) Report
referenced above make it imperative that the requirements of the
Display Rule apply to all market participants with equal force. The
Commission notes that any exception for small brokers and dealers could
create an incentive for Nasdaq market makers to create special market
making subsidiaries qualifying as small broker-dealers which would be
free to engage in the anti-competitive practices identified in the
21(a) Report.
B. Quote Rule
Allowing market makers that deal actively in securities without
publicizing their activity or making available their prices undermines
the NMS goal of transparency. The Commission believes that those
dealers should be recognized as market makers and their quotations
publicized so that investors may know of, and trade on similar terms
with, those market makers. Therefore, the definition of OTC
[[Page 48326]]
market maker now includes any dealer holding itself out as willing to
transact business for its own account on a regular or continuous basis,
whether it transacts exclusively with its own customers or with the
customers of other dealers. Thus, those dealers that internalize
customer order flow in particular stocks or through arrangements with
other firms to execute that order flow, now fall within the definition
of OTC market maker and are subject to the obligations under the Quote
Rule. As in the past, broker-dealers will not be considered to be
holding themselves out as regularly or continuously willing to buy or
sell a security if they occasionally execute a trade as principal to
accommodate a customer's request. In response to the suggestions of
some commenters, the Commission has modified the amendment to make
clear that more than one isolated transaction is necessary before a
dealer is designated an OTC market maker.
In addition, the Commission believes that extending the 1%
threshold based on quarterly aggregate trading volume to non-Rule 19c-3
securities is a reasonable method to improve the scope of quotation
information to include significant OTC market makers and specialists.
This 1% threshold, currently in effect for Rule 19c-3 securities, has
proved effective in supplying comprehensive quotation information to
the market at large. Moreover, based on the increase in third market
trading volume for these securities, the Commission does not believe
this standard is unduly burdensome on OTC market makers. Rather, the
Commission believes this threshold strikes a balance between requiring
the dissemination of all quotation interest and accommodating those
specialists and OTC market makers that may be small entities. The
Commission believes that OTC market makers and specialists that account
for 1% or less of the aggregate volume are not active enough to justify
the additional expense of providing continuous quotation display.
Accordingly, the Commission believes the ``greater than 1% aggregate
trading volume'' threshold for mandatory quotations continues to be
appropriate. To limit a possible inconsistency in the treatment of
exchange-listed and Nasdaq securities, the Commission today is
proposing that the 1% test be extended from all exchange-listed
securities to all Nasdaq-listed securities.
The Commission considered several significant alternatives to the
proposed amendments to the Quote Rule consistent with the Rule's
objectives and designed to minimize the impact of the amendments on
small entities. The Commission solicited comment on numerous
alternatives to the amendments proposed to ensure that investors
receive consolidated quotations that truly reflect the best prices
available for a security. The Commission solicited comment on, among
other issues: (i) Whether the Commission should require SROs to amend
their rules to permit computer-generated quotations; (ii) whether there
existed alternatives to the ECN proposal that minimized certain
consequences of the rule while assuring public dissemination of the
best priced orders in such systems; (iii) whether there should be
exceptions to the ECN proposal and under what circumstances; and (iv)
whether the objectives of the Quote Rule and the ECN amendment could be
achieved by allowing ECNs to furnish prices to the applicable SRO,
while providing access to the prices in their ECN. The Commission
believes that the amendments as adopted impose a smaller burden upon
small brokers and dealers than does any other alternative considered.
In recognition of the concerns raised by some commenters, the ECN
display alternative is designed to preserve the benefits associated
with the anonymity that certain ECNs currently offer to subscribing
market makers and specialists. This alternative also ensures that the
best market maker and specialist prices in the ECN are publicly
disseminated and that non-subscribing brokers and dealers may trade
with the orders represented by those prices. Under the display
alternative, the price of a specialist's or market maker's order
entered into an ECN would be publicly disseminated while the specialist
or market maker remains anonymous. This alternative not only preserves
anonymity, but also eliminates the risk that a market maker or
specialist may be exposed to multiple executions at the ECN price. With
the addition of the alternative, the ECN amendment permits the display
of the best price either in the specialist's or market maker's quote or
through an ECN that provides for the dissemination of the best market
maker and specialist prices entered into the ECN.
The Commission also notes that the ECN display alternative reduces
the compliance burden on broker-dealers, including small entities, by
permitting specialists and market makers to comply with the ECN
amendment if the ECN into which the market maker's order is entered
ensures that the best market maker prices entered therein are
communicated to an exchange, association or securities information
processor and the ECN provides a means for brokers and dealers to trade
with the orders market makers and specialists put in the ECN.
The Commission recognizes that the ECN display alternative may
reduce the content of information that is publicly available because
under this alternative, the identity of the market maker or specialist
that entered the better priced order in the ECN will be withheld. The
Commission believes this result is justified because the inside prices
and full sizes of orders entered by market makers and specialists will
be in the public quotation system to inform the entire market of these
prices and ECNs will provide equivalent access to those prices.
Moreover, the Commission believes the benefits of facilitating the use
of ECNs, by permitting the continued anonymity of market makers and
specialists, more than offset the reduced information available on the
identity of a particular market maker or specialist.
The Commission believes the data it has reviewed supports the need
for prompt adoption of the ECN amendment to the Quote Rule. As
discussed more fully in the Appendix to the 21(a) Report, an analysis
of data for April through June 1994 shows that approximately 85% of
bids and offers displayed by market makers on Instinet and 90% of bids
and offers displayed on SelectNet (an ECN sponsored by the NASD) were
at better prices than those disseminated to the public via Nasdaq. In
addition, approximately 77% of trades executed on Instinet and 60% of
trades executed on SelectNet were at prices superior to the Nasdaq
inside spread. Given this strong evidence that investors would benefit
from public dissemination of these hidden prices that are broadly
disseminated to subscribers in these systems, the Commission believes
that it is appropriate to adopt the amendments to the Quote Rule.
The Commission does not believe that it is practicable to exempt
small entities from the Quote Rule amendments because to do so would be
inconsistent with the Commission's statutory mandate to protect
investors. In this regard, the Commission notes the clear evidence of a
two-tiered market, in which market makers routinely trade at one price
with customers and at better prices with ECN participants. The
Commission believes that it is imperative to further the long-standing
objectives of the 1975 Amendments to ensure reliable and accurate
quotes by making these prices available to the public. The Commission
believes that any exception for small brokers and
[[Page 48327]]
dealers could create an incentive for Nasdaq market makers to create
special market making subsidiaries qualifying as small broker-dealers
which would be free to engage in the anti-competitive practices
identified in the 21(a) Report.
A final copy of the Final Regulatory Flexibility Act analysis is
available in the Public File.
VI. Paperwork Reduction Act
As set forth in the Proposing Release,377 the proposed
amendments to Rule 11Ac1-1 and proposed Rule 11Ac1-4 contain
collections of information within the meaning of the Paperwork
Reduction Act (``PRA''). Accordingly, proposed amendments to Rule
11Ac1-1 and proposed Rule 11Ac1-4 were submitted to the Office of
Management and Budget (``OMB'') for review pursuant to Section 3507 of
the PRA (44 U.S.C. 3507), and were approved by OMB which assigned the
following control numbers: Amendments to Rule 11Ac1-1, control number
3235-0461; Rule 11Ac1-4, control number 3235-0462. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a valid OMB control
number. This is the final notice regarding the collection of
information under Rule 11Ac1-4, the Display Rule. A new notice
regarding the collections of information under Rule 11Ac1-1, the Quote
Rule, may be found in the Companion Release (published elsewhere in the
Federal Register today) which proposes an additional amendment to the
Quote Rule. The PRA section in the preamble of the Companion Release
provides new estimates of the burden in responding to the collections
of information under the Quote Rule as a whole.
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\377\ Proposing Release at 70.
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The reporting requirement in Rule 11Ac1-4 is found in 17 CFR
240.11Ac1-4. The collection of information is mandatory and responses
are not confidential. The respondents are OTC market makers, as defined
under the rule. (Although exchange specialists are also required to
follow the rule, as noted in the Proposing Release the Commission does
not anticipate any significant additional burden on exchange
specialists in light of current exchange order handling practices.) The
Rule requires market makers to change their published quotation to
reflect the price and/or size of a customer limit order that would
improve their published bid or offer or otherwise ensure that such
limit order is displayed. The burden on market makers will depend on
the extent and variety of their market-making activities and their
choice of the various compliance options offered by the regulations.
The ability of market makers to utilize facilities of national
securities exchanges, registered national securities associations, and
ECNs to comply with the reporting requirement should ease the
compliance burden. The proposed rule would have permitted market makers
to execute a limit order or send a limit order to another market maker
or exchange or association facility that would ensure display of such
orders in lieu of the market makers' own display. Rule 11Ac1-4 as
adopted maintains these alternatives and also permits respondents to
send a limit order to an ECN meeting certain criteria. The information
reported will be displayed to all persons who have access to a
quotation montage as that term is defined in 17 CFR 240.11Ac1-2(a)(16).
The Commission carefully considered comments received from the NASD
and SIA concerning the Commission's burden estimates.378 The NASD
stated that the Commission underestimated the number of limit orders to
be displayed per trading day, given the NASD's view that Rule 11Ac1-4
will lead to increased limit order exposure. After considering the
NASD's comment, and based upon further review of the market data, the
Commission is revising its burden estimate for Rule 11Ac1-4 as follows.
There are approximately 570 respondents. Each respondent on average
will respond to the collection of information 42,000 times per year,
based on a 252 trading day year. The total time burden for each
respondent per year is estimated to be 35 hours, based on an estimate
of 3 seconds per response (i.e., the time it takes to update a quote to
reflect a limit order, or to transmit the order for display
elsewhere).379 The total annual aggregate burden for all
respondents is estimated to be 19,950 hours.
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\378\ The SIA noted that they join in the concerns expressed by
the NASD that the Commission's estimates under the PRA are too low,
and need to be revised and extended to include the proposed safe
harbor under Rule 11Ac1-5. SIA Letter at 4. As noted above, the
Commission is not adopting the Price Improvement Rule at this time.
\379\ The NASD commented that it believes the PRA burden
estimate should include the time market makers spend analyzing
market trends and following quotation and last sale information. The
Commission has determined not to revise its burden estimate based on
this comment, because market makers otherwise engage in such
activities apart from the collection of information requirement. For
example, market makers are already required to monitor the markets
to ensure that they do not trade ahead of customer limit orders.
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VII. Effects on Competition
Section 23(a)(2) of the Exchange Act 380 requires the
Commission to consider the anti-competitive effects of any rules it
adopts thereunder, and to balance them against the benefits that
further the purposes of the Act. As discussed above, several commenters
raised concerns regarding the competitive implications of the order
handling proposals.381 The foregoing discussion contains extensive
analysis of the competitive effects of both the rule and rule
amendments; this section summarizes the Commission's conclusions. The
Commission has considered the proposals in light of the comments and
the standard embodied in Section 23(a)(2) and has concluded any burdens
on competition imposed by the Display Rule and the amendments to the
Quote Rule are necessary and appropriate in furtherance of the purposes
of the Exchange Act, in particular, the purposes of Section 11A.
---------------------------------------------------------------------------
\380\ 15 U.S.C. 78w(a)(2).
\381\ See ABA Letter; HHG Letter; NASD Letter.
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The Commission notes that the primary burden imposed by the Display
Rule will be to require exchange specialists and OTC market makers to
ensure that customer limit orders improving their quotes are displayed.
The Commission believes that if systems upgrades are necessary, those
systems upgrades reflect one-time charges. The Commission also notes
that ensuring public dissemination of limit orders enhances market
transparency, increases pricing efficiency, and quote-based
competition, and permits investors' orders to interact with all
available market interest. Moreover, the limit order display rule will
provide an opportunity for investors to compete directly in the market.
This additional competition should limit certain anticompetitive
practices identified in the 21(a) Report and discussed supra. For the
reasons discussed above, the Commission does not believe the Display
Rule will have a significantly different effect on wholesale and retail
market makers.382 The Commission notes that the Antitrust Division
of the U.S. Department of Justice similarly concluded that the Display
Rule will promote competition and will thereby benefit the investing
public.
---------------------------------------------------------------------------
\382\ See supra note 124 and accompanying text.
---------------------------------------------------------------------------
Similarly, the Commission notes that the primary burden imposed by
the ECN Amendment to the Quote Rule will be to require exchange
specialists and OTC market makers to add personnel or upgrade systems
to ensure that their quotes reflect priced orders entered into those
ECNs that do not disseminate
[[Page 48328]]
order information to the relevant exchange or association. The
Commission believes that such systems upgrades reflect one-time
charges. The Commission believes that the ECN amendment to the Quote
Rule will impose only limited competitive burdens on ECNs. ECNs which
have attributes that differentiate them from other types of electronic
order routing and order execution systems, will have a choice whether
to disseminate order information to the relevant exchanges or
association. While choosing this alternative will result in some system
costs, the Commission believes that the alternative will provide ECNs
with additional business opportunities, including increased order flow.
The ECN amendment should allow ECNs to function as valuable facilities
for their subscribers, and should not harm ECNs significantly in their
competition with other order execution systems.383 The Commission
also notes that ensuring public dissemination of market makers' and
specialists' priced orders entered into ECNs enhances market
transparency, pricing efficiency, price competition, and allows
investors' orders to interact with all available market interest.
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\383\ Although the Antitrust Division of the U.S. Department of
Justice expressed concerns about the effects of the ECN amendment as
originally proposed, the Commission believes that with the quote
dissemination alternative, the amendment will not impose any
unnecessary or inappropriate burdens on competition.
---------------------------------------------------------------------------
Finally, with respect to the amendments extending the Mandatory
Quote Rule to non-Rule 19c-3 securities, the primary burden imposed
will be to require certain brokers and dealers to register as CQS
market makers and make continuous two-sided quotes available to the
public. The Commission believes that the benefit to the investing
public of ensuring that available market interest is disseminated to
the public will enhance competition by facilitating the routing of
investor orders to the market center displaying the best quotation for
a security. The Commission believes that the added transparency
resulting from the amendment outweighs any burden to competition that
may be imposed.
List of Subjects in 17 CFR Part 240
Broker-dealers, Confidential business information, Reporting and
recordkeeping requirements, and Securities.
Text of the Rules
For the reasons set out in the preamble, the Commission amends Part
240 of Chapter II of Title 17 of the Code of Federal Regulation as
follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The general authority citation for Part 240 is revised to read
as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78k-1, 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.
* * * * *
2. Section 240.11Aa3-1 is amended by revising paragraph (a)(4) to
read as follows:
Sec. 240.11Aa3-1 Dissemination of transaction reports and last sale
data with respect to transactions in reported securities.
(a) Definitions. * * *
(4) The term reported security shall mean any security or class of
securities for which transaction reports are collected, processed and
made available pursuant to an effective transaction reporting plan.
* * * * *
3. Section 240.11Ac1-1 is revised to read as follows:
Sec. 240.11Ac1-1 Dissemination of quotations.
(a) Definitions. For the purposes of this section:
(1) The term aggregate quotation size shall mean the sum of the
quotation sizes of all responsible brokers or dealers who have
communicated on any exchange bids or offers for a covered security at
the same price.
(2) The term association shall mean any association of brokers and
dealers registered pursuant to Section 15A of the Act (15 U.S.C. 78o-
3).
(3) The terms best bid and best offer shall mean the highest priced
bid and the lowest priced offer.
(4) The terms bid and offer shall mean the bid price and the offer
price communicated by an exchange member or OTC market maker to any
broker or dealer, or to any customer, at which it is willing to buy or
sell one or more round lots of a covered security, as either principal
or agent, but shall not include indications of interest.
(5) The term consolidated system shall mean the consolidated
transaction reporting system.
(6) The term covered security shall mean any reported security and
any other security for which a transaction report, last sale data or
quotation information is disseminated through an automated quotation
system as described in Section 3(a)(51)(A)(ii) of the Act (15 U.S.C.
78c(a)(51)(A)(ii)).
(7) The term effective transaction reporting plan shall have the
meaning provided in Sec. 240.11Aa3-1(a)(3).
(8) The term electronic communications network, for the purposes of
Sec. 240.11Ac1-1(c)(5), shall mean any electronic system that widely
disseminates to third parties orders entered therein by an exchange
market maker or OTC market maker, and permits such orders to be
executed against in whole or in part; except that the term electronic
communications network shall not include:
(i) Any system that crosses multiple orders at one or more
specified times at a single price set by the ECN (by algorithm or by
any derivative pricing mechanism) and does not allow orders to be
crossed or executed against directly by participants outside of such
times; or
(ii) Any system operated by, or on behalf of, an OTC market maker
or exchange market maker that executes customer orders primarily
against the account of such market maker as principal, other than
riskless principal.
(9) The term exchange market maker shall mean any member of a
national securities exchange (``exchange'') who is registered as a
specialist or market maker pursuant to the rules of such exchange.
(10) The term exchange-traded security shall mean any covered
security or class of covered securities listed and registered, or
admitted to unlisted trading privileges, on an exchange; provided,
however, That securities not listed on any exchange that are traded
pursuant to unlisted trading privileges are excluded.
(11) The term make available, when used with respect to bids,
offers, quotation sizes and aggregate quotation sizes supplied to
quotation vendors by an exchange or association, shall mean to provide
circuit connections at the premises of the exchange or association
supplying such data, or at a common location determined by mutual
agreement of the exchanges and associations, for the delivery of such
data to quotation vendors.
(12) The term odd-lot shall mean an order for the purchase or sale
of a covered security in an amount less than a round lot.
(13) The term OTC market maker shall mean any dealer who holds
itself out as being willing to buy from and sell to its customers, or
otherwise, a covered security for its own account on a regular or
continuous basis otherwise than on an exchange in amounts of less than
block size.
[[Page 48329]]
(14) The term plan processor shall have the meaning provided in
Sec. 240.11Aa3-2(a)(7).
(15) The term published aggregate quotation size shall mean the
aggregate quotation size calculated by an exchange and displayed by a
quotation vendor on a terminal or other display device at the time an
order is presented for execution to a responsible broker or dealer.
(16) The terms published bid and published offer shall mean the bid
or offer of a responsible broker or dealer for a covered security
communicated by it to its exchange or association pursuant to this
section and displayed by a quotation vendor on a terminal or other
display device at the time an order is presented for execution to such
responsible broker or dealer.
(17) The term published quotation size shall mean the quotation
size of a responsible broker or dealer communicated by it to its
exchange or association pursuant to this section and displayed by a
quotation vendor on a terminal or other display device at the time an
order is presented for execution to such responsible broker or dealer.
(18) The term quotation size, when used with respect to a
responsible broker's or dealer's bid or offer for a covered security,
shall mean:
(i) The number of shares (or units of trading) of that covered
security which such responsible broker or dealer has specified, for
purposes of dissemination to quotation vendors, that it is willing to
buy at the bid price or sell at the offer price comprising its bid or
offer, as either principal or agent; or
(ii) In the event such responsible broker or dealer has not so
specified, a normal unit of trading for that covered security.
(19) The term quotation vendor shall mean any securities
information processor engaged in the business of disseminating to
brokers, dealers or investors on a real-time basis, bids and offers
made available pursuant to this section, whether distributed through an
electronic communications network or displayed on a terminal or other
display device.
(20) The term reported security shall mean any security or class of
securities for which transaction reports are collected, processed and
made available pursuant to an effective transaction reporting plan.
(21) The term responsible broker or dealer shall mean:
(i) When used with respect to bids or offers communicated on an
exchange, any member of such exchange who communicates to another
member on such exchange, at the location (or locations) designated by
such exchange for trading in a covered security, a bid or offer for
such covered security, as either principal or agent; provided, however,
That, in the event two or more members of an exchange have communicated
on such exchange bids or offers for a covered security at the same
price, each such member shall be considered a ``responsible broker or
dealer'' for that bid or offer, subject to the rules of priority and
precedence then in effect on that exchange; and further provided, That
for a bid or offer which is transmitted from one member of an exchange
to another member who undertakes to represent such bid or offer on such
exchange as agent, only the last member who undertakes to represent
such bid or offer as agent shall be considered the ``responsible broker
or dealer'' for that bid or offer; and
(ii) When used with respect to bids and offers communicated by a
member of an association to another broker or dealer or to a customer
otherwise than on an exchange, the member communicating the bid or
offer (regardless of whether such bid or offer is for its own account
or on behalf of another person).
(22) The term revised bid or offer shall mean a market maker's bid
or offer which supersedes its published bid or published offer.
(23) The term revised quotation size shall mean a market maker's
quotation size which supersedes its published quotation size.
(24) The term specified persons, when used in connection with any
notification required to be provided pursuant to paragraph (b)(3) of
this section and any election (or withdrawal thereof) permitted under
paragraph (b)(5) of this section, shall mean:
(i) Each quotation vendor;
(ii) Each plan processor; and
(iii) The processor for the Options Price Reporting Authority (in
the case of a notification for a subject security which is a class of
securities underlying options admitted to trading on any exchange).
(25) The term subject security shall mean:
(i) With respect to an exchange:
(A) Any exchange-traded security other than a security for which
the executed volume of such exchange, during the most recent calendar
quarter, comprised one percent or less of the aggregate trading volume
for such security as reported in the consolidated system; and
(B) Any other covered security for which such exchange has in
effect an election, pursuant to paragraph (b)(5)(i) of this section, to
collect, process, and make available to quotation vendors, bids,
offers, quotation sizes, and aggregate quotation sizes communicated on
such exchange; and
(ii) With respect to a member of an association:
(A) Any exchange-traded security for which such member acts in the
capacity of an OTC market maker unless the executed volume of such
member, during the most recent calendar quarter, comprised one percent
or less of the aggregate trading volume for such security as reported
in the consolidated system; and
(B) Any other covered security for which such member acts in the
capacity of an OTC market maker and has in effect an election, pursuant
to paragraph (b)(5)(ii) of this section, to communicate to its
association bids, offers and quotation sizes for the purpose of making
such bids, offers and quotation sizes available to quotation vendors.
(b) Dissemination requirements for exchanges and associations. (1)
Every exchange and association shall establish and maintain procedures
and mechanisms for collecting bids, offers, quotation sizes and
aggregate quotation sizes from responsible brokers or dealers who are
members of such exchange or association, processing such bids, offers
and sizes, and making such bids, offers and sizes available to
quotation vendors, as follows:
(i) Each exchange shall at all times such exchange is open for
trading, collect, process and make available to quotation vendors the
best bid, the best offer, and aggregate quotation sizes for each
subject security listed or admitted to unlisted trading privileges
which is communicated on any exchange by any responsible broker or
dealer, but shall not include:
(A) Any bid or offer executed immediately after communication and
any bid or offer communicated by a responsible broker or dealer other
than an exchange market maker which is cancelled or withdrawn if not
executed immediately after communication; and
(B) Any bid or offer communicated during a period when trading in
that security has been suspended or halted, or prior to the
commencement of trading in that security on any trading day, on that
exchange.
(ii) Each association shall, at all times that last sale
information with respect to reported securities is reported pursuant to
an effective transaction reporting plan, collect, process and make
available to quotation vendors the best bid, best offer, and quotation
sizes communicated otherwise than on an exchange by each member of such
association acting in the capacity of an
[[Page 48330]]
OTC market maker for each subject security and the identity of that
member (excluding any bid or offer executed immediately after
communication), except during any period when over-the-counter trading
in that security has been suspended.
(2) Each exchange shall, with respect to each published bid and
published offer representing a bid or offer of a member for a subject
security, establish and maintain procedures for ascertaining and
disclosing to other members of that exchange, upon presentation of
orders sought to be executed by them in reliance upon paragraph (c)(2)
of this section, the identity of the responsible broker or dealer who
made such bid or offer and the quotation size associated with it.
(3)(i) If, at any time an exchange is open for trading, such
exchange determines, pursuant to rules approved by the Securities and
Exchange Commission pursuant to section 19(b)(2) of the Act (15 U.S.C.
78s(b)(2)), that the level of trading activities or the existence of
unusual market conditions is such that the exchange is incapable of
collecting, processing, and making available to quotation vendors the
data for a subject security required to be made available pursuant to
paragraph (b)(1) of this section in a manner that accurately reflects
the current state of the market on such exchange, such exchange shall
immediately notify all specified persons of that determination. Upon
such notification, responsible brokers or dealers that are members of
that exchange shall be relieved of their obligation under paragraph
(c)(2) of this section and such exchange shall be relieved of its
obligations under paragraphs (b) (1) and (2) of this section for that
security: provided, however, That such exchange will continue, to the
maximum extent practicable under the circumstances, to collect,
process, and make available to quotation vendors data for that security
in accordance with paragraph (b)(1) of this section.
(ii) During any period an exchange, or any responsible broker or
dealer that is a member of that exchange, is relieved of any obligation
imposed by this section for any subject security by virtue of a
notification made pursuant to paragraph (b)(3)(i) of this section, such
exchange shall monitor the activity or conditions which formed the
basis for such notification and shall immediately renotify all
specified persons when that exchange is once again capable of
collecting, processing, and making available to quotation vendors the
data for that security required to be made available pursuant to
paragraph (b)(1) of this section in a manner that accurately reflects
the current state of the market on such exchange. Upon such
renotification, any exchange or responsible broker or dealer which had
been relieved of any obligation imposed by this section as a
consequence of the prior notification shall again be subject to such
obligation.
(4) Nothing in this section shall preclude any exchange or
association from making available to quotation vendors indications of
interest or bids and offers for a subject security at any time such
exchange or association is not required to do so pursuant to paragraph
(b)(1) of this section.
(5)(i) Any exchange may make an election for purposes of paragraph
(a)(25)(i)(B) of this section for any covered security, by collecting,
processing, and making available bids, offers, quotation sizes, and
aggregate quotation sizes in that security; except that for any covered
security previously listed or admitted to unlisted trading privileges
on only one exchange and not traded by any OTC market maker, such
election shall be made by notifying all specified persons, and shall be
effective at the opening of trading on the business day following
notification.
(ii) Any member of an association acting in the capacity of an OTC
market maker may make an election for purposes of paragraph
(a)(25)(ii)(B) of this section for any covered security, by
communicating to its association bids, offers, and quotation sizes in
that security; except that for any other covered security listed or
admitted to unlisted trading privileges on only one exchange and not
traded by any other OTC market maker, such election shall be made by
notifying its association and all specified persons, and shall be
effective at the opening of trading on the business day following
notification.
(iii) The election of an exchange or member of an association for
any covered security pursuant to this paragraph (b)(5) shall cease to
be in effect if such exchange or member ceases to make available or
communicate bids, offers, and quotation sizes in such security.
(c) Obligations of responsible brokers and dealers. (1) Each
responsible broker or dealer shall promptly communicate to its exchange
or association, pursuant to the procedures established by that exchange
or association, its best bids, best offers, and quotation sizes for any
subject security.
(2) Subject to the provisions of paragraph (c)(3) of this section,
each responsible broker or dealer shall be obligated to execute any
order to buy or sell a subject security, other than an odd-lot order,
presented to it by another broker or dealer, or any other person
belonging to a category of persons with whom such responsible broker or
dealer customarily deals, at a price at least as favorable to such
buyer or seller as the responsible broker's or dealer's published bid
or published offer (exclusive of any commission, commission equivalent
or differential customarily charged by such responsible broker or
dealer in connection with execution of any such order) in any amount up
to its published quotation size.
(3)(i) No responsible broker or dealer shall be obligated to
execute a transaction for any subject security as provided in paragraph
(c)(2) of this section to purchase or sell that subject security in an
amount greater than such revised quotation if:
(A) Prior to the presentation of an order for the purchase or sale
of a subject security, a responsible broker or dealer has communicated
to its exchange or association, pursuant to paragraph (c)(1) of this
section, a revised quotation size; or
(B) At the time an order for the purchase or sale of a subject
security is presented, a responsible broker or dealer is in the process
of effecting a transaction in such subject security, and immediately
after the completion of such transaction, it communicates to its
exchange or association a revised quotation size, such responsible
broker or dealer shall not be obligated by paragraph (c)(2) of this
section to purchase or sell that subject security in an amount greater
than such revised quotation size.
(ii) No responsible broker or dealer shall be obligated to execute
a transaction for any subject security as provided in paragraph (c)(2)
of this section if:
(A) Before the order sought to be executed is presented, such
responsible broker or dealer has communicated to its exchange or
association pursuant to paragraph (c)(1) of this section, a revised bid
or offer; or
(B) At the time the order sought to be executed is presented, such
responsible broker or dealer is in the process of effecting a
transaction in such subject security, and, immediately after the
completion of such transaction, such responsible broker or dealer
communicates to its exchange or association pursuant to paragraph
(c)(1) of this section, a revised bid or offer; provided, however, That
such responsible broker or dealer shall nonetheless be obligated to
execute any such order in such subject security as provided in
paragraph (c)(2) of this section at its revised bid or offer in any
[[Page 48331]]
amount up to its published quotation size or revised quotation size.
(4) Subject to the provisions of paragraph (b)(4) of this section:
(i) No exchange or OTC market maker may make available, disseminate
or otherwise communicate to any quotation vendor, directly or
indirectly, for display on a terminal or other display device any bid,
offer, quotation size, or aggregate quotation size for any covered
security which is not a subject security with respect to such exchange
or OTC market maker; and
(ii) No quotation vendor may disseminate or display on a terminal
or other display device any bid, offer, quotation size, or aggregate
quotation size from any exchange or OTC market maker for any covered
security which is not a subject security with respect to such exchange
or OTC market maker.
(5)(i) Entry of any priced order for a covered security by an
exchange market maker or OTC market maker in that security into an
electronic communications network that widely disseminates such order
shall be deemed to be:
(A) A bid or offer under this section, to be communicated to the
market maker's exchange or association pursuant to paragraph (c) of
this section for at least the minimum quotation size that is required
by the rules of the market maker's exchange or association if the
priced order is for the account of a market maker, or the actual size
of the order up to the minimum quotation size required if the priced
order is for the account of a customer; and
(B) A communication of a bid or offer to a quotation vendor for
display on a display device for purposes of paragraph (c)(4) of this
section.
(ii) An exchange market maker or OTC market maker that has entered
a priced order for a covered security into an electronic communications
network that widely disseminates such order shall be deemed to be in
compliance with paragraph (c)(5)(i)(A) of this section if the
electronic communications network:
(A) Provides to an exchange or association (or an exclusive
processor acting on behalf of one or more exchanges or associations)
the prices and sizes of the orders at the highest buy price and the
lowest sell price for such security entered in, and widely disseminated
by, the electronic communications network by exchange market makers and
OTC market makers for the covered security, and such prices and sizes
are included in the quotation data made available by the exchange,
association, or exclusive processor to quotation vendors pursuant to
this section; and
(B) Provides, to any broker or dealer, the ability to effect a
transaction with a priced order widely disseminated by the electronic
communications network entered therein by an exchange market maker or
OTC market maker that is:
(1) Equivalent to the ability of any broker or dealer to effect a
transaction with an exchange market maker or OTC market maker pursuant
to the rules of the exchange or association to which the electronic
communications network supplies such bids and offers; and
(2) At the price of the highest priced buy order or lowest priced
sell order, or better, for the lesser of the cumulative size of such
priced orders entered therein by exchange market makers or OTC market
makers at such price, or the size of the execution sought by the broker
or dealer, for the covered security.
(d) Exemptions. The Commission may exempt from the provisions of
this section, either unconditionally or on specified terms and
conditions, any responsible broker or dealer, electronic communications
network, exchange, or association if the Commission determines that
such exemption is consistent with the public interest, the protection
of investors and the removal of impediments to and perfection of the
mechanism of a national market system.
4. Section 240.11Ac1-4 is added to read as follows:
Sec. 240.11Ac1-4 Display of customer limit orders.
(a) Definitions. For purposes of this section:
(1) The term association shall mean any association of brokers and
dealers registered pursuant to Section 15A of the Act (15 U.S.C. 78o-
3).
(2) The terms best bid and best offer shall have the meaning
provided in Sec. 240.11Ac1-1(a)(3).
(3) The terms bid and offer shall have the meaning provided in
Sec. 240.11Ac1-1(a)(4).
(4) The term block size shall mean any order:
(i) Of at least 10,000 shares; or
(ii) For a quantity of stock having a market value of at least
$200,000.
(5) The term covered security shall mean any ``reported security''
and any other security for which a transaction report, last sale data
or quotation information is disseminated through an automated quotation
system as described in section 3(a)(51)(A)(ii) of the Act (15 U.S.C.
78c(a)(51)(A)(ii)).
(6) The term customer limit order shall mean an order to buy or
sell a covered security at a specified price that is not for the
account of either a broker or dealer; provided, however, That the term
customer limit order shall include an order transmitted by a broker or
dealer on behalf of a customer.
(7) The term electronic communications network shall have the
meaning provided in Sec. 240.11Ac1-1(a)(8).
(8) The term exchange-traded security shall have the meaning
provided in Sec. 240.11Ac1-1(a)(10).
(9) The term OTC market maker shall mean any dealer who holds
itself out as being willing to buy from and sell to its customers, or
otherwise, a covered security for its own account on a regular or
continuous basis otherwise than on a national securities exchange in
amounts of less than block size.
(10) The term reported security shall have the meaning provided in
Sec. 240.11Ac1-1(a)(20).
(b) Specialists and OTC market makers. For all covered securities:
(1) Each member of an exchange that is registered by that exchange
as a specialist, or is authorized by that exchange to perform functions
substantially similar to that of a specialist, shall publish
immediately a bid or offer that reflects:
(i) The price and the full size of each customer limit order held
by the specialist that is at a price that would improve the bid or
offer of such specialist in such security; and
(ii) The full size of each customer limit order held by the
specialist that:
(A) Is priced equal to the bid or offer of such specialist for such
security;
(B) Is priced equal to the national best bid or offer; and
(C) Represents more than a de minimis change in relation to the
size associated with the specialist's bid or offer.
(2) Each registered broker or dealer that acts as an OTC market
maker shall publish immediately a bid or offer that reflects:
(i) The price and the full size of each customer limit order held
by the OTC market maker that is at a price that would improve the bid
or offer of such OTC market maker in such security; and
(ii) The full size of each customer limit order held by the OTC
market maker that:
(A) Is priced equal to the bid or offer of such OTC market maker
for such security;
(B) Is priced equal to the national best bid or offer; and
(C) Represents more than a de minimis change in relation to the
size associated with the OTC market maker's bid or offer.
[[Page 48332]]
(c) Exceptions. The requirements in paragraph (b) of this section
shall not apply to any customer limit order:
(1) That is executed upon receipt of the order.
(2) That is placed by a customer who expressly requests, either at
the time that the order is placed or prior thereto pursuant to an
individually negotiated agreement with respect to such customer's
orders, that the order not be displayed.
(3) That is an odd-lot order.
(4) That is a block size order, unless a customer placing such
order requests that the order be displayed.
(5) That is delivered immediately upon receipt to an exchange or
association-sponsored system, or an electronic communications network
that complies with the requirements of Sec. 240.11Ac1-1(c)(5)(ii) with
respect to that order.
(6) That is delivered immediately upon receipt to another exchange
member or OTC market maker that complies with the requirements of this
section with respect to that order.
(7) That is an ``all or none'' order.
(d) Exemptions. The Commission may exempt from the provisions of
this section, either unconditionally or on specified terms and
conditions, any responsible broker or dealer, electronic communications
network, exchange, or association if the Commission determines that
such exemption is consistent with the public interest, the protection
of investors and the removal of impediments to and perfection of the
mechanism of a national market system.
Dated: September 6, 1996.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23210 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-P
Complete official Federal Register PDF
FR Doc. 96-23163 Certifications and Exemptions Under the International Regulations for Preventing Collisions at Sea, 1972
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48070-48071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23163]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
Department of the Navy
32 CFR Part 706
Certifications and Exemptions Under the International Regulations
for Preventing Collisions at Sea, 1972
AGENCY: Department of the Navy, DOD.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Department of the Navy is amending its certifications and
exemptions under the International Regulations for Preventing
Collisions at Sea, 1972 (72 COLREGS), to reflect that the Deputy
Assistant Judge Advocate General (Admiralty) of the Navy has determined
that USS FALCON (MHC 59) is a vessel of the Navy which, due to its
special construction and purpose, cannot fully comply with certain
provisions of the 72 COLREGS without interfering with its special
functions as a naval ship. The intended effect of this rule is to warn
mariners in waters where 72 COLREGS apply.
EFFECTIVE DATE: August 21, 1996.
FOR FURTHER INFORMATION CONTACT: Captain R. R. Pixa, JAGC, U.S. Navy,
Admiralty Counsel, Office of the Judge Advocate General, Navy
Department, 200 Stovall Street, Alexandria, Virginia, 22332-2400.
Telephone Number: (703) 325-9744.
SUPPLEMENTARY INFORMATION: Pursuant to the authority granted in 33
U.S.C. 1605, the Department of the Navy amends 32 CFR Part 706. This
amendment provides notice that the Deputy Assistant Judge Advocate
General (Admiralty) of the Navy, under authority delegated by the
Secretary of the Navy, has certified that USS FALCON (MHC 59) is a
vessel of the Navy which, due to its special construction and purpose,
cannot fully comply with the following specific provisions of 72
COLREGS without interfering with its special function as a naval ship:
Rule 27(f), pertaining to the display of all-round lights by a vessel
engaged in mineclearance operations; and Annex I, paragraph 9(b),
prescribing that all-round lights be located as not to be obscured by
masts, topmasts or structures within angular sectors of more than six
degrees. The Deputy Assistant Judge Advocate General (Admiralty) of the
Navy has also certified that the lights involved are located in closest
possible compliance with the applicable 72 COLREGS requirements.
Moreover, it has been determined, in accordance with 32 CFR Parts
296 and 701, that publication of this amendment for public comment
prior to adoption is impracticable, unnecessary, and contrary to public
interest since it is based on technical findings that the placement of
lights on this vessel in a manner differently from that prescribed
herein will adversely affect the vessel's ability to perform its
military functions.
List of Subjects in 32 CFR Part 706
Marine safety, Navigation (water), and Vessels.
Accordingly, 32 CFR part 706 is amended as follows:
PART 706--[AMENDED]
1. The authority citation for 32 CFR part 706 continues to read:
Authority: 33 U.S.C. 1605.
2. Section 706.2 is amended by adding the following entry for USS
FALCON to Table Four, paragraph 18:
Sec. 706.2 Certifications of the Secretary of the Navy under Executive
Order 11964 and 33 U.S.C. 1605.
* * * * *
Table Four
* * * * *
18. * * *
----------------------------------------------------------------------------------------------------------------
Obscured angles relative to ship's heading
Vessel Number ---------------------------------------------------------
Port STBD
----------------------------------------------------------------------------------------------------------------
* * * * * *
*
USS FALCON.................... MHC 59................ 65.0 deg. to 75.6 deg...... 284.1 deg. to 294.6 deg.
----------------------------------------------------------------------------------------------------------------
[[Page 48071]]
* * * * *
Dated: August 21, 1996.
R.R. Pixa,
Captain, JAGC, U.S. Navy, Deputy Assistant Judge Advocate General
(Admiralty).
[FR Doc. 96-23163 Filed 9-11-96; 8:45 am]
BILLING CODE 3810-FF-P
Complete official Federal Register PDF
FR Doc. 96-22951 Airworthiness Directives; Fairchild Aircraft SA226 and SA227 Series Airplanes
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48066-48069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22951]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. 96-CE-10-AD; Amendment 39-9753; AD 96-19-05]
RIN 2120-AA64
Airworthiness Directives; Fairchild Aircraft SA226 and SA227
Series Airplanes
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final rule; request for comments.
-----------------------------------------------------------------------
[[Page 48067]]
SUMMARY: This amendment supersedes Airworthiness Directive (AD) 95-19-
07, which currently requires the following on Fairchild Aircraft SA226
and SA227 series airplanes equipped with certain main landing gear
(MLG) and nose landing gear (NLG): repetitively inspecting, using
ultrasonic methods, the left-hand and right-hand MLG yokes and the NLG
yokes for stress corrosion cracking, and, if any cracked yokes are
found that exceed certain limits, replacing either the cracked yoke,
the yoke/cylinder combination, or the affected MLG or NLG assembly.
This action also supersedes priority letter AD 95-19-07 R1, which was
issued to incorporate revised service information. Reports of landing
gear failures on the affected airplanes prompted the original AD
action. This action requires the same inspections, but requires
replacing any MLG and NLG assembly with any cracks instead of allowing
flight until certain crack limits are exceeded. The inability to
determine or predict crack growth on areas where stress corrosion
occurs on primary structure with a single-load path (MLG and NLG
assemblies are considered such structure) prompted this action. The
actions specified by this AD are intended to prevent MLG or NLG failure
caused by stress corrosion cracking in the yokes, which could result in
loss of control of the airplane during landing operations.
DATES: Effective October 1, 1996.
The incorporation by reference of certain publications listed in
the regulations is approved by the Director of the Federal Register as
of October 1, 1996.
Comments for inclusion in the Rules Docket must be received on or
before November 7, 1996.
ADDRESSES: Submit comments in triplicate to the Federal Aviation
Administration (FAA), Central Region, Office of the Assistant Chief
Counsel, Attention: Rules Docket No. 96-CE-10-AD, Room 1558, 601 E.
12th Street, Kansas City, Missouri 64106.
Service information that applies to this AD may be obtained from
Fairchild Aircraft, P.O. Box 790490, San Antonio, Texas 78279-0490;
telephone (210) 824-9421. This information may also be examined at the
FAA, Central Region, Office of the Assistant Chief Counsel, Attention:
Rules Docket 96-CE-10-AD, Room 1558, 601 E. 12th Street, Kansas City,
Missouri 64106; or at the Office of the Federal Register, 800 North
Capitol Street, NW., suite 700, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Mr. Hung Viet Nguyen, Aerospace
Engineer, FAA, Airplane Certification Office, 2601 Meacham Boulevard,
Fort Worth, Texas 76193-0150; telephone (817) 222-5155; facsimile (817)
222-5960.
SUPPLEMENTARY INFORMATION:
Events Leading to the Issuance of AD 95-19-07
Several reports of main landing gear (MLG) and nose landing gear
(NLG) failure on Fairchild Aircraft SA226 and SA227 series airplanes
prompted the FAA to issue Airworthiness Directive (AD) 95-19-07,
Amendment 39-9369 (60 FR 47687, September 14, 1995). AD 95-19-07
required the following on Fairchild Aircraft SA226 and SA227 series
airplanes equipped with certain MLG and NLG: repetitively inspecting,
using ultrasonic methods, the left-hand and right-hand MLG yokes and
the NLG yokes for stress corrosion cracking, and, if any cracked yokes
are found that exceed certain limits, replacing either the cracked
yoke, the yoke/cylinder combination, or the affected MLG or NLG
assembly. Accomplishment of the inspections required by AD 95-19-07 was
required in accordance with Fairchild Service Bulletin (SB) 226-32-065,
Fairchild SB 227-32-039, or Fairchild SB CC7-32-007, all Issued: August
16, 1995, as applicable.
The airplanes in the above-referenced incidents are equipped with
at least one part number (P/N) OAS5453 MLG assembly and P/N OAS5451 NLG
assembly. Metallurgical analysis of the yokes of the right-hand and
left-hand MLG assemblies and NLG assemblies on several of these
airplanes revealed that the failure was initiated by stress corrosion
cracking of the yokes.
Explanation of the Relevant Service Information
The service bulletins incorporated into AD 95-19-07 contain some
incorrect procedures that could prevent an owner/operator from
correctly accomplishing the actions required by that AD. For this
reason, Fairchild Aircraft revised SB 226-32-065, SB 227-32-039, and SB
CC7-32-007, each of which incorporates the following effective pages
and revision levels:
------------------------------------------------------------------------
Effective pages SB date
------------------------------------------------------------------------
1, 5, and 8............................... Revised: September 28, 1995.
2, 3, 4, 6, 7, and 9...................... Issued: August 16, 1995.
------------------------------------------------------------------------
These service bulletins specify improved procedures for ultrasonically
inspecting the left-hand and right-hand Ozone Industries, Inc. MLG yoke
(reference: MLG assembly P/N OAS5453, all dash numbers up to and
including -19), and Ozone Industries, Inc. NLG yoke (reference: NLG
assembly P/N OAS5451, all dash number up to and including -17), on
Fairchild Aircraft SA226 and SA227 series airplanes.
The Need to Revise AD 95-19-07
The FAA determined that the revised service information should be
incorporated into AD 95-19-07 to allow for proper inspection of the MLG
and NLG yokes of the affected airplanes, and issued priority letter AD
95-19-07 R1 to prevent MLG or NLG failure caused by stress corrosion
cracks in the yokes, which could result in loss of control of the
airplane during landing operations. The priority letter revised AD 95-
19-07 by (1) retaining the repetitive inspections and possible
replacement required by AD 95-19-07; and (2) incorporating the revised
service bulletins to require accomplishment of the actions in
accordance with corrected and clarified procedures.
Reason for This Action
After in-depth analysis, the FAA has established a policy to not
allow airplane operation when known cracks exist in primary structure
(MLG and NLG assemblies are considered such structure). The FAA makes
allowances on this policy to account for parts availability provided
analysis shows that an interim, acceptable level of safety can be
maintained through a short-term, repetitive inspection program.
For this reason, the FAA has determined that the crack limits in
priority letter AD 95-19-07 R1 and AD 95-19-07, Amendment 39-9369,
should be eliminated and that AD action should be taken to require
immediate replacement of any cracked MLG or NLG assembly. Because
analysis shows that a repetitive inspection program can provide an
interim acceptable level of safety, the FAA will allow a grace period
for those owners/operators with airplanes where a crack is found in the
MLG or NLG yoke during the initial inspection required by this action.
Explanation of the Provisions of This AD
Since an unsafe condition has been identified that is likely to
exist or develop in other Fairchild Aircraft SA226 and SA227 series
airplanes of the same type design, this AD supersedes both priority
letter AD 95-19-07 R1 and AD 95-19-07, Amendment 39-9369, with a new AD
that retains the requirement of repetitively inspecting, using
ultrasonic methods, the left-hand and right-hand MLG yokes and the NLG
yokes for stress corrosion cracking, and
[[Page 48068]]
requires replacing either the cracked yoke, the yoke/cylinder
combination, or the affected MLG or NLG assembly, if any crack is
found. Accomplishment of the required inspections is in accordance with
Fairchild SB 226-32-065, Fairchild SB 227-32-039, or Fairchild SB CC7-
32-007, as applicable. Each of these service bulletins incorporates the
following effective pages and revision levels:
------------------------------------------------------------------------
Effective pages SB date
------------------------------------------------------------------------
1, 5, and 8............................... Revised: September 28, 1995.
2, 3, 4, 6, 7, and 9...................... Issued: August 16, 1995.
------------------------------------------------------------------------
Accomplishment of the replacement is in accordance with the applicable
maintenance manual.
Since a situation exists (possible loss of control of the airplane
during landing operations) that requires the immediate adoption of this
regulation, it is found that notice and opportunity for public prior
comment hereon are impracticable, and that good cause exists for making
this amendment effective in less than 30 days.
Compliance Time Criteria
The compliance time of this AD is presented in both calendar time
and hours time-in-service (TIS). Cracking of certain MLG yokes and NLG
yokes on the affected airplanes is caused by stress corrosion, which
starts as a result of high local stress (in the area where the piston
was shrink fitted to the yoke) incurred through operation. Corrosion
can then develop regardless of whether the airplane is in flight or on
the ground. The cracks may not be noticed initially as a result of the
stress loads, but could then progress as a result of corrosion. The
stress incurred during flight operations or temperature changes could
then cause rapid crack growth. In order to ensure that these stress
corrosion cracks do not go undetected, a compliance time of specific
hours TIS and calendar time (whichever occurs first) is utilized.
Comments Invited
Although this action is in the form of a final rule that involves
requirements affecting immediate flight safety and, thus, was not
preceded by notice and opportunity to comment, comments are invited on
this rule. Interested persons are invited to comment on this rule by
submitting such written data, views, or arguments as they may desire.
Communications should identify the Rules Docket number and be submitted
in triplicate to the address specified above. All communications
received on or before the closing date for comments will be considered,
and this rule may be amended in light of the comments received. Factual
information that supports the commenter's ideas and suggestions is
extremely helpful in evaluating the effectiveness of the AD action and
determining whether additional rulemaking action would be needed.
Comments are specifically invited on the overall regulatory,
economic, environmental, and energy aspects of the rule that might
suggest a need to modify the rule. All comments submitted will be
available, both before and after the closing date for comments, in the
Rules Docket for examination by interested persons. A report that
summarizes each FAA-public contact concerned with the substance of this
AD will be filed in the Rules Docket.
Commenters wishing the FAA to acknowledge receipt of their comments
submitted in response to this rule must submit a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to Docket No. 96-CE-10-AD.'' The postcard will be date stamped and
returned to the commenter.
Regulatory Impact
The regulations adopted herein will 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 the various levels of government. Therefore, in
accordance with Executive Order 12612, it is determined that this final
rule does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
The FAA has determined that this regulation is an emergency
regulation that must be issued immediately to correct an unsafe
condition in aircraft, and is not a ``significant regulatory action''
under Executive Order 12866. It has been determined further that this
action involves an emergency regulation under DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979). If it is determined
that this emergency regulation otherwise would be significant under DOT
Regulatory Policies and Procedures, a final regulatory evaluation will
be prepared and placed in the Rules Docket (otherwise, an evaluation is
not required). A copy of it, if filed, may be obtained from the Rules
Docket.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.
Adoption of the Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration amends part 39 of
the Federal Aviation Regulations (14 CFR part 39) as follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 USC 106(g), 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by removing Airworthiness Directive
(AD) 95-19-07, Amendment 39-9369 (60 FR 47687, September 14, 1995), and
by adding a new AD to read as follows:
96-19-05 Fairchild Aircraft: Amendment 39-9753, Docket No. 96-CE-
10-AD. Supersedes both AD 95-19-07, Amendment 39-9369, and priority
letter AD 95-19-07 R1.
Applicability: Models SA226-T, SA226-AT, SA226-TC, SA226-T(B),
SA227-AC, SA227-AT, SA227-BC, SA227-TT, SA227-CC, and SA227-DC
airplanes (all serial numbers), certificated in any category, that
are equipped with one or more of the following:
1. Ozone Industries, Inc. main landing gear (MLG) yoke
(reference: MLG assembly part number OAS5453, all dash numbers up to
and including -19); or
2. Ozone Industries, Inc. nose landing gear (NLG) yoke
(reference: NLG assembly part number OAS5451, all dash numbers up to
and including -17).
Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must request approval for an
alternative method of compliance in accordance with paragraph (g) of
this AD. The request should include an assessment of the effect of
the modification, alteration, or repair on the unsafe condition
addressed by this AD; and, if the unsafe condition has not been
eliminated, the request should include specific proposed actions to
address it. Compliance: Required initially as follows and thereafter
as indicated in the body of this AD:
1. Within the next 100 hours time-in-service (TIS) after the
effective date of this AD or within the next 3 months after the
effective date of this AD, whichever occurs first; and
2. Upon the installation of one of the affected MLG or NLG
assemblies or yokes.
To prevent MLG or NLG failure caused by stress corrosion cracks
in the yokes, which could result in loss of control of the airplane
during landing operations, accomplish the following:
[[Page 48069]]
(a) Inspect, using ultrasonic methods, both sides of the left-
hand and right-hand MLG and NLG yokes for stress corrosion cracking
in accordance with the ACCOMPLISHMENT INSTRUCTIONS section of
Fairchild Service Bulletin (SB) 226-32-065, Fairchild SB 227-32-039,
or Fairchild SB CC7-32-007, as applicable. Each of these service
bulletins incorporates the following effective pages and revision
levels:
------------------------------------------------------------------------
Effective pages SB date
------------------------------------------------------------------------
1, 5, and 8............................... Revised: September 28, 1995.
2, 3, 4, 6, 7, and 9...................... Issued: August 16, 1995.
------------------------------------------------------------------------
(b) If no cracks are found during the initial inspection
required by paragraph (a) of this AD, accomplish the following:
(1) Prior to further flight after the initial inspection
required by this AD, clean the MLG and NLG yoke and piston in
accordance with FIGURE 2 of the service bulletins referenced in this
AD, unless already accomplished;
(2) Prior to further flight after the initial inspection
required by this AD, apply a small bead of Products Research and
Chemical Corporation PR-1422 or PR-1435 sealant to the MLG and NLG
yoke as shown in FIGURE 2 of the service bulletins referenced in
this AD, and as described in the SA226/227 Series Service Repair
Manual, Chapter 51-30-03, Standard Practices--Sealing, unless
already accomplished; and
(3) Reinspect the MLG and NLG yokes at intervals not to exceed
2,500 hours TIS or 12 months, whichever occurs first, provided no
cracks are found. If cracks are found, prior to further flight,
replace the cracked part with a new or serviceable part in
accordance with the applicable maintenance manual, and accomplish
the cleaning of and sealant application to the MLG and NLG yoke and
piston as specified in paragraphs (b)(1) and (b)(2) of this AD. The
replacement may be accomplished by replacing the cracked yoke, the
total gear assembly, or the yoke/cylinder combination.
(c) If a crack is found during the initial inspection of this
AD, replace the cracked part with a new or serviceable part in
accordance with the applicable maintenance manual, and accomplish
the cleaning of and sealant application to the MLG and NLG yoke and
piston as specified in paragraphs (b)(1) and (b)(2) of this AD. The
replacement may be accomplished by replacing the cracked yoke, the
total gear assembly, or the yoke/cylinder combination. Replace any
cracked part in accordance with the following schedule:
(1) With a crack found with a length more than 1.5 inches in
length: PRIOR TO FURTHER FLIGHT;
(2) With a crack found with a length more than 1 inch but not
more than 1.5 inches: WITHIN THE NEXT 300 HOURS TIS AFTER THE
INITIAL INSPECTION REQUIRED BY THIS AD OR WITHIN THE NEXT 60 DAYS
AFTER THE INITIAL INSPECTION REQUIRED BY THIS AD, WHICHEVER OCCURS
FIRST;
(3) With a crack found with a length more than .75 inch but not
more than 1 inch: WITHIN THE NEXT 400 HOURS TIS AFTER THE INITIAL
INSPECTION REQUIRED BY THIS AD OR WITHIN THE NEXT 80 DAYS AFTER THE
INITIAL INSPECTION REQUIRED BY THIS AD, WHICHEVER OCCURS FIRST;
(4) With a crack found with a length more than .50 inch but not
more than .75 inch: WITHIN THE NEXT 500 HOURS TIS AFTER THE INITIAL
INSPECTION REQUIRED BY THIS AD OR WITHIN THE NEXT 100 DAYS AFTER THE
INITIAL INSPECTION REQUIRED BY THIS AD, WHICHEVER OCCURS FIRST; and
(5) With a crack found with a length less than 0.50 inch: WITHIN
THE NEXT 600 HOURS TIS AFTER THE INITIAL INSPECTION REQUIRED BY THIS
AD OR WITHIN THE NEXT 120 DAYS AFTER THE INITIAL INSPECTION REQUIRED
BY THIS AD, WHICHEVER OCCURS FIRST.
(d) Replacing a MLG or NLG yoke with either Ozone Industries,
Inc. MLG yoke (reference: MLG assembly part number OAS5453, all dash
numbers up to and including--19), or Ozone Industries, Inc. NLG yoke
(reference: NLG assembly part number OAS5451, all dash numbers up to
and including--17) re-establishes the effectivity of this AD.
(1) Repetitive inspections are required upon installation and at
intervals not to exceed 2,500 hours TIS or 12 months, whichever
occurs first, provided no cracks are found.
(2) If cracks are found, prior to further flight, replace the
cracked part with a new or serviceable part in accordance with the
applicable maintenance manual, and accomplish the cleaning of and
sealant application to the MLG and NLG yoke and piston as specified
in paragraphs (b)(1) and (b)(2) of this AD. The replacement may be
accomplished by replacing the cracked yoke, the total gear assembly,
or the yoke/cylinder combination.
(3) The crack limit replacement compliance times specified in
paragraph (c) of this AD only apply when cracks are found during the
initial inspection required by this AD. If any crack of any length
is found during a subsequent (any repetitive) inspection, the part
must be replaced PRIOR TO FURTHER FLIGHT.
(e) The MLG and NLG yokes to which this AD applies are
manufactured by Ozone Industries, Inc. Replacing these yokes with
approved parts, other than the following Ozone Industries, Inc. MLG
and NLG yokes eliminates the repetitive inspection requirements of
this AD:
(1) Ozone Industries, Inc. MLG yoke (reference: MLG assembly
part number OAS5453, all dash numbers up to and including--19).
(2) Ozone Industries, Inc. NLG yoke (reference: NLG assembly
part number OAS5451, all dash numbers up to and including--17).
(f) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the requirements of this AD can be accomplished.
(g) An alternative method of compliance or adjustment of the
compliance time that provides an equivalent level of safety may be
approved by the Manager, Airplane Certification Office (ACO), FAA,
2601 Meacham Boulevard, Fort Worth, Texas 76193-0150. The request
shall be forwarded through an appropriate FAA Maintenance Inspector,
who may add comments and then send it to the Manager, Fort Worth
ACO. Alternative methods of compliance approved in accordance with
either priority letter AD 95-19-07 R1 or AD 95-19-07, Amendment 39-
9369 (both superseded by this action), are not considered approved
as alternative methods of compliance with this AD.
Note 2: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Fort Worth ACO.
(h) The inspections required by this AD shall be done in
accordance with Fairchild Service Bulletin 226-32-065, Fairchild
Service Bulletin 227-32-039, or Fairchild Service Bulletin CC7-32-
007, as applicable. Each of these service bulletins incorporates the
following effective pages and revision levels:
------------------------------------------------------------------------
Effective pages SB date
------------------------------------------------------------------------
1, 5, and 8............................... Revised: September 28, 1995.
2, 3, 4, 6, 7, and 9...................... Issued: August 16, 1995.
------------------------------------------------------------------------
This incorporation by reference was approved by the Director of the
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part
51. Copies may be obtained from Fairchild Aircraft, P.O. Box 790490,
San Antonio, Texas 78279-0490. Copies may be inspected at the FAA,
Central Region, Office of the Assistant Chief Counsel, Room 1558,
601 E. 12th Street, Kansas City, Missouri, or at the Office of the
Federal Register, 800 North Capitol Street, NW, suite 700,
Washington, DC.
(i) This amendment (39-9753) supersedes AD 95-19-07, Amendment
39-9369, and priority letter AD 95-19-07 R1.
(j) This amendment (39-9753)1 becomes effective on October 1,
1996.
Issued in Kansas City, Missouri, on September 3, 1996.
Henry A. Armstrong,
Acting Manager, Small Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 96-22951 Filed 9-11-96; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48208-48288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22781]
[[Page 48207]]
_______________________________________________________________________
Part II
Environmental Protection Agency
_______________________________________________________________________
40 CFR Parts 9 and 63
National Emission Standards for Hazardous Air Pollutant Emissions:
Group IV Polymers and Resins; Final Rule
Federal Register / Vol. 61, No. 178 / Thursday, September 12, 1996 /
Rules and Regulations
[[Page 48208]]
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 9 and 63
[AD-FRL-5508-6]
RIN 2060-AE37
National Emissions Standards for Hazardous Air Pollutant
Emissions: Group IV Polymers and Resins
AGENCY: U.S. Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This action promulgates national emission standards for
hazardous air pollutants (NESHAP) from existing and new plant sites
that emit organic hazardous air pollutants (HAP) identified on the
EPA's list of 189 HAP. The organic HAP are emitted during the
manufacture of one or more of the following Group IV polymers and
resins: acrylonitrile butadiene styrene resin (ABS), styrene
acrylonitrile resin (SAN), methyl methacrylate acrylonitrile butadiene
styrene resin (MABS), methyl methacrylate butadiene styrene resin
(MBS), polystyrene resin, poly (ethylene terephthalate) resin (PET),
and nitrile resin.
In the production of thermoplastics, a variety of organic HAP are
used as monomers or are created as by-products. Some of these organic
HAP are considered to be mutagens and carcinogens, and all can cause
reversible or irreversible toxic effects following exposure. The
potential toxic effects include eye, nose, throat, and skin irritation;
liver and kidney toxicity, and neurotoxicity. There effects can range
from mild to severe. The standards are estimated to reduce organic HAP
emissions from existing affected sources by 3,550 megagrams per year
(Mg/yr).
The intent of this rule is to protect the public by requiring the
maximum degree of reduction in emissions of organic HAP from new and
existing major sources. The emissions reductions achieved by these
standards, when combined with the emission reductions achieved by other
similar standards, will achieve the primary goal of the Clean Air Act
(Act) as amended in 1990.
EFFECTIVE DATE: September 12, 1996. See the Supplementary Information
section concerning judicial review.
ADDRESSES: Docket. Docket No. A-92-45, containing information
considered by the EPA in development of the promulgated standards, is
available for public inspection between 8 a.m. and 5:30 p.m., Monday
through Friday at the following address in room M-1500, Waterside Mall
(ground floor) U.S. Environmental Protection Agency, Air and Radiation
Docket and Information Center (MC-6102), 401 M Street SW., Washington,
DC 20460; telephone: (202) 260-7549. A reasonable fee may be charged
for copying docket materials.
FOR FURTHER INFORMATION CONTACT: For information concerning
applicability and rule determinations contact:
Region I--Greg Roscoe, Air Programs Compliance, Branch Chief, U.S.
EPA, Region I, SEA, JFK Federal Building, Boston, MA 02203, (617) 565-
3221.
Region II--Kenneth Eng, Air Compliance Branch Chief, U.S. EPA,
Region II, 290 Broadway, New York, NY 10007-1866, (212) 637-4000.
Region III--Bernard Turlinski, Air Enforcement Branch Chief, U.S.
EPA, Region III, 3AT10, 841 Chestnut Building, Philadelphia, PA 19107,
(205) 597-3989.
Region IV--Jewell A. Harper, Air Enforcement Branch, U.S. EPA,
Region IV, 345 Courtland Street, N.E., Atlanta, GA 30365, (404) 347-
2904.
Region V--George T. Czerniak, Jr., Air Enforcement Branch Chief,
U.S. EPA, Region V, 5AE-26, 77 West Jackson Street, Chicago, IL 60604,
(312) 353-2088.
Region VI--John R. Hepola, Air Enforcement Branch Chief, U.S. EPA,
Region VI, 1445 Ross Avenue, Suite 1200, Dallas, TX 75202-2733, (214)
665-7220.
Region VII--Donald Toensing, Chief, Air Permitting and Compliance
Branch, U.S. EPA, Region VII, 726 Minnesota Avenue, Kansas City, KS
66101, (913) 551-7446.
Region VIII--Douglas M. Skie, Air and Technical Operations Branch
Chief, U.S. EPA, Region VIII, 999 18th Street, Suite 500, Denver, CO
80202-2466, (303) 312-6432.
Region IX--Colleen W. McKaughan, Air Compliance Branch Chief, U.S.
EPA, Region IX, 75 Hawthorne Street, San Francisco, CA 94105, (415)
744-1198.
Region X--Air and Radiation Branch Chief, U.S. EPA, Region X, AT-
092, 1200 Sixth Avenue, Seattle, WA 98101, (206) 533-1152.
For information concerning the analyses performed in developing
this rule, contact Mr. Robert Rosensteel at (919) 541-5410, organic
Chemicals Group, Emission Standards Division (MD-13), U.S.
Environmental Protection Agency, Research Triangle Park, North Carolina
27711.
SUPPLEMENTARY INFORMATION:
Regulated Entities
Entities potentially regulated by this action are those facilities
which manufacture one or more of the 7 thermoplastic products
identified in the rule and listed below:
------------------------------------------------------------------------
Category Examples of regulated entities
------------------------------------------------------------------------
Industry......................... Facilities which manufacture
acrylonitrile butadiene styrene
resin, styrene acrylonitrile resin,
methyl methacrylate acrylonitrile
butadiene styrene resin, methyl
methacrylate butadiene styrene
resin, polystyrene resin, poly
(ethylene terephthalate) resin, or
nitrile resin.
------------------------------------------------------------------------
This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. To determine whether your facility is regulated by this action,
you should carefully examine the applicability criteria in Sec. 63.1310
of the rule. If you have questions regarding the applicability of this
action to a particular entity, consult one of the persons listed in the
preceding FOR FURTHER INFORMATION CONTACT section.
Response to Comment Document
The response to comment document for the promulgated standards
contains: (1) A summary of all the public comments made on the proposed
rule and the Administrator's response to the comments; and (2) A
summary of the changes made to the rule since proposal. The document
may be obtained from the U.S. EPA Library (MD-35), Research Triangle
Park, North Carolina 27711, telephone (919) 541-2777; or from the
National Technical Information Services, 5285 Port Royal Road,
Springfield, Virginia 22151, telephone (703) 487-4650. Please refer to
``Hazardous Air Pollutant Emissions from Process Units in the
Thermoplastics Manufacturing Industry--Basis and Purpose Document for
Final Standards, Summary of Public Comments and Responses'' [EPA-453/R-
96-001b; May 1996]. This document is also available for downloading
from the Technology Transfer Network. The Technology Transfer Network
is one of the EPA's electronic bulletin boards. The Technology Transfer
Network provides information and technology exchange in various areas
of air pollution control. The service is free except for the cost of a
phone call. Dial (919) 541-5472 for up to a 14,400 bps modem. If more
information on the Technology Transfer Network is needed, call the HELP
line at (919) 541-5384.
Previous Background Documents
The following is a listing of background documents pertaining to
this rulemaking. The complete title,
[[Page 48209]]
EPA publication number, publication date, docket number, and the
abbreviated descriptive title used to refer to the document throughout
this notice are included.
(1) Hazardous Air Pollutant Emissions from Process Units in the
Thermoplastics Manufacturing Industry--Supplementary Information
Document for Proposed Standards. EPA-453/R-95-003a. March 1995. Docket
item A-92-45: II-A-9. Supplementary Information Document.
(2) Hazardous Air Pollutant Emissions from Process Units in the
Thermoplastics Manufacturing Industry--Basis and Purpose Document for
Proposed Standards. EPA-453/R-95-004a. March 1995. Docket item A-92-45:
II-A-10. Basis and Purpose Document for Proposed Standards.
Judicial Review
National emission standards for organic HAP for Group IV polymers
and resins were proposed in the Federal Register (FR) on March 29, 1995
(60 FR 16090). This Federal Register action announces the EPA's final
decision on the rule. Under section 307(b)(1) of the Act, judicial
review of the final rule is available only by filing a petition for
review in the U.S. Court of Appeals for the District of Columbia
Circuit within 60 days of today's publication of this final rule. Under
section 307(b)(2) of the Act, the requirements that are the subject of
today's notice may not be challenged later in civil or criminal
proceedings brought by the EPA to enforce these requirements.
The following outline is provided to aid in reading the preamble to
the final rule.
I. Background
II. Summary of Considerations Made in Developing These Standards
A. Purpose of Standards
B. Technical Basis of Regulation
C. Stakeholder and Public Participation
III. Summary of Promulgated Standards
A. Storage Vessel Provisions
B. Process Vent Provisions
C. Heat Exchange Provisions
D. Process Contact Cooling Tower Provisions
E. Wastewater Provisions
F. Equipment Leak Provisions
G. Emissions Averaging Provisions
H. Compliance and Performance Test Provisions and Monitoring
Requirements
I. Recordkeeping and Reporting Provisions
IV. Summary of Impacts
V. Significant Comments and Changes to the Proposed Standards
A. Applicability Provisions and Definitions
B. Continuous Process Vent Provisions
C. Batch Process Vent Provisions
D. Wastewater Provisions
E. Process Contact Cooling Tower Provisions
F. Equipment Leak Provisions
G. Emissions Averaging Provisions
H. Compliance and Performance Test Provisions and Monitoring
Requirements
I. Recordkeeping and Reporting
VI. Administrative Requirements
A. Docket
B. Executive Order 12866
C. Paperwork Reduction Act
D. Regulatory Flexibility Act
E. Unfunded Mandates
I. Background
Section 112(b) of the Act lists 1989 HAP and directs the EPA to
develop standards to control all major sources and some area sources
emitting HAP. On July 16, 1992, the EPA published a list of major and
area source categories for which NESHAP are to be promulgated (57 FR
3156). Six of the seven source categories regulated by this rule were
included on that list as major source categories. The other source
category, nitrile resins production, has since been added to the source
category list. On December 3, 1993, the EPA published a schedule for
promulgating standards for the listed major and area source categories
(58 FR 83941). Standards for these seven major source categories were
proposed on March 29, 1995, under this rulemaking.
II. Summary of Considerations Made in Developing These Standards
A. Purpose of Standards
The Act was created in part ``to protect and enhance the quality of
the nation's air resources so as to promote the public health and
welfare and the productive capacity of its population [the Act, section
101(b)(1)]. Title I of the Act establishes a control technology-based
program to reduce stationary source emissions of HAP. The goal of the
section 112(d) Maximum Achievable Control Technology standards (MACT)
is to apply such control technology to reduce emissions and thereby
reduce the hazard of pollutants emitted from stationary sources.
The Act strategy avoids dependence on a detailed and comprehensive
risk assessment hampered by (but not limited to) the following caveats,
as prerequisites for control of air toxics: (1) Some of the HAP emitted
from stationary sources are unknown; and (2) Many of the HAP with
emissions information have incomplete data in which to describe health
hazard. In addition, these standards are not ``significant'' as defined
by Executive Order 12866, and a specific benefits analysis is not
required. Because of these issues, a detailed and intensive risk
assessment of potential effects from the organic HAP emitted from
stationary sources is not included in this rulemaking.
The EPA does recognize that the degree of adverse effects to health
resulting from the most significant emissions identified can range from
mild to severe. The extent to which the effects could be experienced is
dependent upon the ambient concentrations and exposure time. The latter
is further influenced by source-specific characteristics such as
emission rates and local meteorological conditions. Human variability
factors also influence the degree to which effects to health occur:
genetics, age, pre-existing health conditions, and lifestyle.
The organic HAP listed in section 112(b)(1) of the Act emitted by
the thermoplastic facilities covered by these standards include
styrene, acrylonitrile, butadiene, ethylene glycol, methanol,
acetaldehyde, and dioxane. Available emission date gathered, in
conjunction with development of these MACT standards, show that these
organic HAP are those which have the potential for reduction by the
implementation of the standard.
Some of the effects of the pollutants whose emissions are reduced
by these standards include central nervous system effects (e.g.,
drowsiness, dizziness, headaches, impairment of vision, peripheral
nervous system effects expressed as numbness of the extremities,
fatigue, and coma and death at lethal levels), respiratory irritation
expressed as labored breathing and impaired lung function, eye
irritation, reproductive and developmental effects, gastrointestinal
effects, blood effects (e.g., anemia and leukocytosis), and liver and
kidney toxicity. In addition, butadiene exposure to humans has been
associated with increased risk of cardiovascular disease and effects on
the blood. In regard to carcinogenicity, some of the organic HAP
controlled under these standards are either probable (i.e.,
acetaldehyde, dioxane, acrylonitrile, and butadiene) or possible (i.e.,
styrene) human carcinogens.
These standards will result in a minimum organic HAP emission
reduction of 3,550 Mg/yr for existing affected sources and 6,870 Mg/yr
for new affected sources. The majority of the organic HAP regulated by
these standards are also volatile organic compounds (VOC). In reducing
emissions of organic HAP, emissions of VOC are also reduced. No other
criteria pollutant ambient levels will be affected by these standards.
The emission reductions achieved by these standards, when combined with
the emission
[[Page 48210]]
reductions achieved by other standards mandated by the Act, will
achieve the primary goal of the Clean Air Act.
B. Technical Basis of Regulation
National emission standards for sources of HAP established under
section 112(d) of the Act reflect MACT:
* * * the maximum degree of reduction in emissions of the HAP *
* * that the Administrator, taking into consideration the cost of
achieving such emission reduction, and any nonair quality health and
environmental impacts and energy requirements, determines is
achievable for new or existing sources in the category or
subcategory to which such emission standard applies * * * [42 U.S.C.
Sec. 7412(d)(2)].
The amended Clean Air Act contains requirements for the development
of regulatory alternatives for sources of HAP emissions. The statute
requires the standards to reflect the maximum degree of reduction in
emissions of HAP that is achievable for new or existing sources. This
control level is referred to as MACT. The amended Clean Air Act also
provides guidance on determining the least stringent level allowed for
a MACT standard; this level is termed the ``MACT floor.''
For new sources, the standards for a source category or subcategory
``shall not be less stringent than the emission control that is
achieved in practice by the best controlled similar source, as
determined by the Administrator'' [section 112(d)(3) of the Act].
Existing source standards shall be no less stringent than the average
emission limitation achieved by the best performing 12 percent of the
existing sources for source categories and subcategories with 30 or
more sources or the average emission limitation achieved by the best
performing 5 sources for source categories or subcategories with fewer
than 30 sources [section 12(d)(3) of the Act]. These two minimum levels
of control define the MACT floor for new and existing sources.
Two interpretations have been evaluated by the EPA for representing
the MACT floor for existing sources. One interpretation is that the
MACT floor is represented by the 88th percentile source. The second
interpretation is that the MACT floor is represented by the ``average
emission limitation achieved'' by the best performing sources, where
the ``average'' is based on a measure of central tendency, such as the
arithmetic mean, median, or mode. This latter interpretation is
referred to as the ``higher floor interpretation.'' In a June 6, 1994
Federal Register notice [59 FR 29196], the EPA presented its
interpretation of the statutory language concerning the MACT floor for
existing sources. Based on a review of the statute, legislative
history, and public comments, the EPA believes that the ``higher floor
interpretation'' is a better reading of the statutory language. The
determination of the MACT floor for existing sources under the proposed
and final rule followed the ``higher floor interpretation.''
The regulatory alternatives considered in the development of this
rule, including those regulatory alternatives selected as standards for
new and existing affected sources, are based on process and emissions
data received from the existing plant sites known by the EPA to be in
operation.
Regulatory alternatives more stringent than the MACT floor were
selected when they were judged to be reasonable ``taking into
consideration the cost of achieving such emission reduction, and any
nonair quality health and environmental impacts, and energy
requirements'' (42 U.S.C. Sec. 7412(d)(2)).
Potential regulatory alternatives were developed based on the
Hazardous Organic NESHAP (HON) (i.e., subparts F, G, H, and I of 40 CFR
part 63), the Polymer Manufacturing New Source Performance Standards
(NSPS) (subpart DDD of 40 CFR part 60), and the Batch Processes
Alternative Control Techniques (ACT) document [EPA 453/R-93-017;
November 1993]. The HON was selected as a basis for regulatory
alternatives because: (1) the characteristics of the emissions from
storage vessels, continuous process vents, equipment leaks, and
wastewater at Group IV thermoplastic facilities are similar or
identical to those addressed by the HON; and (2) The levels of control
required under the HON were already determined through extensive
analyses to be reasonable from a cost and impact perspective.
The Polymer Manufacturing NSPS, which covers certain process
emissions at polystyrene and PET facilities using a continuous process,
and cooling tower emissions at PET facilities, was selected for the
same basic reasons as the HON. Although the Polymer Manufacturing NSPS
was developed under section 111 of the Clean Air Act and was targeted
to control VOC emissions, the requirements for setting standards under
section 111 are very similar to the requirements under section 112 of
the Clean Air Act Amendments of 1990, and all of the organic HAP
identified from polystyrene and PET affected sources are also VOC.
Finally, the Batch Processes ACT was selected to identify
regulatory alternatives for batch process vents, which are not
addressed by either the HON or Polymer Manufacturing NSPS. As with the
Polymer Manufacturing NSPS, the Batch Processes ACT addresses the
control of VOC emissions, and all of the organic HAP identified for the
Group IV thermoplastics facilities are also VOC. Unlike the HON and
Polymer Manufacturing NSPS, the Batch Processes ACT is not a regulation
and, therefore, does not specify a level of control that must be met.
Instead, the Batch Processes ACT provides information on emissions
estimation techniques and potential levels of control and their
environmental, energy, and cost impacts. Based on the review of the
Batch Processes ACT, the EPA selected a level of control equivalent to
90 percent reduction for batch process vents. This level of control was
selected for regulatory analysis purposes.
C. Stakeholder and Public Participation
In the development of these standards, numerous representatives of
the thermoplastics industry were consulted. Industry representatives
have included trade associations and thermoplastic producers responding
to section 114 questionnaires and information collection requests
(ICR). Representatives from other interested EPA offices, Regional
offices, and State environmental agency personnel, participated in the
regulatory development process as members of the Work Group. The Work
Group is involved in the regulatory development process, and is given
opportunities to review and comment on the standards before proposal
and promulgation. Therefore, the EPA believes that the implication to
order EPA offices and programs has been adequately considered during
the development of these standards. In addition, the EPA has met with
members of industry concerning these standards. Finally, industry
representatives, regulatory authorities, and environmental groups had
the opportunity to comment on the proposed standards and to provide
additional information during the public comment period that followed
the proposal.
The standards were proposed in the Federal Register on March 29,
1995 (60 FR 16090). The preamble to the proposed standards described
the rationale for the proposed standards. Public comments were
solicited at the time of proposal. To provide interested persons the
opportunity for oral presentation of data, views, or arguments
concerning the proposed standards, a public hearing was offered at
proposal. However, the public did not request a hearing and, therefore,
one
[[Page 48211]]
was not held. The public comment period was from March 29, 1995 to May
30, 1995. Twenty-seven comment letters were received. Commenters
included industry representatives and State agencies. The comments were
carefully considered, and changes were made in the proposed standards
when determined by the EPA to be appropriate. A detailed discussion of
these comments and responses can be found in the Basis and Purpose
Document for Final Standards (EPA-453/R-96-001b; May 1996), which is
referenced in the ADDRESSES section of this preamble. The summary of
comments and responses in the Basis and Purpose Document for the Final
Standards (EPA-453/R-96-001b; May 1996) serves as the basis for the
revisions that have been made to the standards between proposal and
promulgation. Section V of this preamble discusses these major changes.
III. Summary of Promulgated Standards
Emissions of specific organic HAP from the following types of
emission points (i.e., emission source types) are being covered by the
final standards: Storage vessels, continuous process vents, batch
process vents, equipment leaks, wastewater operations, heat exchange
systems, and some process contact cooling towers associated with the
manufacture of PET. The organic HAP emitted and required to be
controlled by these standards vary by subcategory. Each of the nineteen
thermoplastic products constitutes a separate subcategory (i.e.,
affected source) that is regulated by these standards.
The existing affected source is defined as each group of one or
more TPPUs that manufacture the same thermoplastic product as their
primary product, and (1) are located at a major source plant site, (2)
are not exempt, and (3) are not part of a new affected source. This
means that each plant site will have only one existing affected source
in any given subcategory.
New affected sources are created under various circumstances. If a
plant site with an existing affected source producing thermoplastic A
as its primary product constructs a new TPPU also producing
thermoplastic A as its primary product, the new TPPU is a new affected
source if the new TPPU has the potential to emit more than 10 tons per
year of a single HAP or 25 tons per year of all HAP. In this situation,
the plant site would have an existing affected source producing
thermoplastic A and a new affected source producing thermoplastic A.
Each subsequent new TPPU with potential HAP emissions above major
source levels (i.e., 10/25 tons per year) would be a separate new
affected source. New affected sources are also created when a TPPU is
constructed at a major source plant site where the thermoplastic
product was not previously produced, with no regard to the potential
HAP emissions from the TPPU. This approach to defining new affected
source was selected in order to make this subpart more consistent with
the HON.
Another instance where a new affected source is created is if a new
TPPU is constructed at a new plant site (i.e., green field site) that
will be a major source. The final manner in which a new affected source
is created is when an existing affected source undergoes
reconstruction, thus making the previously existing affected source
subject to new source standards.
This standard differs from the HON, however, in that it applies to
multiple source categories. Thus, unlike the HON, a newly added TPPU at
a facility is covered by this rule even if that TPPU is in a different
source category from the existing TPPUs at the facility. It is the
EPA's position that the addition of a process unit in a different
source category is a new source and must meet the requirements for new
sources even though the TPPU has the potential to emit less than 10
tons per year of a single HAP or 25 tons per year of all HAP. Indeed,
if a source covered by another MACT standard (i.e., a different source
category) were built at a HON facility, that source would be subject to
new source requirements under that MACT standard.
Also, each affected source includes the following emission points
and equipment that are associated with each group of TPPU: (1) Each
wastewater stream; (2) each wastewater operation; (3) each heat
exchange system; (4) each process contact cooling tower used in the
manufacture of PET that is associated with a new affected source; and
(5) each process contact cooling tower used in the manufacture of PET
using a continuous terephthalic acid high viscosity multiple end
finisher process that is associated with an existing affected source.
With relatively few exceptions, the final standards for storage
vessels, continuous process vents, equipment leaks, wastewater streams,
and heat exchange systems are the same as those promulgated for the
corresponding types of emission points at facilities subject to the
HON. As shown in Tables 1 and 2, some subcategories have requirements
that differ from the HON; these cases are designated by ``MACT Floor.''
These different requirements are specified in the final standards.
As in the HON, if an emission point within an affected source meets
the applicability criteria and is required to be controlled under the
standards, it is referred to as a Group 1 emission point. If an
emission point within the affected source is not required to apply
controls, it is referred to as a Group 2 emission point.
Table 1.-- Summary of Final Standards for Existing Affected Sources in Relationship to the HON, the Polymer Manufacturing NSPS, and the Batch Processes
Act
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of emission point
----------------------------------------------------------------------------------------------------------------------
Subcategory Heat exchange
Storage vessels Process vents Equipment leaks Wastewater systems
--------------------------------------------------------------------------------------------------------------------------------------------------------
ABS, continuous emulsion......... HON................ HON.............................. HON................ HON................ HON.
ABS, continuous mass............. HON................ Continous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or complaint flare.
ABS, batch emulsion.............. HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
ABS, batch suspension............ HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
ABS, latex....................... HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
[[Page 48212]]
MABS............................. HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
MBS.............................. HON................ Continuous process vents: MACT HON................ HON................ HON.
floor batch process vents: 90
percent reduction or compliant
flare.
SAN, continuous.................. HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
SAN, batch....................... HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
ASA/AMSAN........................ MACT floor......... MACT floor....................... HON................ No control......... HON.
Polystyrene, continuous.......... MACT floor......... Continuous process vents from HON................ HON................ HON.
material recovery sections: same
as polymer manufacturing NSPS
other continuous process vents:
HON batch process vents: 90
percent reduction or compliant
flare.
Polystyrene, batch............... HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
Expandable polystyrene........... HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
PET-TPA, continuous.............. HON................ Continuous process vents from raw HON................ HON................ HON.
material preparation and
polymerization reaction
sections: same as polymer
manufacturing NSPS other
continuous process vents: HON
batch process vents: 90 percent
reduction or compliant flare.
PET-TPA continuous high viscosity HON................ Continuous process vents from raw No control......... HON................ HON.
multiple end finisher. material preparation and
polymerization reaction
sections: same as polymer
manufacturing NSPS other
continuous process vents: HON
batch process vents: 90 percent
reduction or compliant flare.
PET-TPA, batch-DMT, batch........ HON................ Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
PET-DMT, continuous.............. HON................ Continuous process vents from HON................ HON................ HON.
material recovery and
polymerization reaction
sections: same as polymer
manufacturing NSPS other
continuous process vents: HON
batch process vents: 90 percent
reduction or compliant flare.
Nitrile.......................... MACT floor......... Continuous process vents: HON HON................ HON................ HON.
batch process vents: 90 percent
reduction or compliant flare.
--------------------------------------------------------------------------------------------------------------------------------------------------------
ASA/AMSAN = acrylonitrile styrene acrylate resin/alpha methyl styrene acrylonitrile resin.
TPA = terephthalic acid.
DMT = dimethyl terephthalate.
Table. 2.--Summary of Final Standards for New Affected Sources in Relationship to the HON, the Polymer Manufacturing NSPS, and the Batch Processes Act
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of emission point
---------------------------------------------------------------------------------------------------------------------
Subcategory Storage Equipment Heat exchange
vessels Process vents leaks Wastewater systems Process contact cooling towers
--------------------------------------------------------------------------------------------------------------------------------------------------------
ABS, continuous emulsion.......... HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
ABS, continuous mass.............. Regulatory Continuous process HON.......... HON.......... HON.......... NA.
alternative 2 vents: HON batch
\1\. process vents: 90
percent reduction
or a compliant
flare.
ABS, batch emulsion............... HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
ABS, batch suspension............. HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
[[Page 48213]]
ABS, Latex........................ HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
MABS.............................. HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
MBS............................... HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
SAN, continuous................... MACT floor.... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
SAN, batch........................ HON........... MACT floor.......... HON.......... No control... HON.......... NA.
ASA/AMSAN......................... MACT floor.... MACT floor.......... HON.......... No control... HON.......... NA.
Polystyrene, continuous........... MACT floor.... Continuous process HON.......... HON.......... HON.......... NA.
vents from material
recovery sections:
same as polymer
manufacturing NSPS,
other continuous
process vents: HON
batch process
vents: 90 percent
reduction or a
compliant flare.
Polystyrene, batch................ HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
Expandable polystyrene............ HON........... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
PET-TPA, continuous............... HON........... Continuous process HON.......... HON.......... HON.......... No contact condenser effluent
vents from raw associated with a vacuum system
material shall go to a process contact
preparation and cooling tower.
polymerization
reaction sections:
same as Polymer
Manufacturing NSPS
other continuous
process vents: HON
batch process
vents: 90 percent
reduction or a
compliant flare.
PET-TPA, continuous multiple end HON........... Continuous process No control... HON.......... HON.......... No contact condenser effluent
finisher. vents from raw associated with a vacuum system
material shall go to a process contact
preparation and cooling tower.
polymerization
reaction sections:
same as Polymer
Manufacturing NSPS
other continuous
process vents: HON
batch process
vents: 90 percent
reduction or a
compliant flare.
PET-TPA, batch.................... HON........... Continuous process HON.......... HON.......... HON.......... No contact condenser effluent
-DMT, batch....................... vents: HON batch associated with a vacuum system
process vents: 90 shall go to a process contact
percent reduction cooling tower.
or a compliant
flare.
[[Page 48214]]
PET-DMT, continuous............... HON........... Continuous process HON.......... HON.......... HON.......... No contact condenser effluent
vents from material associated with a vacuum system
recovery and shall go to a process contact
polymerization cooling tower.
reaction sections:
same as polymer
manufacturing NSPS
other continuous
process vents: HON
batch process
vents: 90 percent
reduction or a
compliant flare.
Nitrile........................... MACT floor.... Continuous process HON.......... HON.......... HON.......... NA.
vents: HON batch
process vents: 90
percent reduction
or a compliant
flare.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The final standard is stringent than the MACT floor, which is more stringent than the HON.
NA = Not applicable, not part of affected source.
ASA/AMSAN = acrylonitrile styrene acrylate resin/alpha methyl styrene acrylonitrile resin.
TPA = terephthalic acid.
DMT = dimethyl terephthalate.
A. Storage Vessel Provisions
The standards require owners and operators to first determine
whether or not a storage vessel is required to be controlled. For those
storage vessels determined to require control, the standards specify
the appropriate level of control.
For most existing and new storage vessels, the criteria for
determining which storage vessels must be controlled are identical to
the criteria in the HON storage vessel provisions and are based on
storage vessel capacity and vapor pressure of the stored material.
Typically, applicability criteria are different for existing and new
affected sources.
For most storage vessels, the level of control required is either
technical modification to the tank (e.g., the installation of an
internal floating roof) or the use of a closed vent system and control
device that is generally required to achieve at least 95 percent
emission reduction.
Note: This is the same level of control as required under the
HON.
As shown in Tables 1 and 2, some subcategories also have
requirements that differ from the HON. These requirements are specified
in the final standards. For those subcategories not applying the HON
level of control, the level of control varies depending on the
subcategory. For example, the standards may require 90 or 98 percent
emission reduction, as opposed to the 95 percent emission reduction
required by the HON. Finally, to simplify the final rule, some
chemicals with extremely low vapor pressure (e.g., ethylene glycol)
have been exempted from the storage vessel provisions.
B. Process Vent Provisions
Similar to the standards for storage vessels, the standards for
process vents require owners and operators to first determine whether
or not a process vent, or set of process vents, requires control and,
if so, then specifies the level of control required. The standards
regulate both continuous and batch process vents.
Except for certain PET and polystyrene continuous process vents,
the group status of a continuous process vent is determined by
comparing the total resource effectiveness (TRE) value for each
continuous process vent to a TRE value. The TRE value is a reflection
of the cost effectiveness of controlling an individual continuous
process vent. There are different TRE coefficients for continuous
process vents depending on whether the affected source is new or
existing. The TRE equations for new and existing continuous process
vents differ because the standards for new affected sources are more
stringent than the standards for existing affected sources. With one
exception, continuous process vents with TRE values of 1.0 or less are
Group 1 continuous process vents. For continuous process vents at
existing MBS facilities, the TRE value for each continuous process vent
is compared to a TRE value of 3.7. The proposed and final standards
refer to the procedures in the HON for determination of the TRE value.
For continuous process vents associated with the material recovery
section from existing PET affected sources using a continuous dimethyl
terephthalate (DMT) process, the set of continuous process vents are
designated as Group 1 continuous process vents if the combined
uncontrolled emission rate is greater than the threshold emission rate.
For other sets of continuous process vents associated with the raw
material preparation section or polymerization reaction section at
existing and new polystyrene and PET facilities, there are no
applicability criteria. These sets of continuous process vents are
considered to be Group 1 and must meet the specified emission limits.
Continuous process vents associated with the material recovery section
at new PET affected sources using a continuous DMT process are also
designated as Group 1 and must meet the specified emission limits.
The group determination procedure for batch process vents differs
from the procedure used for continuous process vents. First, the
estimated annual emissions for an individual batch process vent are
entered into the flow rate regression equation and a calculated flow
rate is determined. Second, the actual flow rate for the batch process
vent is compared to the calculated flow rate. If the actual flow rate
is less than the calculated flow rate, then the batch process vent is
designated as Group 1 and control is required. The batch process vent
group determination procedure is the same for existing and new batch
process vents.
[[Page 48215]]
There are exceptions to the procedures described above. For new SAN
affected sources using a batch process, the standards require an
overall emission reduction of 84 percent from all process vents (i.e.,
continuous and batch process vents), and a group determination is not
required. For new and existing acrylonitrile styrene acrylate resin/
alpha methyl styrene acrylonitrile resin (ASA/AMSAN) affected sources,
the standards require that emissions from all process vents (i.e.,
continuous and batch process vents) be controlled by 98 percent, and a
group determination is not required.
Another exception concerns a batch process vent that is combined
with a continuous process vent prior to a control or recovery device.
Said batch process vent is not required to comply with the batch
process vent provisions if there are no emissions to the atmosphere up
until the point the batch process vent is combined with the continuous
process vent. The combined vent stream would be required to comply with
the continuous process vent provisions. The presence of a batch process
vent in a continuous process vent emission stream would necessitate
that all applicability tests and performance tests be conducted while
the batch process vent is emitting (i.e., maximum operating conditions
for the combined vent stream).
The level of control required for most continuous process vents is
the same as the level of control required by the HON: 98 percent
emission reduction or an organic HAP concentration limit of 20 ppmv. If
a flare is used, it must meet the design and operating requirements of
Sec. 63.11(b) of subpart A of 40 CFR part 63. Exceptions to this level
of control are described in the following paragraphs.
For continuous process vents associated with material recovery
sections at polystyrene affected sources using a continuous process,
raw material preparation sections and polymerization reaction sections
at PET affected sources using a continuous terephthalic acid (TPA)
process, and material recovery sections and polymerization reaction
sections at PET affected sources using a continuous DMT process, the
standards require continuous process vents associated with these
process sections to meet emission limits expressed as kilogram organic
HAP per megagram of product. Depending on the process section, the
standards provide several compliance options including limiting the
outlet gas temperature from each final condenser or reducing emissions
from each process section by 98 weight percent or to an organic HAP
concentration limit of 20 ppmv. These are the same control requirements
as specified in the Polymer Manufacturing NSPS, which serve as the
basis for these specific provisions.
For batch process vents, the standards require Group 1 batch
process vents to achieve emission reductions of 90 percent or greater
for the batch cycle.
There are three subcategories where the standards are based on the
MACT floor. These subcategories are existing MBS affected sources,
existing and new ASA/AMSAN affected sources, and new SAN affected
sources using a batch process. As described earlier, the applicability
criteria and level of control differ from the HON for all three
subcategories.
For existing MBS affected sources, the standards require continuous
process vents at affected sources to either: (1) meet an emission limit
of 0.000590 kilogram of emissions per megagram of product for all
continuous process vents associated with the affected source; or (2)
control emissions from continuous process vents with a TRE of 3.7 or
less by 98 percent. The development of the MACT floor level of control
and applicability criteria for MBS existing affected sources is
documented in Docket Item II-B-21 of A-92-45 and in the Supplementary
Information Document (SID) for Proposed Standards [EPA-453/R-95-003a;
March 1995].
For both existing and new ASA/AMSAN affected sources, the standards
require all continuous and batch process vents to achieve emission
reductions of 98 percent.
For new SAN affected sources using a batch process, the standards
require an overall emission reduction of 84 percent for all process
vent emissions.
C. Heat Exchange Provisions
The standards apply to each heat exchange system that is associated
with the affected source. The standards require a monitoring program to
detect leakage of organic HAP from the process into the cooling water.
The standards refer to the monitoring program in the HON.
D. Process Contact Cooling Tower Provisions
The standards require that owners or operators of new affected
sources manufacturing PET not send contact condenser effluent
associated with a vacuum system to a process contact cooling tower. For
existing PET affected sources using a continuous TPA high viscosity
multiple end finisher process, the owner or operator is required to
keep the concentration of ethylene glycol in the process contact
cooling tower water to 4 percent or less by weight provided the TPPU is
or has become subject to 40 CFR part 60, subpart DDD. Process contact
cooling towers at existing PET affected sources using other processes
(e.g., DMT process) are not regulated.
Note: The standards treat the contact condenser effluent at
existing affected sources as wastewater.
E. Wastewater Provisions
Except for ASA/AMSAN affected sources, the standards require owners
and operators to comply with the wastewater provisions in the HON.
Owners and operators are required to make a group determination for
each wastewater stream based on the applicability criteria in the HON:
flow rate and organic HAP concentration. The level of control required
for Group 1 wastewater streams is dependent upon the organic HAP
constituents in the wastewater stream. The standards do not require
control of wastewater emissions from existing or new ASA/AMSAN affected
sources.
The standards also require owners and operators to comply with the
maintenance wastewater requirements in Sec. 63.105 of subpart F of this
part. These provisions require owners and operators to include a
description of procedures for managing wastewaters generated during
maintenance in their start-up, shutdown, and malfunction plan.
F. Equipment Leak Provisions
Except for one subcategory, both existing and new affected sources
are required to comply with the equipment leak standards specified in
subpart H of 40 CFR part 63. For PET affected sources using a
continuous TPA high viscosity multiple end finisher process, the final
rule does not require an equipment leak program. The final rule also
exempts from the equipment leak standards any PET TPPU in which all of
the components are either in vacuum service or in heavy liquid service.
In general, subpart H requires owners and operators to implement a
leak detection and repair (LDAR) program, including various work
practice and equipment standards. The subpart H standards are
applicable to equipment in volatile HAP service for 300 or more hours
per year (hr/yr). The standards define ``in volatile HAP service'' as
being in contact with or containing process fluid that contains a total
of 5 percent or more total HAP. Equipment subject to the standards are:
valves, pumps, compressors, connectors, pressure relief devices, open-
ended
[[Page 48216]]
valves or lines, sampling connection systems, instrumentation systems,
agitators, and closed-vent systems and control devices.
A few differences
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
to the subpart H standards are contained in the
final rule. These differences include: exempting indications of liquids
dripping from bleed ports on pumps and agitators at facilities
producing polystyrene resins from the definition of a leak; not
requiring the submittal of an Initial Notification; and allowing 150
days, rather than 90 days, to submit the Notification of Compliance
Status. In addition, PET facilities are not required to provide a list
of identification numbers for components in heavy liquid service,
pressure relief devices in liquid service, and instrumentation systems.
The final rule also clarifies that for these components the presence of
a leak is to be determined exclusively through the use of visual,
audible, olfactory, or any other detection methods, but that Method 21
is not to be used. Finally, bottoms receivers and surge control vessels
are not regulated under the equipment leak provisions, but instead are
regulated as storage vessels.
Affected sources subject to this rule currently complying with the
NESHAP for Certain Processes Subject to the Negotiated Regulation for
Equipment Leaks [40 CFR part 63, subpart I] or with the equipment leak
provisions in Sec. 60.562-2 of 40 CFR part 60, subpart DDD, are
required to continue to comply with subpart I or subpart DDD, as
applicable, until the compliance date of the final rule, at which point
in time they must comply with this rule and are no longer subject to
subpart I and subpart DDD. Further, affected sources complying with
subpart I through a quality improvement program are allowed to continue
these programs without interruption as part of complying with this
rule. In other words, becoming subject to this rule does not restart or
reset the ``compliance clock'' as it relates to reduced burden earned
through a quality improvement program.
G. Emissions Averaging Provisions
The EPA is allowing emissions averaging among continuous process
vents, batch process vents, aggregate batch vent streams, storage
vessels, and wastewater streams, within an existing affected source.
New affected sources are not allowed to use emissions averaging.
Emissions averaging is not allowed between subcategories; it is only
allowed between emission points within the same affected source. Under
emissions averaging, a system of ``credits'' and ``debits'' is used to
determine whether an affected source is achieving the required emission
reductions. Twenty emission points per plant site are allowed in the
emissions averaging plan submitted for the plant site, with an
additional 5 emission points allowed if pollution prevention measures
are used.
H. Compliance and Performance Test Provisions and Monitoring
Requirements
Compliance and performance test provisions and monitoring
requirements contained in the standards are very similar to those found
in the HON. Each type of emission point included in the standards is
discussed briefly in the following paragraphs. Significant differences
from the continuous parameter monitoring requirements found in the HON
are discussed in Section 8.
1. Storage Vessels
Monitoring and compliance provisions for storage vessel
improvements include periodic visual inspections of vessels, roof
seals, and fittings, as well as internal inspections. If a control
device is used, the owner or operator must identify the appropriate
monitoring procedures to be followed in order to demonstrate
compliance. Monitoring parameters and procedures for many of the
control devices likely to be used are identified in the standards.
Reports and records of inspections, repairs, and other information
necessary to determine compliance are also required by the standards.
2. Continuous Process Vents
The standards for continuous process vents require the owner or
operator to either calculate a TRE index value to determine the group
status of each continuous process vent or to comply with the control
requirements. The TRE index value is determined after the last recovery
device in the process or prior to venting to the atmosphere. The TRE
calculation involves an emissions test or engineering assessment and
use of the TRE equations specified in the standards.
Performance test provisions are included for Group 1 continuous
process vents to verify that control or recovery devices achieve the
required performance. Monitoring provisions necessary to demonstrate
compliance are also included in the standards.
Compliance provisions for continuous process vents at polystyrene
and PET affected sources are included in the standards. For owners or
operators electing to comply with a kilogram organic HAP per megagram
of product emission limit, procedures to demonstrate compliance are
provided.
3. Batch Process Vents
Similar to the provisions for continuous process vents, there is a
procedure for determining the group status of batch process vents. This
procedure is based on annual emissions and annual average flow rate of
the batch process vent. Equations for estimating and procedures for
measuring annual emissions and annual average flow rates are provided
in the standards. The use of engineering assessment is also allowed
under certain circumstances.
Performance test provisions are included for Group 1 batch process
vents to verify that control devices achieve the required performance.
Monitoring provisions necessary to demonstrate compliance are also
included in the standard.
For Group 2 batch process vents, the standard requires owners and
operators to establish a batch cycle limitation. The batch cycle
limitation restricts the number and type of batch cycles that can be
accomplished per year. This enforceable limitation ensures that a Group
2 batch process vent does not become a Group 1 batch process vent as a
result of running more batch cycles than anticipated when the group
determination was made. The determination of the batch cycle limitation
is not tied to any previous production amounts. As affected source may
set the batch cycle limitation at any level it desires as long as the
batch process vent remains a Group 2 batch process vent. Alternatively,
an owner or operator may declare any Group 2 batch process vent to be a
Group 1 batch process vent. In such cases, control of the batch process
vent is required.
Procedures are included in the standards to demonstrate compliance
with the requirement to reduce overall process vent emissions (i.e.,
continuous and batch process vents) by 84 percent for new SAN affected
sources using a batch process.
4. Heat Exchange Systems
Monitoring of cooling water is required to detect leaks in heat
exchange systems. If a leak is detected, the heat exchange system must
be repaired.
5. Process Contact Cooling Towers
Owners and operators of new affected sources manufacturing PET are
prohibited from sending contact condenser effluent associated with a
vacuum system to a process contact
[[Page 48217]]
cooling tower. Owners and operators of existing PET affected sources
using a TPA continuous high viscosity multiple end finisher process are
required to monitor ethylene glycol concentration in the cooling tower
water and to ensure that the levels do not exceed 4 percent by weight.
Procedures for sampling cooling tower water and measuring the ethylene
glycol concentration are included in the standards.
6. Wastewater
For demonstrating compliance with the various requirements, the
standards allow the owners or operators to either conduct performance
tests or to document compliance using engineering calculations.
Appropriate compliance and monitoring provisions are included in the
standards.
7. Equipment Leaks
Except for certain components at PET affected sources, the final
rule retains the use of Method 21 to detect leaks. Method 21 requires a
portable organic vapor analyzer to monitor for leaks from equipment in
use. A ``leak'' is a concentration specified in the regulation for the
type of equipment being monitored and is based on the instrument
response to methane (i.e., the calibration gas) in air. The rule allows
the use of engineering assessment to determine that equipment is not in
organic HAP service. If there is disagreement between an owner or
operator and the Administrator, the rule specifies that Method 18 or
Method 25A be used to determine the organic HAP or total organic
compounds (TOC) content of a process stream. To test for leaks in a
batch system, test procedures using either a gas or a liquid for
pressure testing the batch system are specified.
8. Continuous Parameter Monitoring
The final standards require owners or operators to establish
parameter monitoring levels. The standards provide the owner or
operator the flexibility to establish the levels based on site-specific
information. Site-specific levels can best accommodate variation in
emission point characteristics and control device designs. Three
procedures for establishing these levels are provided in the final
standards. They are based on performance tests; performance tests,
engineering assessments, and/or manufacturer's recommendations; and
engineering assessments and/or manufacturer's recommendations. While
the establishment of a level based solely on performance tests is
preapproved by the Administrator, values determined using the last two
procedures, which may or may not use the results of performance tests,
must be approved by the Administrator for each individual case.
The final standards require the availability of at least 75 percent
of monitoring data to constitute a valid days worth of data for
continuous and batch process vents. Failure to have a valid day's worth
of monitoring data is considered an excursion. The criteria for
determining a valid day's or hour's worth of data are provided in the
standards.
A certain number of excused excursions have been allowed in the
final standards; these provisions are the same as the provisions in the
HON. The standards allow a maximum of 6 excused excursions for the
first semiannual reporting period, decreasing by 1 excursion each
semiannual reporting period. Starting with the sixth semiannual
reporting period (i.e., the end of the third year of compliance) and
thereafter, one excused excursion is allowed each semiannual reporting
period. As is always the case, a State has the discretion to impose
more stringent requirements than the requirements of NESHAP and other
federal requirements and could choose not to allow the excused
excursion provisions contained in these standards.
I. Recordkeeping and Reporting Provisions
The standards require owners or operators of affected sources to
maintain required records and reports for a period of at least 5 years.
The final standards require that the following reports be submitted, as
applicable: (1) Precompliance Report, (2) Emissions Averaging Plan, (3)
Notification of Compliance Status, (4) Periodic Reports, and (5) other
reports (e.g., notifications of storage vessel internal inspections).
Specific recordkeeping and reporting requirements are specified in
each section that addresses an individual emission point (e.g., 63.1321
for batch process vents). The recordkeeping and reporting provisions
related to the affected source as a whole (e.g., Notification of
Compliance Status) are found in Sec. 63.1335. Requirements found in an
individual emission point section and the requirements in Sec. 63.1335
are complementary. For example, Sec. 63.1326 requires an owner or
operator to record the batch cycle limitation for each Group 2 batch
process vent. Sec. 63.1327 goes on to require the owner or operator to
submit this information in the Notification of Compliance Status, as
specified in Sec. 63.1335. Finally, Sec. 63.1335 requires submittal of
the information specified in Sec. 63.1327.
IV. Summary of Impacts
This section presents impacts resulting from the control of organic
HAP emissions under these standards. Because many organic HAP are also
VOC, a reduction in VOC emissions will also result from controls
imposed by the standards. The standards are estimated to reduce organic
HAP emissions from all existing affected sources by 3,520 Mg/yr from a
baseline level of 18,120 Mg/yr. For new affected sources, the standards
are estimated to reduce organic HAP emissions by 6,870 Mg/yr from a
baseline level of 11,610 Mg/yr. At baseline, the EPA found that many
affected sources already had some controls in place. These standards
generally achieve an emission reduction by meeting the MACT floor level
of control. [Note: Costs and other impacts are not considered when the
selected standard is based on the MACT floor.] In some cases, these
standards achieve additional emission reduction, beyond the floor, that
was determined to be cost effective.
Under the final standards, energy use is expected to increase by
approximately 29,800 barrels of oil per year for existing affected
sources and 43,600 barrels of oil per year for new affected sources.
The emissions of secondary air pollutants associated with this energy
increase are 70 Mg/yr for existing affected sources and 80 Mg/yr for
new affected sources. At the same time, energy credits attributable to
the prevention of organic HAP emissions from equipment leaks are
approximately 7,000 barrels of oil per year for existing affected
sources and 3,800 barrels of oil per year for new affected sources.
This results in a net increase in energy usage equivalent to
approximately 22,500 barrels of oil per year for existing affected
sources and 39,700 barrels of oil per year for new affected sources.
These figures are related to the control of process vents,
wastewater operations, and equipment leaks. Energy impacts related to
storage vessels were not estimated because many storage vessels would
be controlled through the use of internal floating roofs which do not
have any associated energy impacts. Data are not available for the EPA
to estimate energy impacts for the elimination of emissions from
process contact cooling towers for new PET affected sources or the
control of ethylene glycol concentration in the process contact cooling
tower water for existing PET affected sources using a continuous TPA
high viscosity multiple end finisher process.
[[Page 48218]]
Cost impacts include the capital costs of new control equipment,
the cost of energy (i.e., supplemental fuel, steam, and electricity)
required to operate control equipment, operation and maintenance costs,
and the cost savings generated by reducing the loss of valuable product
in the form of emissions. Also, cost impacts include the costs of
monitoring, recordkeeping, and reporting associated with the standards.
Under the standards, it is estimated that total capital costs for
existing affected sources would be $10.7 million (1989 dollars), and
total annual costs would be $3.3 million (1989 dollars) per year. Total
capital costs for new affected sources would be $6.5 million (1989
dollars), and total annual costs would generate a savings of $5.2
million (1989 dollars) per year. It is expected that the actual
compliance cost impacts of the standard would be less than presented
because of the potential to use common control devices, upgrade
existing control devices, use other less expensive control
technologies, implement pollution prevention technologies, or use
emissions averaging. Because the effect of such practices is highly
site-specific and data were unavailable to estimate how often the lower
cost compliance practices would be utilized, it is not possible to
quantify the amount by which actual compliance costs would be reduced.
The economic impact analysis for the selected regulatory
alternatives at proposal showed that the estimated price increases for
the affected chemicals ranged from 0.1 percent for nitrile to 2.8
percent for SAN. Estimated decreases in output ranged from 0.1 percent
for polystyrene to 4.6 percent for SAN. Net annual exports (i.e.,
exports minus imports) were predicted to decrease by an average of 2.5
percent. These impacts were judged, at proposal, to be acceptable.
Because estimated costs of the final standards have decreased, the
economic impacts determined at proposal will decrease as well.
Therefore, the EPA finds the economic impacts associated with the final
standards are less than at proposal and are judged to be acceptable.
V. Significant Comments and Changes to the Proposed Standards
In response to comments received on the proposed standards, changes
have been made to the final standards. While several of these changes
are clarifications designed to make the EPA's intent clearer, a number
of them are significant changes to the requirements of the proposed
standards. A summary of the substantive comments and/or changes made
since the proposal are described in the following sections. The
rationale for these changes and detailed responses to public comments
are included in the Basis and Purpose Document for the Final Standards
[EPA-453/R-96-001b; May 1996]. Additional information on the final
standards is contained in the docket for this rulemaking (see ADDRESSES
section of this preamble).
A. Applicability Provisions and Definitions
1. Designation of Affected Source and the Definition of TPPU
Commenters expressed confusion about the definitions of ``affected
source'' and ``TPPU'' in the proposed standards. The EPA reviewed both
definitions and agreed that they needed clarification. In response, the
EPA has revised the language describing ``affected source'' and
``TPPU'' for the final standards.
The definition of ``affected source'' included in Sec. 63.502 of
the proposed standards was revised and the definition now references
Sec. 63.1310(a) of the final rule, and Sec. 63.1310(a) describes the
affected source. The provisions in Sec. 63.1310(a), which at proposal
were in Sec. 63.500(a) and defined applicability in terms of the
existence of one or more TPPUs, have been revised to define
applicability in terms of the affected source. As part of this
revision, the provisions in proposed Sec. 63.500(b), which described
the affected source, were removed. [Note: In the proposed standards,
the definition of TPPU attempted to describe all the equipment and
operations that would be included in an affected source. In the final
standards, the description of what the affected source includes is
contained in Sec. 63.1310(a).]
As discussed in section II, an existing affected source is defined
as each group of one or more TPPUs that manufacture the same
thermoplastic product as their primary product, and (1) are located at
a major source plant site, (2) are not exempt, and (3) are not part of
a new affected source. A new affected source can be a single TPPU
located at major source plant site or a group of TPPUs that manufacture
the same thermoplastic product as their primary product at a major
source plant site. The situations when a new affected source are
created are discussed under A.3 of this section.
The affected source also includes the following emission points and
equipment that are associated with each group of TPPU: (1) each
wastewater stream; (2) each wastewater operation; (3) each heat
exchange system; (4) each process contact cooling tower used in the
manufacture of PET that is associated with a new affected source; and
(5) each process contact cooling tower used in the manufacture of PET
using a continuous terephthalic acid high viscosity multiple end
finisher process that is associated with an existing affected source.
For the final standards, the number of existing affected sources
present at a plant site will equal the number of thermoplastic products
manufactured at that plant site. A plant site manufacturing 3 different
thermoplastic products has 3 existing affected sources.
Note: Each different thermoplastic product represents a
different subcategory, and each subcategory comprises a separate
existing affected source.
The number of existing affected sources at a plant site could range
from 1 to 19.
The definition of TPPU was revised and now includes a list of the
collection of equipment that comprises a TPPU. This equipment includes
process vents from process vessels, storage vessels, and equipment
subject to the equipment leaks provisions. Because wastewater streams,
wastewater operations, heat exchange systems, and process contact
cooling towers are equipment that are often used by more than one TPPU,
these items are not included as part of the definition of TPPU.
Instead, said items are included in the definition of affected source.
Because the portion of each wastewater stream attributable to an
individual TPPU can be determined, each wastewater stream can be
associated with an affected source. On the other hand, wastewater
operations may service wastewater streams associated with more than one
affected source, just as heat exchange systems and PET process contact
cooling towers could service multiple affected sources. Therefore, for
wastewater operations, heat exchange systems, and PET process contact
cooling towers, the final rule requires that said emission points and
equipment are subject to all applicable requirements associated with
each affected source that said emission points and equipment may
service. In a simple example, a heat exchange system is associated with
two affected sources that are both subject to the final rule. The owner
or operator must comply with the provisions for heat exchange systems
contained in the final rule. In a more complex example, a piece of
wastewater operations equipment services wastewater streams from two
affected sources subject to the final rule and from one source subject
to the HON.
[[Page 48219]]
This piece of wastewater operations equipment must comply with both the
final rule and the HON.
2. Definition of Organic HAP
Numerous commenters recommended that the EPA restrict the list of
organic HAP in the final standards to those that are used or are
present in significant quantities at TPPUs or those that are listed in
the HON, subpart F. Table 2. The EPA agreed with the commenters
suggestion that a table providing a listing of the specific organic HAP
expected to be regulated for each subcategory covered by the standards
should be added to the final standards. Therefore, the definition of
organic HAP was revised to specify those organic HAP that are known to
be used or present in significant quantities for each subcategory,
thereby restricting the organic HAP regulated by the final standards.
This list is provided in Table 2 of the final standards.
The revised definition of organic HAP was developed using available
process description information received from industry and gathered
from available literature. Because there may be additional organic HAP
present at an affected source, the final standards require owners or
operators to identify the presence of any additional organic HAP based
on the following criteria: (1) the organic HAP is knowingly introduced
into the manufacturing process other than as an impurity, or has been
or will be reported under any Federal or State program, such as Title V
or the Emergency Planning and Community Right-To-Know Act (EPCRA)
Section 311, 312, or 313; and (2) the organic HAP is listed in Table 2
of subpart F.
3. Determining New Source Status
The EPA received comments regarding the procedure for determining
if new or existing source requirements would apply to a particular
TPPU. In response to those comments, the EPA has revised the provisions
in the final standards.
Under the final standards, new affected sources are created under
each of the following four situations: (1) if a plant site with an
existing affected source producing a thermoplastic product as its
primary product constructs a new TPPU also producing the same
thermoplastic product as its primary product, the new TPPU is a new
affected source if the new TPPU has the potential to emit more than 10
tons per year of a single HAP or 25 tons per year of all HAP; (2) when
a TPPU is constructed at a major source plant site where the
thermoplastic product was not previously produced as the primary
product of an existing affected source; (3) if a new TPPU is
constructed at a new plant site (i.e., green field site) that will be a
major source; and (4) when an existing affected source undergoes
reconstruction, thus making the previously existing affected source
subject to new source standards.
These revisions reflect the EPA's intent that new source
requirements apply if the added TPPU has the potential to emit major
quantities, as in the HON, or the added TPPU is a new affected source.
The HON applied to only one source category, and it was not possible to
add a process unit subject to the HON that was in a new source
category. Therefore, the only differentiation to be made under the HON
was between process units emitting major quantities of organic HAP and
those not emitting major quantities of organic HAP. On the other hand,
the thermoplastics standards apply to multiple source categories/
subcategories, and it is possible to add a TPPU subject to the
thermoplastics standards that is in a new source category/subcategory.
For this reason, if a TPPU is added to an existing plant site and said
TPPU manufactures a thermoplastic product as its primary product not
previously produced at the plant site as the primary product of an
existing affected source, that TPPU, regardless of emissions, is a new
affected source at that plant site.
4. Solid State PET Processes
Commenters contended that all PET solid state polymerization units,
including collocated units, should be exempted from regulation. They
stated that PET solid state polymerization units are a vastly different
technology than DMT and TPA processes and have different emission
characteristics. The EPA has concluded that PET solid state processes
are distinct from DMT or TPA processes. The EPA did not collect data on
PET solid state processes, and it was not possible to conduct the
required analyses for regulating PET solid state processes. Therefore,
the final standards do not regulate these processes. However, these
processes may be regulated in a future standard.
5. Flexible Operation Units
The flexible operation unit provisions included in the proposed
standards, which were modelled after the HON, have been retained in the
final standards. Under these provisions, an owner or operator of a
process unit that is designed and operated as a flexible operation unit
will commit to being subject to this rule or not being subject to this
rule based on a five-year projection of products to be manufactured and
production quantities.
These provisions were modified to provide clarification of the
EPA's intent and flexibility in complying with the provisions. Under
the final rule, once an owner or operator commits to being subject to
this rule, there are two options for complying. Under the first option,
an owner or operator shall determine the group status (i.e., Group 1 or
Group 2) of each emission point based on the production of the expected
primary product (i.e., the thermoplastic product that convinced the
owner or operator to commit to being subject to this rule). Once the
group status of each emission point is determined, the owner or
operator shall comply with the applicable emission standards for the
primary product at all times, regardless of what product is being
manufactured. Under the second option, an owner or operator shall
determine the group status of each emission point each time a different
product is being manufactured, regardless of whether or not said
product is a thermoplastic product. Then, for each Group 1 emission
point, the owner or operator shall comply with the applicable standards
for the primary product. The EPA recognizes that neither option is an
ideal situation. Under the first option, an owner or operator may find
themselves operating a control device to control a Group 1 emission
point that has none to negligible emissions when a different product is
being manufactured. Under the second option, an owner or operator may
find themselves performing multiple group determinations. Again, the
EPA recognizes that neither option is an ideal situation, but believes
the tradeoff between these inconveniences and flipping in and out of
separate MACT standards is worthwhile.
As part of demonstrating compliance with the rule, an owner or
operator required to operate a control device must establish parameter
monitoring levels and conduct monitoring. Under either compliance
option discussed above an owner or operator must establish parameter
monitoring levels to reflect the manufacture of different products.
These provisions allow an owner or operator to demonstrate that the
parameter monitoring levels established for the primary product are
appropriate for the manufacture of other products. If this is not the
case, the provisions require that unique parameter monitoring levels be
established.
[[Page 48220]]
6. Coordination With Other Clean Air Act Requirements
At proposal, the EPA has proposed to amend subpart DDD of 40 CFR
part 60 by removing all references to polystyrene and PET facilities.
This action was being taken because the proposed thermoplastics
standards would supersede the requirements in subpart DDD for
polystyrene and PET affected sources after the compliance date of the
thermoplastics standards. Commenters also suggested that subpart I of
40 CFR part 63 be amended by removing all references to MBS and MABS
affected sources after the compliance date of the thermoplastics
standards. Other commenters requested that the EPA further clarify that
after the compliance date of the thermoplastics standards, affected
sources will no longer be subject to certain NSPS.
The EPA clarified the relationship between the thermoplastics
standards and existing applicable standards in Sec. 63.1311 of the
final rule. The final rule was revised to state that affected sources
subject to both the thermoplastics standards and another subpart are to
comply with the provisions of the thermoplastic standards only after
the compliance date for the thermoplastic standards, for those
standards listed in Sec. 63.1311 (g) through (l) of the final rule.
Further, after the compliance date for these standards, these affected
sources will no longer be subject to the other subparts. The EPA
determined that a clear understanding can be provided in these
standards without making modifications to other subparts. Thus, the
proposed amendments to subpart DDD were not made as part of the final
rulemaking, nor were the suggested amendments made to subpart I. For
subpart DDD, the language in the final rule is more specific than for
the other subparts. Because subpart DDD regulates multiple emission
points (i.e., process vents, equipment leaks, and process contact
cooling towers), the EPA needed to consider if it was desired or
necessary to continue requiring portions of subpart DDD to apply. In
fact, it is necessary to leave the provisions for controlling the
ethylene glycol concentration in process contact cooling towers for the
PET TPA continuous high viscosity multiple end finisher subcategory
intact. This is because the provisions in the thermoplastics rule for
the degree of control required for emissions from process contact
cooling towers for this subcategory depend on whether or not an
existing affected source is subject or becomes subject to subpart DDD
for this emission point.
B. Continuous Process Vent Provisions
1. Reorganization of the Standards To Distinguish Between Continuous
Process Vents Subject to Provisions From the HON and Continuous Process
Vents Subject to Provisions Adapted From the Polymer Manufacturing NSPS
To better distinguish between the various requirements for
continuous process vents, the proposed standards were reorganized. In
the final standards, separate sections of the rule apply to the
following subcategories: those required to comply with subpart G of the
HON and those producing PET or polystyrene using a continuous process.
In the final standards, Sec. 63.1315 references subpart G; Sec. 63.1316
through Sec. 63.1320 apply to select continuous process vents at
affected sources producing polystyrene and PET using a continuous
process. Further, because not all process vents at affected sources
producing polystyrene and PET using a continuous process are subject to
Sec. 63.1316 through Sec. 63.1320, the provisions of Sec. 63.1316
designate which process vents are subject to Sec. 63.1316 through
Sec. 63.1320, which are subject to Sec. 63.1315 (i.e., the HON), and
which are subject to Sec. 63.1321 (i.e., the batch process vent
provisions). This reorganization is one way the EPA changed the
standards to reduce complexity and eliminate potential confusion.
2. Applicability of the Polymer Manufacturing NSPS Adapted Provisions
to the Collection of Process Sections at an Affected Source
Commenters stated that the regulatory construction of the proposed
standards implied that the process vent emission limits adapted from
the Polymer Manufacturing NSPS [proposed Sec. 63.505 (b) and (c)] apply
to each collection of material recovery sections, raw material
preparation sections, and polymerization sections, respectively, within
an affected source and not to each individual process section (e.g.,
material recovery section), as under the Polymer Manufacturing NSPS.
At proposal, the EPA has intended for each individual process
section to meet the emission limits in proposed Sec. 63.505 (b) and
(c), as applicable. However, since proposal, the EPA has determined
that revising the proposed standards to allow each collection of
process sections within an affected source to meet the applicable
emission limit would simplify compliance while achieving the same
emission reductions. Therefore, the final standards apply the emission
limits adapted from the Polymer Manufacturing NSPS to each collection
of material recovery sections, raw material preparation sections, or
polymerization reaction sections, as appropriate, within an affected
source.
3. Clarification of Compliance Demonstration Provisions for Final
Condenser Temperature Limits
Commenters suggested modifying the provisions adapted from the
Polymer Manufacturing NSPS that provide for a demonstration of
compliance by limiting the final condenser outlet temperature.
Commenters explained that the reporting provisions in the Polymer
Manufacturing NSPS state that the temperature limit is only exceeded
when the average condenser outlet temperature for a 3-hour period is
more than 6 deg.C above (i.e., warmer) the average operating
temperature established during the most recent performance test at
which compliance was demonstrated. Commenters requested that the final
standards incorporate those monitoring, test method, and recordkeeping
and reporting requirements from the Polymer Manufacturing NSPS that
provide this flexibility (i.e, the six degree window).
The EPA intended for the proposed standards to be equivalent to the
Polymer Manufacturing NSPS in this regard and have revised the final
standards to provide the desired flexibility (i.e., the six degree
window). In addition, the EPA has disassociated the six degree window
from the results of the performance test and has instead associated it
with the applicable temperature limit in the standard. The final
standards allow all owners or operators complying with the final
condenser operating temperature limits to be 6 deg.C warmer than the
applicable temperature limit for the 3-hour averages. The EPA
considered that the proposed provisions did not achieve an even-handed
implementation of the requirements because some affected sources would
be allowed to have 3-hour averages at warmer temperatures than others
because their performance test results indicated a temperature closer
to the applicable temperature limit.
C. Batch Process Vent Provisions
1. Exemption of Certain Batch Process Vents
Commenters supported the use of cutoffs for the group status
determination for batch process vents as found in proposed Sec. 63.506-
2(d). Specifically, commenters agreed that low annual organic HAP
emissions and low flow rate cutoffs are suitable. Commenters explained
that batch
[[Page 48221]]
processes are, by nature, suited to low volume production and the
manufacture of specialty products, and as such, low flow, low emitting
process vents are likely in batch operations.
These provisions were retained in the final rule with one
exception. The EPA removed the requirement to determine the volatility
class (i.e., low, medium, or high) for batch process vents. As a
result, there is a single minimum emission level cutoff in the final
provisions of Sec. 63.1323(d). In addition, the EPA chose to add a
minimum emission level of 225 kilograms per year (kg/yr) to the
definition of batch process vent. This modification made the batch
process vent more consistent with the continuous process vent
provisions which have a minimum organic HAP concentration level as part
of the definition of continuous process vent. An emission point with
emissions equal to or less than 225 kg/yr is not considered a batch
process vent. At proposal, the 225 kg/yr level was part of the batch
process vent group determination procedures; Group 2 batch process
vents with annual emissions less than 225 kg/yr were subject to
reporting requirements related to process changes.
2. Revisions to Group Determination Procedures
Commenters suggested changing the group determination provisions to
only utilize emissions data from a TPPU's primary product. In addition,
it was requested that batch process vent group determinations be
performed on an annual basis instead of for every process change.
Commenters stated that the proposed group determination provisions were
considerably more complex than the continuous process vent group
determination provisions. Commenters felt that, not only did the batch
process vent group determination provisions require an owner or
operator to obtain emissions data for every product that it
manufactured, but even the most minor process changes (i.e.,
lengthening cycle times, altering process temperatures and pressures,
etc.) triggered the need for a new group determination to be performed.
Given the inherent process variability associated with batch
operations, commenters contended that it would be very difficult to
perform a group determination. Furthermore, because batch units often
need to implement sudden process changes in response to customer
demands, the proposed provisions could potentially require repeating
the group determination exercise several times in a single year.
Commenters explained that such a situation would not only serve to
complicate a batch unit's compliance status, but could also adversely
impact its ability to remain competitive in the marketplace.
Four issues related to the group determination procedures were
reviewed by the EPA: (1) a request to perform the group determination
on the primary product, (2) a request to perform the group
determination on an annual basis, (3) an objection that the group
determination procedures require a new group determination to be made
whenever minor process changes occur, and (4) an objection to the
requirement to perform the group determination when a sudden process
change is required.
The EPA has considered the request to perform the group
determination on the primary product and agrees that this would provide
acceptable results from an environmental perspective while simplifying
the compliance requirements for and improving the enforceability of the
batch process vent standards. The final rule contains provisions
allowing the owner or operator of an affected source to perform the
group determination for batch process vents based on annualized
production of a single product. To ensure protection to the
environment, the final rule specifies that the highest organic HAP
emitting product must be used when determining the group status based
on a single product.
In addressing the request that the group determination be required
on an annual basis instead of for every process change, the EPA
believes the proposed rule was clear on this point. The proposed rule
required that emissions and average flow rate be determined on an
annual basis and describe how to account for the production of
different products throughout the year. In this way, the group
determination is done on an annual basis and can account for expected
changes in the product being produced. The final rule does not reflect
any changes related to this specific issue.
The third issue raised was an objection to the requirement that a
new group determination be performed whenever minor process changes
occur (e.g., lengthening cycle times, altering process temperatures and
pressures, etc.). The proposed rule addressed the issue of minor
process changes as they affect Group 2 batch process vents. If a
process change affecting a Group 2 batch process vent occurs, a group
determination must be made. However, the group determination provisions
state that ``changes that are within the range on which the original
group determination was based'' are not considered process changes.
This allows an owner or operator to perform the initial group
determination considering the potential for minor process changes. The
EPA believes that the proposed provisions were clear that minor process
changes (i.e., variations in operating conditions) do not require that
a new group determination be performed. Addressing this concern as it
relates to Group 1 batch process vents, the proposed provisions do not
require a redetermination of group status for Group 1 batch process
vents under any circumstances. Therefore, if minor process changes were
to occur, the owner or operator would not be required to perform
another group determination. The final rule does not reflect any
changes related to this specific issue.
The fourth issue raised was an objection to the requirement to
perform a new group determination when a sudden process change is
required. In light of the third issue raised, EPA interpreted ``sudden
process change'' to potentially mean (1) that a new product is being
made, (2) that the same product is being made in a fundamentally
different way (e.g., with different raw materials), or (3) that the
same mix of products is being made but in a different proportion. In
the first two cases, the EPA desires and intends that a new group
determination be made. In the third case, the owner or operator has the
flexibility to consider this situation when performing the initial
group determination. If this situation was not considered, then a new
group determination would be required. The EPA feels that these types
of process changes warrant a new group determination to ensure that the
emission standards are being met. The final rule does not reflect any
changes related to this specific issue.
3. Emissions Testing and Performance Testing
Commenters requested that more flexibility should be allowed in
designing an emissions testing scheme for batch process vents.
Commenters cited an example, provided as part of the proposed
definition of batch emission episode, where the charging of a vessel
and the heating of the same vessel are considered two distinct batch
emission episodes. In this example, the definition of batch emission
episode would necessitate that separate emissions measurements be made
for the charging and the heating of the vessel. This would require that
a large number of samples be taken to characterize processes that have
[[Page 48222]]
multiple, short duration process steps. Commenters felt that the
flexibility to test the emissions from several steps as a single batch
emission episode would reduce testing costs without jeopardizing the
quality of the emissions data. It was suggested that three or more
batch cycles could be tested to obtain a representative average
emission rate for the batch cycle.
After consideration of this comment, the EPA chose to leave the
provisions related to emissions testing of batch process vents
unchanged as they relate to this specific comment. The EPA felt
adequate data were not presented to warrant changing these provisions.
However, the emissions testing provisions in Sec. 63.1323(b) and
Sec. 63.1325(c) have been modified to provide flexibility and reduce
the burden of testing, while continuing to ensure that results are
satisfactory for applicability determinations and performance tests.
The final provisions allow an owner or operator to test just a portion
of the batch emission episode selected to be controlled when the owner
or operator can demonstrate that emissions during the period to be
tested represent emissions for the entire batch emission episode or are
greater than the average emission rate for the batch emission episode.
4. Flow Rate Estimation Procedures
Commenters asserted that the equations and test methods for
calculating annual average flow rate in the proposed rule were not
warranted. Commenters felt that the volumetric flow rate testing
methods and the requirement to measure flow every 15 minutes specified
in proposed Sec. 63.506-2(e) were overly burdensome and would not
always provide representative measurements. It was suggested that
average flow rates for a batch emission episode are better defined by
calculations of displacement volumes with respect to the durations of
the displacement episodes or by other more simplified methods.
The EPA agrees that there are more simplified and potentially more
accurate techniques for estimating flow rate for batch process vents.
The final rule contains provisions that allow engineering assessment,
as well as testing, to be used for estimating flow rate.
5. Emissions Estimation Procedures
Commenters recommended removing the emissions estimation equations
in proposed Sec. 63.506-2(b) from the rule. Commenters recommended that
measurements or engineering estimates be allowed in place of the
equations. It was felt the emissions estimation equations would not
allow the flexibility necessary to account for differences in process
technologies and operating methods.
Commenters also supported the provisions that allowed owners or
operators to use direct measurement or engineering assessment to
estimate emissions in cases where the emissions estimation equations
are inappropriate for a particular type of operation or where, speaking
to direct measurement, a more refined estimate of emissions is
necessary. However, commenters objected to the requirement to
demonstrate that the emissions estimation equations and direct
measurement methods are not appropriate before engineering assessment
can be used.
In response to the first issue raised, the emissions estimation
equations have been retained in the final rule. The EPA found noting in
the public comments that would warrant removing these procedures.
In response to the second issue, the EPA believes the data required
to use the emissions estimation equations should be obtainable with
reasonable effort. Further, specific comments regarding the inaccuracy
or inappropriateness of the equations were not made. Given this, the
EPA favors a more consistent estimation technique which is provided by
the use of the emissions estimation equations, and the final rule
requires the owner or operator to demonstrate that the emissions
estimation equations are inappropriate before the use of engineering
assessment is allowed.
However, independent of the comments provided, the EPA has
concluded that direct measurement of emissions may prove to be
difficult and may or may not provide an increased assurance of accuracy
over the use of engineering assessment. Therefore, if an owner or
operator can demonstrate that the emissions estimation equations are
not appropriate, the final provisions allow the use of either direct
measurement or engineering assessment.
6. Other Changes Resulting From EPA Review
In addition to changes made to the proposed rule as a result of
public comment, changes were made as a result of EPA independently
reviewing the rule between proposal and promulgation. Because the batch
process vent provisions included in the rule are among the EPA's first
attempts to regulate batch process vents, the EPA felt an ongoing,
independent review of these provisions after proposal was warranted.
Changes resulting from this review are listed below:
(1) Allow applicability determinations and compliance
demonstrations (i.e., performance tests) to be based on TOC or organic
HAP. Allow the use of Method 25A to compliment the use of TOC as a
potential basis for applicability determinations and compliance
demonstrations.
(2) Allow the establishment of parameter monitoring levels to be
based on performance tests or a combination of performance tests and
engineering assessment (discussed in more depth in Section H,
Monitoring). To accommodate this change, modifications to the batch
process vent testing provisions were required.
(3) Add provisions specifying how the batch cycle limitation is to
be determined.
(4) Change the reporting requirement for batch cycle limitation
records from quarterly to annually.
These changes are discussed in the paragraphs below.
In the final rule, the EPA has allowed the use of TOC as the basis
for applicability and compliance demonstrations (i.e., performance
tests) as an alternative to organic HAP. The EPA has done this to
provide flexibility to the regulated community and to reduce the
overall burden of the rule. The EPA considered the impacts of allowing
TOC to serve as a surrogate for organic HAP in applicability and
compliance demonstrations and did not find any negative impacts.
Further, allowing the use of Method 25A as a complement to the use of
TOC as a surrogate to organic HAP reduces the burden of implementing
the final rule with little to no adverse impact on the measurement of
pollutants in the regulated batch process vents. To the best of the
EPA's knowledge, the batch process vents regulated by this rule are
predominantly organic HAP. Also, with one exception (i.e., ethylene
glycol), the regulated organic HAP, which are listed in the definition
of organic HAP found in the final rule, have response factors to Method
25A adequate to ensure satisfactory measurement of TOC in the batch
process vents. For certain emission points where the EPA considered the
presence of ethylene glycol and its corresponding poor response factor
to call into question the results that would be obtained using Method
25A, the use of Method 25A is not allowed. For all other emission
points, the EPA has allowed the use of TOC for applicability and
compliance demonstrations as an alternative to organic HAP in the final
rule.
[[Page 48223]]
In the final rule, the EPA allows the establishment of parameter
monitoring levels to be based on either performance tests, as in the
proposed rule, or a combination of performance tests, engineering
assessment, and manufacturer's recommendations. This change affects all
emission points which are required to establish parameter monitoring
levels, including batch process vents. The rationale for this change is
discussed in detail in Section H, monitoring, of this document. For
batch process vents, this change in the procedures for establishing
parameter monitoring levels necessitated changes to the performance
test provisions. When an owner or operator chooses to establish
parameter monitoring levels based exclusively on performance tests, the
final rule directs that the performance test must include the entire
batch emission episode selected to be controlled. As discussed earlier,
an owner or operator may choose to control just a portion of a batch
emission episode; in such a scenario, the performance test must include
the entire portion of the batch emission episode selected to be
controlled. Alternatively, when an owner or operator chooses to
establish parameter monitoring levels based on a combination of
performance tests, engineering assessment, and manufacturer's
recommendations, the final rule allows an owner or operator to test
either the entire batch emission episode, or portion thereof, selected
to be controlled or to test only the entire batch emission episode, or
portion thereof, selected to be controlled.
Note: The flexibility to test a period of the batch emission
episode that is less than the entire batch emission episode, or
portion thereof, selected to be controlled is discussed earlier in
this section.
The final rule includes provisions specifying how the batch cycle
limitation, required for Group 2 batch process vents, is to be
established. The EPA felt that the proposed rule was ambiguous
concerning the establishment of the batch cycle limitation and added
these provisions to make the rule complete. The added provisions
provide additional description of the purpose of the batch cycle
limitation and describe what documentation is required as part of
establishing the batch cycle limitation.
In the final rule, the EPA changed the requirement for reporting
the number and type of batch cycles accomplished for a Group 2 batch
process vent from quarterly to annually. The EPA felt that quarterly
reporting was unwarranted given that the compliance requirement (i.e.,
the batch cycle limitation) was on an annual basis.
D. Wastewater Provisions
1. Steam Stripping Styrene-Containing Wastewater Streams
Numerous commenters claimed that the selection of steam stripping
as the basis of the standards for the treatment of styrene-containing
wastewater streams was inappropriate due to polymerization problems.
The EPA acknowledges that steam stripping styrene-containing
wastewaters may prove to be impractical in some cases due to issues
raised by the commenters. However, steam stripping is not required by
the standards. Both the proposed and final wastewater provisions
provide several options for complying with the standards. If the owner
or operator judges steam stripping to be impractical for their process,
one of the other wastewater compliance options may be used. The EPA
considers one of these compliance options, the use of enclosed sewers
to a biological treatment operation unit, a favorable option because
styrene is highly biodegradable. Further, because the organic HAP
emitted from the subcategories regulated by this rule are highly
biodegradable, the EPA has determined that it is not necessary to
require affected sources to demonstrate that 95 percent of the mass of
organic HAP listed in Table 9 of the HON are removed when using a
biological treatment unit, as required by the HON. Therefore, the final
thermoplastic rule does not require an owner or operator to make this
demonstration.
2. Elimination of Regulations Pertaining to Wastewater From Polystyrene
Affected Sources
In addition to considering the comments made concerning the
impracticality of steam stripping styrene-containing wastewaters, the
EPA evaluated the need to regulate wastewater from polystyrene affected
sources. Because the water solubility of styrene is limited to
approximately 300 ppm and styrene is the only known organic HAP emitted
during the production of polystyrene, it is not possible for a
wastewater stream that only contains styrene to meet the Group 1
applicability criteria (i.e., 1,000 ppm minimum concentration).
Therefore, because, to the best of EPA's knowledge, there can be no
Group 1 wastewater streams at a polystyrene affected source, the final
standards do not regulate wastewater from this subcategory.
E. Process Contact Cooling Tower Provisions
1. Ethylene Glycol Jet Retrofit for PET Existing Affected Sources
Commenters disagreed with the EPA's position that ethylene glycol
jets are the vacuum systems technology of choice for a retrofit
application and with the EPA determination that ethylene glycol jets
are cost effective. Commenters contended that the EPA had failed to
consider numerous costs factors and design considerations.
Note: While the proposed standards did not require the use of
ethylene glycol jets, they were the technology on which the
prohibition of process contact cooling towers was based.
Based on the data available at proposal, the costs and emission
reductions achievable through the use of ethylene glycol jets in
retrofit situations were acceptable. The EPA knew that the proposed
standards for ethylene glycol jets were based on limited data and
limited knowledge obtained from one manufacturer of PET. The EPA took
special effort to make this clear and to solicit comments on the
installation and operation of ethylene glycol jets in the preamble to
the proposed standards (see pages 16104 and 16107 of the preamble).
Based on the comments provided, the EPA agrees that ethylene glycol
jets are not a suitable retrofit technology for existing affected
sources, either technically or economically, for meeting the provisions
of the proposed standards that prohibit the use of process contact
cooling towers. These comments are presented and discussed in detail in
the Basis and Purpose Document for the Final Standards [EPA-453/R-96-
001b; May 1996].
As explained in chapter 6.0 of the Basis and Purpose Document for
the Final Standards [EPA-453/R-96-001b; May 1996], steam jet vacuum
systems can be used to create a vacuum on the process vessels, contact
condensers can be used to condense steam, and the contact condenser
effluent can be recirculated to the process contact cooling tower. In
the process contact cooling tower, stripping and drift may occur,
resulting in organic HAP emissions to the atmosphere. Volatilization of
organic HAP from the vacuum system may also occur. The following
paragraphs describe some of the public comments on this issue and the
EPA's responses.
Given that the EPA was convinced by the commenters' arguments that
ethylene glycol jets are not a suitable retrofit technology for
existing affected sources, the EPA considered alternate
[[Page 48224]]
options for controlling emissions from the vacuum system. Both volatile
organic HAP (VOHAP) and ethylene glycol are emitted from the vacuum
system, and the EPA chose to approach each of these emissions
separately.
To address VOHAP emissions from the vacuum system at existing
sources, the final standards treat the contact condenser effluent as
wastewater and apply the same provisions to it as are applied to
process wastewater. Contact condenser effluent is considered process
wastewater based on the proposed wastewater provisions, and without any
special provisions or specific mention, the wastewater provisions will
apply. The EPA judged that treating the contact condenser effluent
prior to any significant opportunity for volatilization protects the
environment. Further, the HON wastewater provisions, which are the
basis for the wastewater provisions in the proposed and final
standards, have been judged to be environmentally effective and cost
effective overall. Therefore, it the wasetwater provisions deem a
wasterwater stream to be Group 2 (i.e., not requiring control), that
means it is not cost effective to control any VOHAP that may be
contained in that wastewater stream.
Addressing emissions from the process contact cooling tower was
more complex.
Note: The HON did not specifically address process contact
cooling towers because they are not used extensively in the
synthetic organic chemical manufacturing industry (SOCMI).
Given that the emissions of VOHAP would be dealt with through the
use of the wastewater provisions at existing affected sources, the key
issue related to cooling towers became the emissions of ethylene
glycol. Between proposal and promulgation, the EPA spent considerable
effort gathering information on PET vacuum systems and their emissions.
Much of this effort focused on emissions from the cooling towers,
specifically emissions of ethylene glycol. In addition to gathering
information on emissions, the EPA investigated control options aimed at
reducing emissions of ethylene glycol from cooling towers. Possible
control options, not considering ethylene glycol jets, included
treating a slipstream of the cooling tower water to reduce the
concentration of ethylene glycol or installing a large heat exchanger
to isolate the cooling tower from the process. None of these control
options were shown to be cost effective. All of the factors discussed
above have led the EPA to conclude that, with one exception discussed
below, specific provisions for controlling emissions from process
contact cooling towers are not warranted for existing affected sources.
Instead, the EPA is requiring that the wastewater provisions be applied
to all vacuum system wastewater.
The one exception where it was found to be cost effective to
control emissions from existing process contact cooling towers was for
affected sources manufacturing PET using a continuous TPA high
viscosity multiple end finisher process. Based on industry reported
emissions, total ethylene glycol emissions for all PET subcategories
are approximately 340 Mg/yr, and approximately 230 Mg/yr are being
emitted from the single plant site that is part of this subcategory.
This subcategory is required to keep the concentration of ethylene
glycol in the process contact cooling tower water to 4 percent by
weight or less.
As at proposal, the final standards require that owners or
operators of new affected sources manufacturing PET not send contact
condenser effluent associated with a vacuum system to a process contact
cooling tower.
2. Vacuum System Wastewater
Many commenters objected to the proposed provision designating all
contact condenser effluent as Group 1 wastewater streams. Commenters
stated that the EPA had not provided adequate rationale explaining why
the standards for contact condenser effluent were more stringent than
the standards for other wastewater streams. Because the automatic
designation of contact condenser effluent as Group 1 wastewater was
done in an effort to make the use of noncontact condensers within
steam-based vacuum systems equivalent to ethylene glycol jets, and that
need no longer exists for existing affected sources, there is no longer
a need or justification to designate all contact condenser effluent
from existing PET affected sources as Group 1 wastewater. As a result,
the EPA has changed the final standards to implement the group
determination procedure (i.e., Group 1 or Group 2) for contact
condenser effluent from existing PET affected sources.
On the other hand, the final standards continue to prohibit the use
of process contact cooling towers for new PET affected sources.
Note: This requirement is equivalent to the MACT floor.
However, the provisions designating all contact condenser effluent
streams from new PET affected sources as Group 1 wastewater have been
dropped from the final standards. Like existing PET affected sources,
the final standards implement the group determination procedure for
contact condenser effluent from new PET affected sources. As described
earlier, the purpose for designating all contact condenser effluent
streams as Group 1 wastewater was to ensure equivalency between the use
of ethylene glycol jets and the use of noncontact condensers. At the
time of proposal, the EPA considered ethylene glycol jets to be
pollution free because there was no wastewater stream produced. The
automatic designation of all contact condenser effluent as Group 1
wastewater was meant to address the absence of wastewater when ethylene
glycol jet systems are used. Since proposal, the EPA has come to
understand that the use of ethylene glycol jets does not eliminate
emissions because the additional loading to the glycol recovery unit
can create additional emissions from process vents or wastewater
streams or both.
Realizing that ethylene glycol jets are not pollution free, the EPA
considered the additional emissions at the glycol recovery unit when
ethylene glycol jets are used and the emissions from the contact
condenser effluent when noncontact condensers are used.
Note: The use of ethylene glycol jets would still achieve more
control than using steam jets and subjecting the contact condenser
effluent to the wastewater provisions.
In either case, an equivalent quantity of VOHAP is introduced to
the vacuum system from the process. Process vents and wastewater
streams at the glycol recovery unit are subject to the appropriate
provisions of the standards. For example, a wastewater stream at the
glycol recovery unit would be subject to a group determination and,
based on the results, would be controlled if required. The EPA judged
that to require the same action for the contact condenser effluent from
noncontact condensers would ensure equivalency between a new affected
source using ethylene glycol jets and one using noncontact condensers.
F. Equipment Leak Provisions
1. Polystyrene
A number of commenters stated that the EPA had overestimated the
emissions from equipment leaks at polystyrene affected sources in
general and, in particular, from components containing styrene as the
organic HAP. The commenters claimed that the use of the average SOCMI
emission factors to estimate emissions was inappropriate because the
vapor pressure of styrene at typical operating conditions in
[[Page 48225]]
polystyrene affected sources equates to a concentration of less than
10,000 ppm and no leaks would be detected using a leak definition of
10,000 ppm. The commenters also stated that the effect of using the
average SOCMI emission factors was to justify the HON equipment leak
program (i.e., subpart H) and that, if the EPA used a more realistic
estimate of emissions (e.g., the emission factor for components with
concentrations less than 10,000 ppm), a re-evaluation of the costs and
emission reductions would likely result in a conclusion that the HON is
not cost effective. The commenters recommended that if any program was
to be implemented for polystyrene affected sources and especially for
components in styrene service, it should either be a visual-only
program or, at most, a program based on a State Reasonably Achievable
Control Technology (RACT) program.
In response to these comments, the EPA re-evaluated the analysis
that served as the basis for proposing the equipment leak provisions
from the HON for polystyrene and other styrene-based resin affected
sources.
Note: The results of this re-evaluation are contained in Item
IV-B-2, Docket A-92-45.
In re-evaluating that analysis, the EPA determined the MACT floor
for each subcategory. Because a MACT floor was determined to exist and
the Clean Air Act does not allow the EPA to set a standard less
stringent than the MACT floor, the EPA determined that some standard
must be set for these subcategories.
The EPA agrees with the commenters that the average SOCMI emission
factors are likely to overestimate emissions from components containing
or contacting styrene. Therefore, the EPA lowered the emission factors
used to estimate the emissions from these components. The EPA also
adjusted leak rate factors based on additional data and comments from
the industry. Adjustments to the emission factors and leak rates had
the effect of reducing both the overall emission estimates and the
emission reductions associated with the current industry programs, the
MACT floor programs, and the HON program.
In addition, the EPA re-evaluated the costing program used to
estimate the costs for the various equipment leak programs. Errors were
discovered in the costing program. The net effect of correcting these
errors was to lower the estimated costs for all of the various
equipment leak programs. The incremental differences between the
various programs decreased as well, but not by as much as the overall
costs.
To determine whether or not the subpart H provisions were cost
effective, the EPA examined the incremental costs and emission
reductions between the HON program and the MACT floor program for each
of the subcategories.
[Note: In the original analysis, the EPA examined the cost
between the HON program and each facility's specific current
program.]
Based on the incremental differences between the HON and the MACT
floor programs, the EPA determined that the HON requirements are cost
effective for each of the styrene-based resin subcategories, including
the three polystyrene subcategories. Therefore, the EPA has retained
the HON requirements in the final rule.
2. PET
Many commenters objected to the imposition of the HON equipment
leak requirements on PET affected sources, especially those using the
TPA process. These commenters stated that, due to the preponderance of
components in heavy liquid service, no program should be imposed or, if
a program is required, it should simply be a visual-only program. Some
of the commenters referred to the rationale in the development of the
Polymer Manufacturing NSPS [40 CFR part 60, subpart DDD], which
exempted PET affected sources using a continuous TPA process from
equipment leak regulation.
As was done for the styrene-based resin subcategories, the EPA re-
evaluated the emission estimates and cost estimates for all of the PET
subcategories. The results of this re-evaluation are found in Item IV-
B-3, Docket A-92-45. The following actions were taken as part of the
re-evaluation. First, the EPA lowered the emission factors used to
estimate emissions from components in heavy liquid service to take into
account the properties of ethylene glycol. Second, the EPA limited the
re-evaluation of costs and emission reductions to only those facilities
that provided specific component profiles (i.e., component counts and
types of service). The results of the re-evaluation showed that, except
for one PET subcategory, the HON requirements are cost effective. Thus,
the final rule retains, for the most part, the HON requirements for the
PET subcategories.
Note: Modifications to the HON requirements are discussed below.
The re-evaluation of the proposed equipment leak provisions showed
that the provisions were not cost effective for PET affected sources
using a continuous TPA high viscosity multiple end finisher process.
Thus, this subcategory, which currently contains only one affected
source, is exempt from the equipment leak requirements in the final
rule.
With regard to exempting PET affected sources altogether based on
the exemption contained in the Polymer Manufacturing NSPS, the EPA does
not agree with the commenters. During the development of the Polymer
Manufacturing NSPS, information available to the EPA indicated that all
components at PET TPA continuous facilities were in heavy liquid
service. Information provided by the industry during the development of
this rulemaking, however, shows the presence of components in gas/vapor
service and in light liquid service at some PET TPA facilities. The
decision to require an equipment leak program for this rulemaking is
based on this newer information. However, the EPA continues to agree
that, if a PET TPPU consists solely of components in heavy liquid
service, or in vacuum service, then said TPPU should be exempt from the
equipment leak standards. The final rule contains this provision.
Many commenters were concerned about the recordkeeping and
reporting requirements, especially for PET TPA affected sources where
the vast majority of components are in heavy liquid service. While the
EPA believes the original requirements were the minimum required to
ensure compliance with the overall program, the EPA has reduced the
burden of the recordkeeping and reporting requirements for these
subcategories in light of the preponderance of components in heavy
liquid service. The most significant change is the elimination of the
requirement to initially list the identification numbers of components
in heavy liquid service.
Finally, several commenters expressed concern with the use of
Method 21 to detect leaks from components in ethylene glycol (i.e.,
heavy liquid) service, stating in part that Method 21 would not detect
an ethylene glycol leak based on the properties of ethylene glycol and
the operating conditions of the process. The EPA agrees that Method 21
is inappropriate for determining ethylene glycol leaks where the
leaking component is in heavy liquid service. However, Sec. 63.169 of
subpart H does not require the use of Method 21; it is one of two
alternatives for determining the presence of leaks from components in
heavy liquid service. The other alternative is to use a sensory-based
detection method. The final rule has been revised to clarify that leaks
are to be determined exclusively through the use of visual, audible,
[[Page 48226]]
olfactory, and any other detection methods; Method 21 is not to be used
to determine leaks from components in heavy liquid service at PET
facilities.
G. Emissions Averaging Provisions
1. Number of Emission Points Allowed in Emissions Averaging
Numerous commenters requested that the number of emission points
allowed in an emissions average be increased to 20 points from the 5
points allowed at proposal. If pollution prevention measures are used,
commenters requested that an additional 5 emission points be allowed
from the 3 emission points allowed at proposal. The commenters stated
that this would be consistent with the HON.
In response to comments and to be more consistent with the HON and
the proposed Group I Polymers and Resins NESHAP, the number of emission
points allowed in emissions averaging at a plant site has been
increased to 20 po
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
ints, with an additional 5 points allowed if
pollution prevention measures are used. These values (i.e., 20/25) are
the maximum allowed for all emissions averages at a plant site,
regardless of the number of affected sources present at a plant site or
the number of emissions averaging programs implemented.
2. Including Batch Process Vents in Emissions Averaging
Several commenters requested that batch process vents be included
in the emissions averaging provisions. The EPA had not allowed
emissions averaging of batch process vents at proposal. The proposal
preamble stated that the accuracy and consistency of emissions
estimates needed for emissions averaging were considered to be greater
than those needed for applicability determinations. However, upon
review, the EPA has determined that having the same procedures to
estimate emissions for applicability determinations and emissions
averaging is reasonable. The final standards allow emissions averaging
of existing batch process vents as well as aggregate batch vent
streams.
H. Compliance and Performance Test Provisions and Monitoring
Requirements
1. Excused Excursions
Many commenters requested that the proposed standards allow excused
excursions in the same way that the HON allows excused excursions. In
the final standards, the EPA included provisions to excuse a certain
number of excursions for each reporting period. These provisions are
identical to the HON provisions. The decision to include excused
excursion provisions was based on data and information presented in
public comments received on the proposed standards and received during
industry meetings held after proposal. The commenters contended that by
not allowing excused excursions in these standards, the EPA has made
these standards more stringent than the HON, which the proposed
standards and the costs of the proposed standards were modelled after.
The commenters requested that the EPA justify the increased cost of
imposing the more stringent ``no excused excursion'' provisions. The
EPA agreed with the commenters that not allowing excused excursions
could impose significant additional capital and operating costs on the
affected source for only negligible corresponding reductions in air
emissions. As is always the case, a State has the discretion to impose
more stringent requirements than the requirements of NESHAP and other
federal requirements and could choose not to allow the excused
excursion provisions contained in these standards.
The EPA considered the number of excused excursions that would be
most appropriate for these standards and determined that the number of
excursions allowed in the HON is reasonable. Therefore, the final
standards allow a maximum of 6 excused excursions for the first
semiannual reporting period, decreasing by 1 excursion each semiannual
reporting period. Starting with the sixth semiannual reporting period
(i.e., the end of the third year of compliance) and thereafter,
affected sources are allowed one excused excursion per semiannual
reporting period.
2. Parameter Monitoring Levels
Commenters requested that more flexibility be permitted for
establishing compliance levels for parameter monitoring. The commenters
asked the EPA to allow the use of the HON range concept, which
recognizes that a process or control device operates properly over a
range of conditions.
The EPA revised the requirements for establishing parameter
monitoring levels to incorporate the concepts included in the HON range
concept.
Note: The final standards continue to use the term level.
Under the final rule, the owner or operator can choose between
three procedures for establishing parameter monitoring levels. By
providing the flexibility to establish parameter monitoring levels
based on one of the three procedures, site-specific levels can be
chosen which best accommodate variation in emission point
characteristics and control device designs. These three procedures for
establishing parameter monitoring levels are based on: (1) performance
tests; (2) performance tests, engineering assessments, and/or
manufacturer's recommendations; and (3) engineering assessments and/or
manufacturer's recommendations. The establishment of a parameter
monitoring level based solely on performance tests is preapproved by
the Administrator; however, parameter monitoring values determined
using the last two procedures, which may or may not use the results of
performance tests, must be approved by the Administrator for each
individual case.
3. Other Changes Resulting from EPA Review
In addition to changes made to the proposed rule as a result of
public comment, changes were made as a result of EPA independently
reviewing the rule between proposal and promulgation. In the final
rule, the EPA has allowed the use of TOC, minus methane and ethane, as
the basis for compliance demonstrations (i.e., performance tests) as an
alternative to organic HAP for continuous process vents, batch process
vents, storage vessels, and wastewater streams.
Note: The term ``TOC,'' as used in the remainder of this discussion
and as defined in the final rule, denotes ``TOC, minus methane and
ethane.''
The final rule also allows the use of TOC as an alternate basis for
applicability determinations for batch process vents; TOC is not
allowed as an alternate basis for applicability determinations for
continuous process vents. In addition, the final rule allows the use of
Method 25A to measure TOC in these instances were TOC serves as an
alternative basis for compliance demonstrations or applicability
determinations.
These changes were made to provide flexibility to the regulated
community and to reduce the overall burden of the rule. The EPA
considered the impacts of allowing TOC to serve as a surrogate for
organic HAP in compliance demonstrations and did not find any adverse
impacts. Further, in allowing the use of Method 25A as a complement to
the use of TOC as a surrogate to organic HAP, the EPA judged that the
burden of implementing the final rule would be reduced with no adverse
impacts.
[[Page 48227]]
As proposed, the provisions concerning applicability determinations
and compliance demonstrations allowed an owner or operator to measure
total organic HAP or TOC; however, the proposed rule required Method 18
for measurement of organic compounds in both cases. In light of this,
the major difference between the proposed and final rule is the
flexibility to use Method 25A in measuring TOC. In deciding to allow
the use of Method 25A, the EPA considered the composition of the
emission streams and considered provisions that could be implemented to
safeguard against inappropriate uses of Method 25A. To the best of the
EPA's knowledge, the emission streams regulated by this rule are
predominantly organic HAP. Also, with one exception (i.e., ethylene
glycol), the regulated organic HAP, which are listed in the definition
of organic HAP found in the final rule, have response factors to Method
25A adequate to ensure satisfactory emissions measurements. To
safeguard against inadequate emissions measurements that might result
from the inappropriate use of Method 25A, the final rule specifies the
calibration gas to be used (i.e., the organic HAP representing the
largest percent by volume) and what is an acceptable response for the
calibration gas (i.e., 20 times the standard deviation of the response
from the zero calibration gas).
In considering the use of TOC as an alternate basis for
applicability determinations, and the complementary use of Method 25A
to measure TOC, the EPA evaluated applicability determinations for
continuous process vents and batch process vents.
[Note: The applicability determination procedures for storage
vessels and wastewater streams do not use airborne organic HAP
concentration values. Therefore, the use of Method 25A for these
emission points is not applicable.]
The applicability determination procedure for continuous process
vents (i.e., the TRE equation) requires an owner or operator to
estimate the concentration and emission rate for both organic HAP and
TOC. Because both of these values are required and were the basis for
the original TRE analysis, the EPA judged that it was inappropriate to
use TOC as an alternate basis to organic HAP for the applicability
determinations for continuous process vents. On the other hand, the
original analysis for batch process vents (i.e., the Batch Processes
ACT) was based on the control of TOC; thus, the EPA considered the use
of TOC as an alternate basis for the applicability determinations for
batch process vents to be satisfactory.
I. Recordkeeping and Reporting
Several commenters stated that the recordkeeping and reporting
requirements of the proposed standards were extremely burdensome. These
commenters requested that the EPA reduce unnecessary recordkeeping and
reporting requirements in the final standards. Commenters requested
that the frequency with which records must be retained be reduced. The
commenters also contended that records should only be required if an
excursion has occurred. The commenters contended that records showing
compliance with the standards were unnecessary.
The EPA has made every effort to reduce the recordkeeping
requirements of the final thermoplastics rule. The EPA recognizes that
unnecessary recordkeeping and reporting requirements would burden both
the affected source and EPA enforcement agencies.
The EPA reviewed the recordkeeping required by the proposed rule
and has made reductions in the amount of information that is required
to be recorded. The final rule has been changed to require recording
and retention of hourly average values of continuously monitored
values. The proposal required that 15-minute averages be calculated and
recorded. Under the proposal, if the daily average value was above the
minimum or below the maximum established parameter monitoring levels
(i.e., excess emissions occurred), the 15-minute values had to be
retained; if the daily average value did not exceed the established
parameter monitoring level, the 15-minute values could be converted to
hourly averages, and the hourly averages could be retained instead of
the 15-minute averages. Upon reconsideration, the EPA found that hourly
average values provide a sufficient record to support the calculation
of the daily average value. Therefore, to reduce the recordkeeping
burden, the rule has been changed to specify that only hourly averages
must be calculated and recorded. The rule no longer requires
calculating or recording of 15-minute average values.
For emission points where continuous parameter monitoring is
required, the value of the parameter must still be measured at least
once every 15 minutes, but only the hourly average must be calculated
and recorded. Many facilities already have computerized systems and
monitor parameters more frequently than once every 15 minutes for
process control purposes. The 15-minute monitoring frequency is
consistent with the General Provisions and previous NSPS and NESHAP for
emission points from similar industries.
In addition, the EPA added provisions [Sec. 63.1335(h)] that allow
an owner or operator to implement a reduced recordkeeping program
provided that certain criteria related to the monitoring system and the
performance of the process, as it relates to maintaining compliance
with the monitoring provisions, are met. Under these provisions it is
possible for an owner or operator to retain only daily average values
or, after a period of 6 consecutive months without an excursion, to
retain no daily records.
The EPA believes that the recordkeeping requirements of the final
rule are necessary to show compliance. The EPA will continue to require
owners or operators to keep records, regardless of whether there was an
excursion or not. These records are necessary to prove compliance when
no excursion has occurred and are used to determine the severity of a
violation, and, thus, how much of a penalty should be assessed once an
excursion has occurred.
The EPA has made every effort to reduce the reporting requirements
of the final rule. The EPA reviewed each report required at proposal,
and determined that two of these reports, the Initial Notification and
the Implementation Plan, contained many requirements that were
duplicative with the existing operating permit program. For this
reason, the EPA has removed the requirements for the Initial
Notification and Implementation Plan from the final rule.
The EPA considers the recordkeeping and reporting requirements of
the final rule to be the minimum necessary to ensure compliance.
Upon further review, the EPA decided to add a new report, the
Precompliance Report, to the final rule to allow the owner or operator
of an affected source to request an extension of compliance or to
request approval to use alternative monitoring parameters, alternative
continuous monitoring or recordkeeping, or alternative controls. At
proposal, these items were submitted in the Implementation Plan.
Overall, these changes, deleting the Initial Notification and the
Implementation Plan and adding the Precompliance Report, result in a
reduction of the reporting burden for the affected source.
[[Page 48228]]
VI. Administration Requirements
A. Docket
The docket is an organized and complete file of all the information
submitted to or otherwise considered by the EPA in the development of
the final standards. The principal purposes of the docket are:
(1) To allow interested parties to readily identify and locate
documents so that they can intelligently and effectively participate in
the rulemaking process; and
(2) To serve as the record in case of judicial review, except for
interagency review materials as provided for in section 307(d)(7)(A).
B. Executive Order 12866
Under Executive Order 12866 [58 FR 5173, October 4, 1993], the EPA
must determine whether the regulatory action is ``significant'' and
therefore subject to Office of Management and Budget (OMB) review and
the requirements of the Executive Order. The Executive Order defines
``significant regulatory action'' as one that is likely to result in
standards that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect, in a material way, the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlement, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of the Executive Order, the OMB has notified
the EPA that it considers that a ``significant regulatory action''
within the meaning of the Executive Order. The EPA submitted this
action to the OMB for review. Changes made in response to suggestions
or recommendations from the OMB were documented and included in the
public record.
C. Paperwork Reduction Act
The information collection requirements for this NESHAP have been
submitted for approval to the OMB under the Paperwork Reduction Act, 44
U.S.C. 3501 et seq. An Information Collection Request (ICR) document
has been prepared by the EPA (ICR. No. 1737.01), and a copy may be
obtained from Sandy Farmer, OPPE Regulatory Information Division
(2137), U.S. Environmental Protection Agency, 401 M Street, S.W.,
Washington, DC 20460, or by calling (202) 260-2740.
The public recordkeeping and reporting burden for this collection
of information is estimated to average approximately 4,000 hours per
respondent, at approximately 1,000 hours per response for 4 responses
each, for each of the first 3 years following promulgation of the rule.
These estimates include time for reviewing instructions, searching
existing data sources, gathering and maintaining the data needed, and
completing the reviewing the collection of information.
Sent comments regarding the recordkeeping and reporting burden
estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Chief, Information
Policy Branch (2137), U.S. Environmental Protection Agency, 401 M
Street, S.W., Washington, DC 20460; and to the Office of Information
and Regulatory Affairs, Office of Management and Budget, Washington, DC
20503, marked ``Attention: Desk Officer for EPA.''
D. Regulatory Flexibility Act.
The Regulatory Flexibility Act (RFA) (Pub. L. 96-354, September 19,
1980) requires Federal agencies to give special consideration to the
impact of regulation on small businesses. The RFA specifies that a
final regulatory flexibility analysis must be prepared if a final
regulation will have a significant economic impact on a substantial
number of small entities. To determine whether a final RFA is required,
a screening analysis, otherwise known as an initial RFA, is necessary.
Regulatory impacts are considered significant if:
(1) Annual compliance costs increase total costs of production by
more than 5 percent, or
(2) Annual compliance costs as a percent of sales are at least 20
percent (percentage points) higher for small entities, or
(3) Capital cost of compliance represent a significant portion of
capital available to small entities, or
(4) The requirements of the regulation are likely to result in
closures of small entities.
A ``substantial number'' of small entities is generally considered
to be more than 20 percent of the small entities in the affected
industry.
Consistent with Small Business Administration (SBA) size standards,
a thermoplastic producing firm is classified as a small entity if it
has less than 750 employees and is unaffiliated with a larger entity.
Based upon this criterion, only one firm, an MBS producer, employs less
than 750 workers.
Data were available to examine two of the criteria; these were the
potential for closure, and comparison of compliance costs as a
percentage of sales.
For criterion one, the affected source is not expected to fall at
risk of closure from the regulations, thus this criterion is not met.
Also, the compliance costs were only 0.001 percent of total sales for
the affected source, and this does not meet criterion two. Because the
economics analysis lead to the conclusion that not MBS facilities at
risk of closure, this criterion is not met.
In conclusion, and pursuant to section 605(b) of the RFA, the
Administrator certifies that these standards will not have a
significant economic impact on a substantial number of small entities.
The basis for this certification is that the economic impacts for small
entities do not meet or exceed the criteria in the Guidelines to the
Regulatory Flexibility Act of 1980, as shown above. Further information
on the initial RFA is available in the background information package
(see SUPPLEMENTARY INFORMATION section).
E. Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
The SBREFA Subtitle D requires more rigorous regulatory flexibility
analyses. It also requires the EPA to undertake a small entity
stakeholder process involving the Small Business Administration (SBA)
and the OMB prior to proposing a rule for which a regulatory
flexibility analysis is required. In addition, it subjects agency
compliance with many aspects of the amended Regulatory Flexibility Act
(RFA) to judicial rule. Subtitle D of the SBREFA takes effect to
rulemakings proposed as of June 28, 1996. Therefore, it does not apply
to this rulemaking.
Subtitle E of SBREFA establishes opportunity for Congress to review
and potentially disapprove nonmajor rules promulgated on or after March
29, 1996. With limited exceptions, it provides that no rule promulgated
on or after March 29, 1996, may take effect until it is submitted to
Congress and the Comptroller General along with specified supporting
documentation. Different requirements apply to major rules. This rule,
which is nonmajor, is being submitted to Congress in accordance with
these requirements.
[[Page 48229]]
F. Unfunded Mandates
Under section 202 of the Unfunded Mandates Reform Act of 1995
(``Unfunded Mandates Act''), signed into law on March 22, 1995, the EPA
must prepare a budgetary impact statement to accompany any proposed or
final standards that include a Federal mandate that may result in
estimated costs to State, local, or tribal governments in the
aggregate, or to the private sector, of $100 million or more. Under
section 205, the EPA must select the most cost effective and least
burdensome alternative that achieves the objectives of the standards
and is consistent with statutory requirements. Section 203 requires the
EPA to establish a plan for informing and advising any small
governments that may be significantly or uniquely impacted by the
standards.
The EPA has determined that the final standards do not include a
Federal mandate that may result in estimated costs of $100 million or
more to either State, local, or tribal governments in the aggregate, or
to the private sector. Therefore, the requirements of the Unfunded
Mandates Act do not apply to this section.
List of Subjects
40 CFR Part 9
Reporting and recordkeeping requirements.
40 CFR Part 63
Air pollution control, Hazardous substances, Reporting and
recordkeeping requirements.
Dated: May 15, 1996.
Carol M. Browner,
Administrator.
For the reasons set out in the preamble, parts 9 and 63 of title
40, chapter I of the Code of Federal Regulations are amended as
follows:
PART 9--[AMENDED]
1. The authority citation for part 9 continues to read as follows:
Authority: 7 U.S.C. 135 et seq., 136-136y; 15 U.S.C. 2001, 2003,
2005, 2006, 2601-2671; 21 U.S.C. 331j, 346a, 348; 31 U.S.C. 9701; 33
U.S.C. 1251 et seq., 1311, 1313d, 1314, 1318, 1321, 1326, 1330,
1342, 1344, 1345 (d) and (e), 1361; E.O. 11735, 38 FR 21243, 3 CFR,
1971-1975 Comp. p. 973; 42 U.S.C. 241, 242b, 243, 246, 300f, 300g,
300g-1, 300g-2, 300g-3, 300g-4, 300g-5, 300g-6, 300j-1, 300j-2,
300j-3, 300j-4, 300j-9, 1857 et seq., 6901-6992k, 7401-7671q, 7542,
9601-9657, 11023, 11048.
2. Section 9.1 is amended by adding the new entries to the table
under the indicated heading in numerical order to read as follows:
Sec. 9.1 OMB approvals under the Paperwork Reduction Act.
* * * * *
------------------------------------------------------------------------
OMB control
40 CFR citation No.
------------------------------------------------------------------------
* * * * *
National Emission Standards for Hazardous Air Pollutants for Source
Categories \3\
63.1311.................................................... 2060-0351
63.1314.................................................... 2060-0351
63.1315.................................................... 2060-0351
63.1319.................................................... 2060-0351
63.1320.................................................... 2060-0351
63.1325-1332............................................... 2060-0351
63.1335.................................................... 2060-0351
------------------------------------------------------------------------
\3\ The ICRs referenced in this section of the table encompass the
applicable general provisions contained in 40 CFR part 63, subpart A,
which are not independent information collection requirements.
* * * * *
PART 63--NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS
FOR SOURCE CATEGORIES
1. The authority citation for part 63 continues to read as follows:
Authority: 42 U.S.C. 7401, et seq.
2. Part 63 is amended by adding subpart JJJ to read as follows:
Subpart JJJ--National Emission Standards for Hazardous Air Pollutant
Emissions: Group IV Polymers and Resins
Secs.
63.1310 Applicability and designation of affected sources.
63.1311 Compliance schedule and relationship to existing applicable
rules.
63.1312 Definitions.
63.1313 Emission standards.
63.1314 Storage vessel provisions.
63.1315 Continuous process vents provisions.
63.1316 PET and polystyrene continuous process affected sources--
emissions control provisions.
63.1317 PET and polystyrene continuous process affected sources--
monitoring provisions.
63.1318 PET and polystyrene continuous process affected sources--
testing and compliance demonstration provisions.
63.1319 PET and polystyrene continuous process affected sources--
recordkeeping provisions.
63.1320 PET and polystyrene continuous process affected sources--
reporting provisions.
63.1321 Batch process vents provisions.
63.1322 Batch process vents--reference control technology.
63.1323 Batch process vents--methods and procedures for group
determination.
63.1324 Batch process vents--monitoring provisions.
63.1325 Batch process vents--performance test methods and
procedures to determine compliance.
63.1326 Batch process vents--recordkeeping provisions.
63.1327 Batch process vents--reporting provisions.
63.1328 Heat exchange systems provisions.
63.1329 Process contact cooling towers provisions.
63.1330 Wastewater provisions.
63.1331 Equipment leak provisions.
63.1332 Emissions averaging provisions.
63.1333 Additional test methods and procedures.
63.1334 Parameter monitoring levels and excursions.
63.1335 General recordkeeping and reporting provisions.
Subpart JJJ--National Emission Standards for Hazardous Air
Pollutant Emissions: Group IV Polymers and Resins
Sec. 63.1310 Applicability and designation of affected sources.
(a) Definition of affected source. The provisions of this subpart
apply to each affected source. An affected source is either an existing
affected source or a new affected source. Existing affected source is
defined in paragraph (a)(6) of this section, and new affected source is
defined in paragraph (a)(7) of this section. The affected source also
includes the emission points and equipment specified in paragraphs
(a)(1) through (a)(5) of this section that are associated with each
group of TPPU.
(1) Each wastewater stream.
(2) Each wastewater operation.
(3) Each heat exchange system.
(4) Each process contact cooling tower used in the manufacture of
PET that is associated with a new affected source.
(5) Each process contact cooling tower used in the manufacture of
PET using a continuous terephthalic acid high viscosity multiple end
finisher process that is associated with an existing affected source.
(6) Except as specified in paragraphs (b) through (d) of this
section, an existing affected source is defined as each group of one or
more thermoplastic product process units (TPPUs) that is not part of a
new affected source as defined in paragraph (a)(7) of this section,
that is manufacturing the same primary product, where each TPPU uses as
a reactant, or uses as a process solvent, or produces as a by-product
or co-product any organic hazardous air pollutant (organic HAP), and
that is located at a plant site that is a major source.
(7) Except as specified in paragraphs (b) through (d) of this
section, a new affected source is defined as a source meeting the
criteria of paragraph (a)(7)(i), (a)(7)(ii), or (a)(7)(iii) of this
section:
[[Page 48230]]
(i) At a plant site previously without HAP emissions points, each
group of one or more TPPUs manufacturing the same primary product that
is part of a major source on which construction commenced after March
29, 1995;
(ii) A TPPU meeting the criteria in paragraph (i)(1)(i) of this
section; or
(iii) A reconstructed affected source meeting the criteria in
paragraph (i)(2)(i) of this section.
(b) TPPUs exempted from the affected source. For a TPPU to be
excluded from the designation of affected source due to the fact that
it does not use as a reactant, or use as a process solvent, or produce
as a by-product or co-product any organic HAP, the owner or operator
shall comply with the requirements of paragraph (b)(1) of this section
and shall comply with the requirements of paragraph (b)(2) of this
section if requested to do so by the Administrator.
(1) Retain information, data, and analysis used to document the
basis for the determination that the TPPU does not use as a reactant or
use as a process solvent, or manufacture as a by-product or a co-
product any organic HAP. Types of information that could document this
determination include, but are not limited to, records of chemicals
purchased for the process, analyses of process stream composition, or
engineering calculations.
(2) When requested by the Administrator, demonstrate that the TPPU
does not use as a reactant, or use as a process solvent, or manufacture
as a by-product or co-product any organic HAP.
(c) Emission points exempted from the affected source. The affected
source does not include the emission points listed in paragraphs (c)(1)
through (c)(6) of this section:
(1) Stormwater from segregated sewers;
(2) Water from fire-fighting and deluge systems in segregated
sewers;
(3) Spills;
(4) Water from safety showers;
(5) Vessels and equipment storing and/or handling material that
contain no organic HAP and/or organic HAP as impurities only; and
(6) Equipment that is intended to operate in organic HAP service
for less than 300 hours during the calendar year.
(d) Processes exempted from the affected source. The processes
specified in paragraphs (d)(1) through (d)(5) of this section are
exempted from the affected source:
(1) Research and development facilities;
(2) Polymerization processes occurring in a mold;
(3) Processes which manufacture binder systems containing a
thermoplastic product for paints, coatings, or adhesives;
(4) Finishing processes including equipment such as compounding
units, spinning units, drawing units, extruding units, and other
finishing steps; and
(5) Solid state polymerization processes.
(e) Applicability determination of nonthermoplastic equipment
included in a TPPU producing a thermoplastic product. If a polymer that
is not subject to this subpart is produced within the equipment (i.e.,
collocated) making up a TPPU and at least 50 percent of said polymer is
used in the production of a thermoplastic product manufactured by said
TPPU, the unit operations involved in the production of said polymer
are considered part of the TPPU and are subject to this rule except as
specified in this paragraph (e). If said unit operations are subject to
another MACT standard regulating the same emission points, said unit
operations are not subject to this subpart.
(f) Primary product determination and applicability. The primary
product of a process unit shall be determined according to the
procedures specified in paragraphs (f)(1) through (f)(2) of this
section. Paragraphs (f)(3) through (f)(4) of this section describe
whether or not a process unit is subject to this subpart. Paragraphs
(f)(5) through (f)(7) of this section discuss compliance for those
TPPUs operated as flexible operation units, as specified in paragraph
(f)(2) of this section.
(1) If a process unit only manufactures one product, then that
product shall represent the primary product of the process unit.
(2) If a process unit is designed and operated as a flexible
operation unit, the primary product shall be determined as specified in
paragraphs (f)(2)(i) or (f)(2)(ii) of this section based on the
anticipated operations for the 5 years following September 12, 1996 for
existing affected sources and for the first 5 years after initial
start-up for new affected sources.
(i) If the flexible operation unit will manufacture one product for
the greatest operating time over the five year period, then that
product shall represent the primary product of the flexible operation
unit.
(ii) If the flexible operation unit will manufacture multiple
products equally based on operating time, then the product with the
greatest production on a mass basis over the five year period shall
represent the primary product of the flexible operation unit.
(3) If the primary product of a process unit is a thermoplastic
product, then said process unit is considered a TPPU. If said TPPU
meets all the criteria of paragraph (a) of this section, it is either
an affected source or is part of an affected source comprised of other
TPPU subject to this rule at the same plant site with the same primary
product. The status of a process unit as a TPPU and as an affected
source or part of an affected source shall not change regardless of
what products are produced in the future by said TPPU, with the
exception noted in paragraph (f)(3)(i) of this section.
(i) If a process unit terminates the production of all
thermoplastic products and does not anticipate the production of any
thermoplastic product in the future, the process unit is no longer a
TPPU and is not subject to this rule after notification is made as
specified in paragraph (f)(3)(ii) of this section.
(ii) The owner or operator of a process unit that wishes to remove
the TPPU designation from the process unit, as specified in paragraph
(f)(3)(i) of this section, shall notify the Administrator. This
notification shall be accompanied by rationale for why it is
anticipated that no thermoplastic products will be produced in the
process unit in the future.
(iii) If a process unit meeting the criteria of paragraph (f)(3)(i)
of this section begins the production of a thermoplastic product in the
future, the owner or operator shall use the procedures in paragraph
(f)(4)(i) of this section to determine if the process unit is re-
designated as a TPPU.
(4) If the primary product of a process unit is not a thermoplastic
product, then said process unit is not an affected source nor is it
part of any affected source subject to this rule. Said process unit is
not subject to this rule at any time, regardless of what product is
being produced. The status of a process unit as not being a TPPU, and
therefore not an affected source nor part of an affected source subject
to this subpart, shall not change regardless of what products are
produced in the future by said TPPU, with the exception noted in
paragraph (f)(4)(i) of this section.
(i) If, at any time beginning September 12, 2001, the owner or
operator determines that a thermoplastic product is the primary product
for the process unit based on actual production data for any preceding
consecutive five-year period, then the process unit shall be designated
as a TPPU. If said TPPU meets all the criteria of paragraph (a) of this
section and is not subject to another subpart of 40 CFR part 63, it is
either an affected source or part of an affected source and shall be
subject to this rule.
(ii) If a process unit meets the criteria of paragraph (f)(4)(i) of
this section, the
[[Page 48231]]
owner or operator shall notify the Administrator within 6 months of
making this determination. The TPPU, as the entire affected source or
part of an affected source, shall be in compliance with the provisions
of this rule within 3 years from the date of such notification.
(iii) If a process unit is re-designated as a TPPU but does not
meet all the criteria of paragraph (a) of this section, the owner or
operator shall notify the Administrator within 6 months of making this
determination. Said notification shall include documentation justifying
the TPPU's status as not being an affected source or not being part of
an affected source.
(5) Once the primary product of a process unit has been determined
to be a thermoplastic product and it has been determined that all the
criteria of paragraph (a) of this section are met for said TPPU, the
owner or operator of the affected source shall comply with the
standards for the primary product. Owners or operators of flexible
operation units shall comply with the standards for the primary product
as specified in either paragraph (f)(5)(i) or (f)(5)(ii) of this
section, except as specified in paragraph (f)(5)(iii) of this section.
(i) Each owner or operator shall determine the group status of each
emission point that is part of said flexible operation unit based on
emission point characteristics when the primary product is being
manufactured. Based on this finding, the owner or operator shall comply
with the applicable standards for the primary product for each emission
point, as appropriate, at all times, regardless of what product is
being produced.
(ii) Alternatively, each owner or operator shall determine the
group status of each emission point that is part of said flexible
operation unit based on the emission point characteristics when each
product produced by the flexible operation unit is manufactured,
regardless of whether said product is a thermoplastic product or not.
Based on these findings, the owner or operator shall comply with the
applicable standards for the primary product for each emission point,
as appropriate, regardless of what product is being produced.
Note: Under this scenario it is possible that the group status,
and therefore the requirement to achieve emission reductions, for an
emission point may change depending on the product being produced.
(iii) Whenever a flexible operation unit manufactures a product
that meets the criteria of paragraph (b) of this section (i.e., does
not use or produce any organic HAP), all activities associated with the
manufacture of said product shall be exempt from the requirements of
this rule, to include the operation and monitoring of control or
recovery devices.
(6) The determination of the primary product for a process unit, to
include the determination of applicability of this subpart to process
units that are designed and operated as flexible operation units, shall
be reported in the Notification of Compliance Status required by
Sec. 63.1335(e)(5) when the primary product is determined to be a
thermoplastic product. The Notification of Compliance Status shall
include the information specified in either paragraph (f)(6)(i) or
(f)(6)(ii) of this section. If the primary product is determined to be
something other than a thermoplastic product, the owner or operator
shall retain information, data, and analysis used to document the basis
for the determination that the primary product is not a thermoplastic
product.
(i) If the TPPU manufactures only one thermoplastic product,
identification of said thermoplastic product.
(ii) If the TPPU is designed and operated as a flexible operation
unit, the information specified in paragraphs (f)(6)(ii)(A) through
(f)(6)(ii)(C) of this section, as appropriate.
(A) Identification of the primary product.
(B) Information concerning operating time and/or production mass
for each product that was used to make the determination of the primary
product under paragraph (f)(2)(i) or (f)(2)(ii) of this section.
(C) Identification of which compliance option, either paragraph
(f)(5)(i) or (f)(5)(ii) of this section, has been selected by the owner
or operator.
(7) To demonstrate compliance with the rule during those periods
when a flexible operation unit that is subject to this subpart is
producing a product other than a thermoplastic product or is producing
a thermoplastic product that is not the primary product, the owner or
operator shall comply with either paragraphs (f)(7)(i) through
(f)(7)(ii) or paragraph (f)(7)(iii) of this section.
(i) Establish parameter monitoring levels, as specified in
Sec. 63.1334, for those emission points designated as Group 1, as
appropriate.
(ii) Submit the parameter monitoring levels developed under
paragraph (f)(7)(i) of this section and the basis for them in the
Notification of Compliance Status report as specified in
Sec. 63.1335(e)(5).
(iii) Demonstrate that the parameter monitoring levels established
for the primary product are also appropriate for those periods when
products other than the primary product are being produced. Material
demonstrating this finding shall be submitted in the Notification of
Compliance Status report as specified in Sec. 63.1335(e)(5).
(g) Storage vessel ownership determination. The owner or operator
shall follow the procedures specified in paragraphs (g)(1) through
(g)(8) of this section to determine to which process unit a storage
vessel shall belong.
(1) If a storage vessel is already subject to another subpart of 40
CFR part 63 on September 12, 1996, said storage vessel shall belong to
the process unit subject to the other subpart.
(2) If a storage vessel is dedicated to a single process unit, the
storage vessel shall belong to that process unit.
(3) If a storage vessel is shared among process units, then the
storage vessel shall belong to that process unit located on the same
plant site as the storage vessel that has the greatest input into or
output from the storage vessel (i.e., said process unit has the
predominant use of the storage vessel).
(4) If predominant use cannot be determined for a storage vessel
that is shared among process units and if one of those process units is
a TPPU subject to this subpart, the storage vessel shall belong to said
TPPU.
(5) If predominant use cannot be determined for a storage vessel
that is shared among process units and if more than one of the process
units are TPPUs that have different primary products and that are
subject to this subpart, then the owner or operator shall assign the
storage vessel to any one of the said TPPUs.
(6) If the predominant use of a storage vessel varies from year to
year, then predominant use shall be determined based on the utilization
that occurred during the year preceding September 12, 1996 or based on
the expected utilization for the 5 years following September 12, 1996
for existing affected sources, whichever is more representative of the
expected operations for said storage vessel, and based on the first 5
years after initial start-up for new affected sources. The
determination of predominant use shall be reported in the Notification
of Compliance Status required by Sec. 63.1335(e)(5). If the predominant
use changes, the redetermination of predominant use shall be reported
in the next Periodic Report.
(7) If the storage vessel begins receiving material from (or
sending material to) another process unit; or ceasing to receive
material from (or send material to) a process unit; or if the
[[Page 48232]]
applicability of this subpart to a storage vessel has been determined
according to the provisions of paragraphs (g)(1) through (g)(6) of this
section and there is a significant change in the use of the storage
vessel that could reasonably change the predominant use, the owner or
operator shall reevaluate the applicability of this subpart to the
storage vessel.
(8) Where a storage vessel is located at a major source that
includes one or more process units which place material into, or
receive materials from the storage vessel, but the storage vessel is
located in a tank farm, the applicability of this subpart shall be
determined according to the provisions in paragraphs (g)(8)(i) through
(g)(8)(iv) of this section.
(i) The storage vessel may only be assigned to a process unit that
utilizes the storage vessel and does not have an intervening storage
vessel for that product (or raw materials, as appropriate). With
respect to any process unit, an intervening storage vessel means a
storage vessel connected by hard-piping to the process unit and to the
storage vessel in the tank farm so that product or raw material
entering or leaving the process unit flows into (or from) the
intervening storage vessel and does not flow directly into (or from)
the storage vessel in the tank farm.
(ii) If there is no process unit at the major source that meets the
criteria of paragraph (g)(8)(i) of this section with respect to a
storage vessel, this subpart does not apply to the storage vessel.
(iii) If there is only one process unit at the major source that
meets the criteria of paragraph (g)(8)(i) of this section with respect
to a storage vessel, the storage vessel shall be assigned to that
process unit.
(iv) If there are two or more process units at the major source
that meet the criteria of paragraph (g)(8)(i) of this section with
respect to a storage vessel, the storage vessel shall be assigned to
one of those process units according to the provisions of paragraph
(g)(7) of this section. The predominant use shall be determined among
only those thermoplastic product process units that meet the criteria
of paragraph (g)(8)(i) of this section.
(h) Recovery operation equipment ownership determination. The owner
or operator shall follow the procedures specified in paragraphs (h)(1)
through (h)(7) of this section to determine to which process unit
recovery operation equipment shall belong.
(1) If recovery operation equipment is already subject to another
subpart of 40 CFR part 63 on September 12, 1996, said recovery
operation equipment shall belong to the process unit subject to the
other subpart.
(2) If recovery operation equipment is used exclusively by a single
process unit, the recovery operation shall belong to that process unit.
(3) If recovery operation equipment is shared among process units,
then the recovery operation equipment shall belong to that process unit
located on the same plant site as the recovery operation equipment that
has the greatest input into or output from the recovery operation
equipment (i.e., said process unit has the predominant use of the
recovery operation equipment).
(4) If predominant use cannot be determined for recovery operation
equipment that is shared among process units and if one of those
process units is a TPPU subject to this subpart, the recovery operation
equipment shall belong to said TPPU.
(5) If predominant use cannot be determined for recovery operation
equipment that is shared among process units and if more than one of
the process units are TPPUs that have different primary products and
that are subject to this subpart, then the owner or operator shall
assign the recovery operation equipment to any one of said TPPUs.
(6) If the predominant use of recovery operation equipment varies
from year to year, then predominant use shall be determined based on
the utilization that occurred during the year preceding September 12,
1996 or based on the expected utilization for the 5 years following
September 12, 1996 for existing affected sources, whichever is the more
representative of the expected operations for said recovery operations
equipment, and based on the first 5 years after initial start-up for
new affected sources. This determination shall be reported in the
Notification of Compliance Status required by Sec. 63.1335(e)(5). If
the predominant use changes, the redetermination of predominant use
shall be reported in the next Periodic Report.
(7) If there is an unexpected change in the utilization of recovery
operation equipment that could reasonably change the predominant use,
the owner or operator shall redetermine to which process unit the
recovery operation belongs by reperforming the procedures specified in
paragraphs (h)(2) through (h)(6) of this section.
(i) Changes or additions to plant sites. The provisions of
paragraphs (i)(1) through (i)(4) of this section apply to owners or
operators that change or add to their plant site or affected source.
Paragraph (i)(5) of this section provides examples of what are and are
not considered process changes for purposes of paragraph (i) of this
section.
(1) Adding a TPPU to a plant site. The provisions of paragraphs
(i)(1)(i) through (i)(1)(ii) of this section apply to owners or
operators that add TPPUs to a plant site.
(i) If a TPPU is added to a plant site, said addition shall be a
new affected source and shall be subject to the requirements for a new
affected source in this subpart upon initial start-up or by September
12, 1996, whichever is later, if said addition meets the criteria
specified in paragraphs (i)(1)(i)(A) through (i)(1)(i)(B) and either
(i)(1)(i)(C) or (i)(1)(i)(D) of this section:
(A) Said addition meets the definition of construction in
Sec. 63.2;
(B) Such construction commenced after March 29, 1995; and
(C) Said addition has the potential to emit 10 tons per year or
more of any HAP or 25 tons per year or more of any combination of HAP,
and the primary product of said addition is currently produced at the
plant site as the primary product of an affected source; or
(D) The primary product of said addition is not currently produced
at the plant site as the primary product of an affected source and the
plant site meets, or after the addition is completed will meet, the
definition of major source.
(ii) If a TPPU is added to a plant site, said addition shall be
subject to the requirements for an existing affected source in this
subpart upon initial start-up or by 3 years after September 12, 1996,
whichever is later, if said addition does not meet the criteria
specified in paragraph (i)(1)(i) of this section and the plant site
meets, or after the addition is completed will meet, the definition of
major source.
(2) Adding emission points or making process changes to existing
affected sources. The provisions of paragraphs (i)(2)(i) through
(i)(2)(ii) of this section apply to owners or operators that add
emission points or make process changes to an existing affected source.
(i) If any process change is made or emission point is added to an
existing affected source, or if a process change creating one or more
additional Group 1 emission point(s) is made to an existing affected
source, said affected source shall be a new affected source and shall
be subject to the requirements for a new affected source in this
subpart upon initial start-up or by September 12, 1996, whichever is
later, if said process change or addition meets the criteria specified
in paragraphs (i)(2)(i)(A) through (i)(2)(i)(B) of this section:
[[Page 48233]]
(A) Said process change or addition meets the definition of
reconstruction in Sec. 63.2; and
(B) Such reconstruction commenced after March 29, 1995.
(ii) If any process change is made or emission point is added to an
existing affected source, or if a process change creating one or more
additional Group 1 emission point(s) is made to an existing affected
source and said process change or addition does not meet the criteria
specified in paragraphs (i)(2)(i)(A) through (i)(2)(i)(B) of this
section, the resulting emission point(s) shall be subject to the
requirements for an existing affected source in this subpart. Said
emission point(s) shall be in compliance upon initial start-up or by 3
years after September 12, 1996, whichever is later, unless the owner or
operator demonstrates to the Administrator that achieving compliance
will take longer than making said process change or addition. If this
demonstration is made to the Administrator's satisfaction, the owner or
operator shall follow the procedures in paragraphs (i)(2)(iii)(A)
through (i)(2)(iii)(C) of this section to establish a compliance date.
(iii) To establish a compliance date for an emission point or
points specified in paragraph (i)(2)(ii) of this section, the
procedures specified in paragraphs (i)(2)(iii)(A) through
(i)(2)(iii)(C) of this section shall be followed.
(A) The owner or operator shall submit to the Administrator for
approval a compliance schedule, along with a justification for the
schedule.
(B) The compliance schedule shall be submitted within 180 days
after the process change or addition is made or the information
regarding said change or addition is known to the owner or operator,
unless the compliance schedule has been previously submitted to the
permitting authority. The compliance schedule may be submitted in the
next Periodic Report if the process change or addition is made after
the date the Notification of Compliance Status report is due.
(C) The Administrator shall approve the compliance schedule or
request changes within 120 calendar days of receipt of the compliance
schedule and justification.
(3) Existing source requirements for Group 2 emission points that
become Group 1 emission points. If a process change or addition that
does not meet the criteria in paragraph (i)(1) or (i)(2) of this
section is made to an existing plant site or existing affected source,
and the change causes a Group 2 emission point to become a Group 1
emission point, for said emission point, the owner or operator shall
comply with the requirements of this subpart for existing Group 1
emission points. Compliance shall be achieved as expeditiously as
practicable, but in no event later than 3 years after said emission
point becomes a Group 1 emission point.
(4) Existing source requirements for some emission points that
become subject to the requirements of subpart H of this part. If a
compressor becomes subject to Sec. 63.164, the owner or operator shall
be in compliance upon initial start-up or by 3 years after September
12, 1996, whichever is later, unless the owner or operator demonstrates
to the Administrator that achieving compliance will take longer than
making the change. If this demonstration is made to the Administrator's
satisfaction, the owner or operator shall follow the procedures in
paragraphs (i)(2)(iii)(A) through (i)(2)(iii)(C) of this section to
establish a compliance date.
(5) Determining what are and are not process changes. For purposes
of paragraph (i) of this section, examples of process changes include,
but are not limited to, changes in production capacity, feedstock type,
or catalyst type, or whenever there is a replacement, removal, or the
addition of recovery equipment. For purposes of paragraph (i) of this
section, process changes do not include: process upsets, unintentional
temporary process changes, and changes that are within the equipment
configuration and operating conditions documented in the Notification
of Compliance Status report required by Sec. 63.1335(e)(5).
(j) Applicability of this subpart except during periods of start-
up, shutdown, and malfunction. Each provision set forth in this subpart
or referred to in this subpart shall apply at all times except during
periods of start-up, shutdown, and malfunction if the start-up,
shutdown, or malfunction precludes the ability of a particular emission
point of an affected source to comply with one or more specific
provisions to which it is subject. Start-up, shutdown, and malfunction
is defined in Sec. 63.1312 for all emission points except equipment
leaks subject to subpart H of this part, which shall follow the
provisions for periods of start-up, malfunction, and process unit
shutdown, as defined in Sec. 63.161. Only then shall an emission point
not be required to comply with all applicable provisions of this
subpart.
Sec. 63.1311 Compliance schedule and relationship to existing
applicable rules.
(a) Affected sources are required to achieve compliance on or
before the dates specified in paragraphs (b) through (d) of this
section. Paragraph (e) of this section provides information on
requesting compliance extensions. Paragraphs (f) through (l) of this
section discuss the relationship of this subpart to subpart A of this
part and to other applicable rules. Where an override of another
authority of the Act is indicated in this subpart, only compliance with
the provisions of this subpart is required. Paragraph (m) of this
section specifies the meaning of time periods.
(b) New affected sources that commence construction or
reconstruction after March 29, 1995 shall be in compliance with this
subpart upon initial start-up or September 12, 1996, whichever is
later, as provided in Sec. 63.6(b).
(c) Existing affected sources shall be in compliance with this
subpart (except for Sec. 63.1331 for which compliance is covered by
paragraph (d) of this section) no later than 3 years after September
12, 1996, as provided in Sec. 63.6(c), unless an extension has been
granted as specified in paragraph (e) of this section.
(d) Except as provided for in paragraphs (d)(1) through (d)(5) of
this section, existing affected sources shall be in compliance with
Sec. 63.1331 no later than March 12, 1997 unless a request for a
compliance extension is granted pursuant to Section 112(i)(3)(B) of the
Act, as discussed in Sec. 63.182(a)(6).
(1) Compliance with the compressor provisions of Sec. 63.164 shall
occur no later than September 12, 1997 for any compressor meeting one
or more of the criteria in paragraphs (d)(1)(i) through (d)(1)(iii) of
this section if the work can be accomplished without a process unit
shutdown, as defined in Sec. 63.161:
(i) The seal system will be replaced;
(ii) A barrier fluid system will be installed; or
(iii) A new barrier fluid will be utilized which requires changes
to the existing barrier fluid system.
(2) Compliance with the compressor provisions of Sec. 63.164 shall
occur no later than February 12, 1998 for any compressor meeting all
the criteria in paragraphs (d)(2)(i) through (d)(2)(ii) of this
section:
(i) The compressor meets one or more of the criteria specified in
paragraphs (d)(1)(i)(A) through (d)(1)(i)(B) of this section:
(A) The work can be accomplished without a process unit shutdown as
defined in Sec. 63.161; or
(B) The additional time is actually necessary due to the
unavailability of parts beyond the control of the owner or operator.
(ii) The owner or operator submits the request for a compliance
extension to the Environmental Protection Agency
[[Page 48234]]
(EPA) Regional Office at the addresses listed in Sec. 63.13 no later
than 45 calendar days before March 12, 1997. The request for a
compliance extension shall contain the information specified in
Sec. 63.6(i)(6)(i) (A), (B), and (D). Unless the EPA Regional Office
objects to the request for a compliance extension within 30 calendar
days after receipt of the request, the request shall be deemed
approved.
(3) If compliance with the compressor provisions of Sec. 63.164
cannot reasonably be achieved without a process unit shutdown, as
defined in Sec. 63.161, the owner or operator shall achieve compliance
no later than September 14, 1998. The owner or operator who elects to
use this provision shall submit a request for a compliance extension in
accordance with the requirements of paragraph (d)(2)(ii) of this
section.
(4) If compliance with the compressor provisions of Sec. 63.164
cannot be achieved without replacing the compressor or recasting the
distance piece, the owner or operator shall achieve compliance no later
than September 13, 1999. The owner or operator who elects to use this
provision shall submit a request for a compliance extension in
accordance with the requirements of paragraph (d)(2)(ii) of this
section.
(5) Compliance with the provisions of Sec. 63.170 shall occur no
later than September 13, 1999.
(e) Pursuant to section 112(i)(3)(B) of the Act, an owner or
operator may request an extension allowing the existing source up to 1
additional year to comply with section 112(d) standards. For purposes
of this subpart, a request for an extension shall be submitted to the
operating permit authority as part of the operating permit application
or to the Administrator as a separate submittal or as part of the
Precompliance Report. Requests for extensions shall be submitted no
later than the date the Precompliance Report is required to be
submitted in Sec. 63.1335(e)(3)(i). The dates specified in Sec. 63.6(i)
for submittal of requests for extensions shall not apply to this
subpart.
(1) A request for an extension of compliance shall include the data
described in Sec. 63.6(i)(6)(i) (A),(B), and (D).
(2) The requirements in Sec. 63.6(i)(8) through Sec. 63.6(i)(14)
shall govern the review and approval of requests for extensions of
compliance with this subpart.
(f) Table 1 of this subpart specifies the provisions of subpart A
of this part that apply and those that do not apply to owners and
operators of affected sources subject to this subpart.
(g)(1) After the compliance dates specified in this section, an
affected source subject to this subpart that is also subject to the
provisions of subpart I of this part, is required to comply only with
the provisions of this subpart. After the compliance dates specified in
this section, said affected source shall no longer be subject to
subpart I of this part.
(2) Said affected sources that elected to comply with subpart I of
this part through a quality improvement program, as specified in
Sec. 63.175 or Sec. 63.176 or both, may elect to continue these
programs without interruption as a means of complying with this
subpart. In other words, becoming subject to this subpart does not
restart or reset the ``compliance clock'' as it relates to reduced
burden earned through a quality improvement program.
(h) After the compliance dates specified in this section, a storage
vessel that belongs to an affected source subject to this subpart that
is also subject to the provisions of 40 CFR part 60, subpart Kb, is
required to comply only with the provisions of this subpart. After the
compliance dates specified in this section, said storage vessel shall
no longer be subject to 40 CFR part 60, subpart Kb.
(i)(1) Except as provided in paragraph (i)(2) of this section,
after the compliance dates specified in this section, affected sources
producing PET using a continuous terephthalic acid process, producing
PET using a continuous dimethyl terephthalate process, or producing
polystyrene resin using a continuous process subject to this subpart
that are also subject to the provisions of 40 CFR part 60, subpart DDD,
are required to comply only with the provisions of this subpart. After
the compliance dates specified in this section, said sources shall no
longer be subject to 40 CFR part 60, subpart DDD.
(2) Existing affected sources producing PET using a continuous
terephthalic acid high viscosity multiple end finisher process shall
continue to be subject to 40 CFR 60.562-1(c)(2)(ii)(C). Once said
affected source becomes subject to and achieves compliance with
Sec. 63.1329(c) of this subpart, said affected source is no longer
subject to the provisions of 40 CFR part 60, subpart DDD.
(j) Affected sources subject to this subpart that are also subject
to the provisions of subpart Q of this part shall comply with both
subparts.
(k) After the compliance dates specified in this section, an
affected source subject to this subpart that is also subject to the
provisions of 40 CFR part 60, subpart VV, is required to comply only
with the provisions of this subpart. After the compliance dates
specified in this section, said source shall no longer be subject to 40
CFR part 60, subpart VV.
(l) After the compliance dates specified in this section, a
distillation operation that belongs to an affected source subject to
this subpart that is also subject to the provisions of 40 CFR part 60,
subpart NNN, is required to comply only with the provisions of this
subpart. After the compliance dates specified in this section, said
distillation operation shall no longer be subject to 40 CFR part 60,
subpart NNN.
(m) All terms in this subpart that define a period of time for
completion of required tasks (e.g., weekly, monthly, quarterly,
annual), unless specified otherwise in the section or subsection that
imposes the requirement, refer to the standard calendar periods.
(1) Notwithstanding time periods specified in this subpart for
completion of required tasks, such time periods may be changed by
mutual agreement between the owner or operator and the Administrator,
as specified in subpart A of this part (e.g., a period could begin on
the compliance date or another date, rather than on the first day of
the standard calendar period). For each time period that is changed by
agreement, the revised period shall remain in effect until it is
changed. A new request is not necessary for each recurring period.
(2) Where the period specified for compliance is a standard
calendar period, if the initial compliance date occurs after the
beginning of the period, compliance shall be required according to the
schedule specified in paragraphs (m)(i) or (m)(ii) of this section, as
appropriate.
(i) Compliance shall be required before the end of the standard
calendar period within which the compliance deadline occurs, if there
remain at least 3 days for tasks that must be performed weekly, at
least 2 weeks for tasks that must be performed monthly, at least 1
month for tasks that must be performed each quarter, or at least 3
months for tasks that must be performed annually; or
(ii) In all other cases, compliance shall be required before the
end of the first full standard calendar period after the period within
which the initial compliance deadline occurs.
(3) In all instances where a provision of this subpart requires
completion of a task during each multiple successive period, an owner
or operator may perform the required task at any time during the
specified period, provided
[[Page 48235]]
that the task is conducted at a reasonable interval after completion of
the task during the previous period.
Sec. 63.1312 Definitions.
(a) The following terms used in this subpart shall have the meaning
given them in Sec. 63.2, Sec. 63.101, Sec. 63.111, and Sec. 63.161 as
specified after each term:
Act (Sec. 63.2)
Administrator (Sec. 63.2)
Automated monitoring and recording system (Sec. 63.111)
Average concentration (Sec. 63.111)
Boiler (Sec. 63.111)
Bottoms receiver (Sec. 63.161)
By compound (Sec. 63.111)
By-product (Sec. 63.101)
Car-seal (Sec. 63.111)
Chemical manufacturing process unit (Sec. 63.101)
Closed-vent system (Sec. 63.111)
Co-product (Sec. 63.101)
Combustion device (Sec. 63.111)
Commenced (Sec. 63.2)
Compliance date (Sec. 63.2)
Compliance schedule (Sec. 63.2)
Connector (Sec. 63.161)
Construction (Sec. 63.2)
Continuous monitoring system (Sec. 63.2)
Continuous record (Sec. 63.111)
Continuous recorder (Sec. 63.111)
Cover (Sec. 63.111)
Distillation unit (Sec. 63.111)
Emission standard (Sec. 63.2)
Emissions averaging (Sec. 63.2)
EPA (Sec. 63.2)
Equipment (Sec. 63.161)
Equipment leak (Sec. 63.101)
Existing source (Sec. 63.2)
External floating roof (Sec. 63.111)
Fill (Sec. 63.111)
Fixed roof (Sec. 63.111)
Flame zone (Sec. 63.111)
Flexible operation unit (Sec. 63.101)
Floating roof (Sec. 63.111)
Flow indicator (Sec. 63.111)
Group 1 wastewater streams (Sec. 63.111)
Group 2 wastewater streams (Sec. 63.111)
Halogens and hydrogen halides (Sec. 63.111)
Hazardous air pollutant (Sec. 63.2)
Impurity (Sec. 63.101)
In organic hazardous air pollutant service (Sec. 63.161)
Incinerator (Sec. 63.111)
Instrumentation system (Sec. 63.161)
Internal floating roof (Sec. 63.111)
Lesser quantity (Sec. 63.2)
Major source (Sec. 63.2)
Malfunction (Sec. 63.2)
Mass flow rate (Sec. 63.111)
Maximum true vapor pressure (Sec. 63.111)
New source (Sec. 63.2)
Open-ended valve or line (Sec. 63.161)
Operating permit (Sec. 63.101)
Organic HAP service (Sec. 63.161)
Organic monitoring device (Sec. 63.111)
Owner or operator (Sec. 63.2)
Performance evaluation (Sec. 63.2)
Performance test (Sec. 63.2)
Permitting authority (Sec. 63.2)
Plant site (Sec. 63.101)
Point of generation (Sec. 63.111)
Potential to emit (Sec. 63.2)
Primary fuel (Sec. 63.111)
Process heater (Sec. 63.111)
Process unit shutdown (Sec. 63.161)
Process wastewater (Sec. 63.101)
Process wastewater stream (Sec. 63.111)
Product separator (Sec. 63.111)
Reactor (Sec. 63.111)
Reconstruction (Sec. 63.2)
Recovery device (Sec. 63.111)
Reference control technology for process vents (Sec. 63.111)
Reference control technology for storage vessels (Sec. 63.111)
Reference control technology for wastewater (Sec. 63.111)
Relief valve (Sec. 63.111)
Research and development facility (Sec. 63.101)
Residual (Sec. 63.111)
Run (Sec. 63.2)
Secondary fuel (Sec. 63.111)
Sensor (Sec. 63.161)
Shutdown (Sec. 63.2)
Specific gravity monitoring device (Sec. 63.111)
Start-up (Sec. 63.2)
Start-up, shutdown, and malfunction plan (Sec. 63.101)
State (Sec. 63.2)
Surge control vessel (Sec. 63.161)
Temperature monitoring device (Sec. 63.111)
Test method (Sec. 63.2)
Total resource effectiveness index value (Sec. 63.111)
Treatment process (Sec. 63.111)
Unit operation (Sec. 63.101)
Visible emission (Sec. 63.2)
Waste management unit (Sec. 63.111)
Wastewater (Sec. 63.101)
Wastewater stream (Sec. 63.111)
(b) All other terms used in this subpart shall have the meaning
given them in this section. If a term is defined in Secs. 63.2, 63.101,
63.111, or 63.161 and in this section, it shall have the meaning given
in this section for purposes of this subpart.
Acrylonitrile butadiene styrene latex resin (ABS latex) means ABS
produced through an emulsion process, however the product is not
coagulated or dried as typically occurs in an emulsion process.
Acrylonitrile butadiene styrene resin (ABS) means styrenic
terpolymers consisting primarily of acrylonitrile, 1,3-butadiene, and
styrene monomer units. ABS is usually composed of a styrene-
acrylonitrile copolymer continuous phase with dispersed butadiene
derived rubber.
Acrylonitrile styrene acrylate resin (ASA) means a resin formed
using acrylic ester-based elastomers to impact-modify styrene
acrylonitrile resin matrices.
Aggregate batch vent stream means a gaseous emission stream
containing only the exhausts from two or more batch process vents that
are ducted together before being routed to a control device that is in
continuous operation.
Affected source is defined in Sec. 63.1310(a).
Alpha methyl styrene acrylonitrile resin (AMSAN) means copolymers
consisting primarily of alpha methyl styrene and acrylonitrile.
Average flow rate, as used in conjunction with wastewater
provisions, is determined by the specifications in Sec. 63.144(c); or,
as used in conjunction with batch process vent provisions, is
determined by the specifications in Sec. 63.1323(e).
Batch cycle means the operational step or steps, from start to
finish, that occur as part of a batch unit operation. Batch cycle
limitation means an enforceable restriction on the number of batch
cycles that can be performed in a year for an individual batch process
vent.
Batch emission episode means a discrete emission venting episode
associated with a single batch unit operation. Multiple batch emission
episodes may occur from a single batch unit operation.
Batch process means a discontinuous process involving the bulk
movement of material through sequential manufacturing steps. Mass,
temperature, concentration, and other properties of the process vary
with time. Addition of raw material and withdrawal of product do not
typically occur simultaneously in a batch process. For the purposes of
this subpart, a process producing polymers is characterized as
continuous or batch based on the operation of the polymerization
reactors.
Batch process vent means a point of emission from a batch unit
operation having a gaseous emission stream with annual organic HAP
emissions greater than 225 kilograms per year. Batch process vents
exclude relief valve discharges and leaks from equipment regulated
under Sec. 63.1331.
Batch unit operation means a unit operation operated in a batch
process mode.
Compounding unit means a unit operation which blends, melts, and
resolidifies solid polymers for the purpose of incorporating additives,
colorants, or stabilizers into the final thermoplastic product. A unit
operation whose primary purpose is to remove residual monomers from
polymers is not a compounding unit.
[[Page 48236]]
Continuous process means a process where the inputs and outputs
flow continuously through sequential manufacturing steps throughout the
duration of the process. Continuous processes typically approach
steady-state conditions. Continuous processes typically involve the
simultaneous addition of raw material and withdrawal of product. For
the purposes of this subpart, a process producing polymers is
characterized as continuous or batch based on the operation of the
polymerization reactors.
Continuous process vent means a point of emission from a continuous
unit operation within an affected source having a gaseous emission
stream containing greater than 0.005 weight percent total organic HAP.
Continuous process vents exclude relief valve discharges and leaks from
equipment regulated under Sec. 63.1331.
Continuous unit operation means a unit operation operated in a
continuous process mode.
Control device is defined in Sec. 63.111, except that the term
``process vents'' shall be replaced with the term ``continuous process
vents subject to Sec. 63.1315'' for the purpose of this subpart.
Drawing unit means a unit operation which converts polymer into a
different shape by melting or mixing the polymer and then pulling it
through an orifice to create a continuously extruded product.
Emission point means an individual continuous process vent, batch
process vent, storage vessel, wastewat
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
er stream, equipment leak, heat
exchange system, or process contact cooling tower.
Emulsion process means a process carried out with the reactants in
an emulsified form (e.g., polymerization reaction).
Expandable polystyrene resin (EPS) means a polystyrene bead to
which a blowing agent has been added using either an in-situ suspension
process or a post-impregnation suspension process.
Extruding unit means a unit operation which converts polymer into a
different shape by melting or mixing the polymer and then forcing it
through an orifice to create a continuously extruded product.
Group 1 batch process vent means a batch process vent releasing
annual organic HAP emissions greater than the level specified in
Sec. 63.1323(d) and with a cutoff flow rate, calculated in accordance
with Sec. 63.1323(f), greater than or equal to the annual average flow
rate.
Group 2 batch process vent means a batch process vent that does not
fall within the definition of a Group 1 batch process vent.
Group 1 continuous process vent means a continuous process vent
releasing a gaseous emission stream that has a total resource
effectiveness index value, calculated according to Sec. 63.115, less
than or equal to 1.0 unless the continuous process vent is associated
with existing thermoplastic product process units that produce methyl
methacrylate butadiene styrene resin, then said vent falls within the
Group 1 definition if the released emission stream has a total resource
effectiveness index value less than or equal to 3.7.
Group 2 continuous process vent means a continuous process vent
that does not fall within the definition of a Group 1 continuous
process vent.
Group 1 storage vessel means a storage vessel at an existing
affected source that meets the applicability criteria specified in
Table 2 or Table 3 of this subpart, or a storage vessel at a new
affected source that meets the applicability criteria specified in
Table 4 or Table 5 of this subpart.
Group 2 storage vessel means a storage vessel that does not fall
within the definition of a Group 1 storage vessel.
Halogenated aggregate batch vent stream means an aggregate batch
vent stream determined to have a total mass emission rate of halogen
atoms contained in organic compounds of 3,750 kilograms per year or
greater determined by the procedures specified in Sec. 63.1323(h).
Halogenated batch process vent means a batch process vent
determined to have a mass emission rate of halogen atoms contained in
organic compounds of 3,750 kilograms per year or greater determined by
the procedures specified in Sec. 63.1323(h).
Halogenated continuous process vent means a continuous process vent
determined to have a mass emission rate of halogen atoms contained in
organic compounds of 0.45 kilograms per hour or greater determined by
the procedures specified in Sec. 63.115(d)(2)(v).
Heat exchange system means any cooling tower system or once-through
cooling water system (e.g., river or pond water) designed and operated
to not allow contact between the cooling medium and process fluid or
gases (i.e., a noncontact system). A heat exchange system can include
more than one heat exchanger and can include recirculating or once-
through cooling systems.
Maintenance wastewater means wastewater generated by the draining
of process fluid from components in the TPPU into an individual drain
system prior to or during maintenance activities. Maintenance
wastewater can be generated during planned and unplanned shutdowns and
during periods not associated with a shutdown. Examples of activities
that can generate maintenance wastewater include descaling of heat
exchanger tubing bundles, cleaning distillation column traps, draining
of low legs and high point bleeds, draining of pumps into an individual
drain system, reactor and equipment washdown, and draining of portions
of the TPPU for repair.
Mass process means a process carried out through the use of thermal
energy (e.g., polymerization reaction). Mass processes do not utilize
emulsifying or suspending agents, but can utilize catalysts or other
additives.
Material recovery section means the equipment that recovers
unreacted or by-product materials from any process section for return
to the TPPU, off-site purification or treatment, or sale. Equipment
used to store recovered materials are not included. Equipment designed
to separate unreacted or by-product material from the polymer product
are to be included in this process section, provided that at the time
of initial compliance some of the material is recovered for reuse in
the process, off-site purification or treatment, or sale. Otherwise,
such equipment are to be assigned to one of the other process sections,
as appropriate. If equipment are used to recover unreacted or by-
product material and return it directly to the same piece of process
equipment from which it was emitted, then said recovery equipment are
considered part of the process section that contains the process
equipment. On the other hand, if equipment are used to recover
unreacted or by-product material and return it to a different piece of
process equipment in the same process section, said recovery equipment
are considered part of a material recovery section. Equipment that
treats recovered materials are to be included in this process section,
but equipment that also treats raw materials are not to be included in
this process section. The latter equipment are to be included in the
raw materials preparation section. Equipment used for the on-site
recovery of ethylene glycol from PET plants, however, are not included
in the material recovery section; they are to be included in the
polymerization reaction section. Equipment used for the on-site
recovery of ethylene glycol and other materials (e.g., methanol) from
PET plants are not included in the material recovery section; these
equipment are to be included in the polymerization reaction section.
Methyl methacrylate acrylonitrile butadiene styrene resin (MABS)
means
[[Page 48237]]
styrenic polymers containing methyl methacrylate, acrylonitrile,
butadiene, and styrene. MABS is prepared by dissolving or dispersing
polybutadiene rubber in a mixture of methyl methacrylate-acrylonitrile-
styrene and butadiene monomer. The graft polymerization is carried out
by a bulk or a suspension process.
Methyl methacrylate butadiene styrene resin (MBS) means styrenic
polymers containing methyl methacrylate, butadiene, and styrene.
Production of MBS is achieved using an emulsion process in which methyl
methacrylate and styrene are grafted onto a styrene-butadiene rubber.
Nitrile resin means a resin produced through the polymerization of
acrylonitrile, methyl acrylate, and butadiene latex using an emulsion
process.
Organic hazardous air pollutant(s) (organic HAP) means one or more
of the chemicals listed in Table 6 of this subpart or any other
chemical which is:
(1) Knowingly introduced into the manufacturing process other than
as an impurity, or has been or will be reported under any Federal or
State program, such as Title V or the Emergency Planning and Community
Right-To-Know Act section 311, 312, or 313; and
(2) Listed in Table 2 of subpart F of this part.
PET using a dimethyl terephthalate process means the manufacturing
of PET based on the esterification of dimethyl terephthalate with
ethylene glycol to form the intermediate monomer bis-(2-hydroxyethyl)-
terephthalate that is subsequently polymerized to form PET.
PET using a terephthalic acid process means the manufacturing of
PET based on the esterification reaction of terephthalic acid with
ethylene glycol to form the intermediate monomer bis-(2-hydroxyethyl)-
terephthalate that is subsequently polymerized to form PET.
Poly(ethylene terephthalate) resin (PET) means a polymer or
copolymer comprised of at least 50 percent bis-(2-hydroxyethyl)-
terephthalate by weight.
Polymerization reaction section means the equipment designed to
cause monomer(s) to react to form polymers, including equipment
designed primarily to cause the formation of short polymer chains
(e.g., oligomers or low polymers), but not including equipment designed
to prepare raw materials for polymerization (e.g., esterification
vessels). For the purposes of these standards, the polymerization
reaction section begins with the equipment used to transfer the
materials from the raw materials preparation section and ends with the
last vessel in which polymerization occurs. Equipment used for the on-
site recovery of ethylene glycol from PET plants, however, are included
in this process section, rather than in the material recovery process
section.
Polystyrene resin means a thermoplastic polymer or copolymer
comprised of at least 80 percent styrene or para-methylstyrene by
weight.
Primary product is defined in and determined by the procedures
specified in Sec. 63.1310(f).
Process contact cooling tower system means a cooling tower system
that is designed and operated to allow contact between the cooling
medium and process fluid or gases.
Process section means the equipment designed to accomplish a
general but well-defined task in polymers production. Process sections
include, but are not limited to, raw materials preparation,
polymerization reaction, and material recovery. A process section may
be dedicated to a single TPPU or common to more than one TPPU.
Process unit means a collection of equipment assembled and
connected by pipes or ducts to process raw materials and to manufacture
a product.
Process vent means a point of emission from a unit operation having
a gaseous emission stream. Typical process vents include condenser
vents, dryer vents, vacuum pumps, steam ejectors, and atmospheric vents
from reactors and other process vessels, but do not include pressure
relief valves.
Product means a compound or material which is manufactured by a
process unit. By-products, isolated intermediates, impurities, wastes,
and trace contaminants are not considered products.
Raw materials preparation section means the equipment at a polymer
manufacturing plant designed to prepare raw materials, such as monomers
and solvents, for polymerization. For the purposes of these standards,
this process section begins with the equipment used to transfer raw
materials from storage and/or the equipment used to transfer recovered
material from the material recovery process sections, and ends with the
last piece of equipment that prepares the material for polymerization.
The raw materials preparation section may include equipment that is
used to purify, dry, or otherwise treat raw materials or raw and
recovered materials together; to activate catalysts; and to promote
esterification including the formation of some short polymer chains
(oligomers). The raw materials preparation section does not include
equipment that is designed primarily to accomplish the formation of
oligomers, the treatment of recovered materials alone, or the storage
of raw materials.
Recovery operations equipment means the equipment used to separate
the components of process streams. Recovery operations equipment
includes distillation unit, condensers, etc. Equipment used for
wastewater treatment shall not be considered recovery operations
equipment.
Solid state polymerization unit means a unit operation which,
through the application of heat, furthers the polymerization (i.e.,
increases the intrinsic viscosity) of polymer chips.
Steady-state conditions means that all variables (temperatures,
pressures, volumes, flow rates, etc.) in a process do not vary
significantly with time; minor fluctuations about constant mean values
can occur.
Storage vessel means a tank or other vessel that is used to store
liquids that contain one or more organic HAP and that has been
assigned, according to the procedures in Sec. 63.1310(g), to a TPPU
that is subject to this subpart. Storage vessels do not include:
(1) vessels permanently attached to motor vehicles such as trucks,
railcars, barges, or ships;
(2) pressure vessels designed to operate in excess of 204.9
kilopascals and without breathing or working losses to the atmosphere;
(3) vessels with capacities smaller than 38 cubic meters;
(4) vessels and equipment storing and/or handling material that
contains no organic HAP and/or organic HAP as impurities only; and
(5) wastewater storage tanks.
Styrene acrylonitrile resin (SAN) means copolymers consisting
primarily of styrene and acrylonitrile monomer units.
Suspension process means a process carried out with the reactants
in a state of suspension, typically achieved through the use of water
and/or suspending agents (e.g., polymerization reaction).
Thermoplastic product means one of the following types of products:
(1) ABS latex;
(2) ABS using a batch emulsion process;
(3) ABS using a batch suspension process;
(4) ABS using a continuous emulsion process;
(5) ABS using a continuous mass process;
(6) ASA/AMSAN;
(7) EPS;
(8) MABS;
(9) MBS;
[[Page 48238]]
(10) nitrile resin;
(11) PET using a batch dimethyl terephthalate process;
(12) PET using a batch terephthalic acid process;
(13) PET using a continuous dimethyl terephthalate process;
(14) PET using a continuous terephthalic acid process;
(15) PET using a continuous terephthalic acid high viscosity
multiple end finisher process;
(16) polystyrene resin using a batch process;
(17) polystyrene resin using a continuous process;
(18) SAN using a batch process; or
(19) SAN using a continuous process.
Thermoplastic product process unit (TPPU) means a collection of
equipment assembled and connected by process pipes or ducts, excluding
gas, sanitary sewage, water (i.e., not wastewater), and steam
connections, used to process raw materials and to manufacture a
thermoplastic product as its primary product. This collection of
equipment includes process vents from process vessels; storage vessels,
as determined in Sec. 63.1310(g); and the equipment (i.e., pumps,
compressors, agitators, pressure relief devices, sampling connection
systems, open-ended valves or lines, valves, connectors, and
instrumentation systems that are associated with the thermoplastic
product process unit) that are subject to the equipment leak provisions
as specified in Sec. 63.1331.
Total organic compounds (TOC) means those compounds excluding
methane and ethane measured according to the procedures of Method 18 or
Method 25A, 40 CFR part 60, appendix A.
Year means any consecutive 12-month period or 365 rolling days. For
the purposes of emissions averaging, the term year applies to any 12-
month period selected by the facility and defined in its Emissions
Averaging Plan. For the purposes of batch cycle limitations, the term
year applies to the 12-month period defined by the facility in its
Notification of Compliance Status.
Sec. 63.1313 Emission standards.
(a) Except as allowed under paragraphs (b) and (c) of this section,
the owner or operator of an existing or new affected source shall
comply with the provisions in:
(1) Section 63.1314 for storage vessels;
(2) Sections 63.1315 or 63.1316 through 63.1320, as appropriate,
for continuous process vents;
(3) Section 63.1321 for batch process vents;
(4) Section 63.1328 for heat exchange systems;
(5) Section 63.1329 for process contact cooling towers;
(6) Section 63.1330 for wastewater;
(7) Section 63.1331 for equipment leaks;
(8) Section 63.1333 for additional test methods and procedures;
(9) Section 63.1334 for parameter monitoring levels and excursions;
and
(10) Section 63.1335 for general recordkeeping and reporting
requirements.
(b) Instead of complying with Secs. 63.1314, 63.1315, 63.1316
through 63.1320, 63.1321, and 63.1330, the owner or operator of an
existing affected source may elect to control any or all of the storage
vessels, batch process vents, continuous process vents, and wastewater
streams within the affected source to different levels using an
emissions averaging compliance approach that uses the procedures
specified in Sec. 63.1332. An owner or operator electing to use
emissions averaging must still comply with the provisions of
Secs. 63.1314, 63.1315, 63.1316 through 63.1320, 63.1321, and 63.1330
for affected source emission points not included in the emissions
average.
(c) A State may decide not to allow the use of the emissions
averaging compliance approach specified in paragraph (b) of this
section.
Sec. 63.1314 Storage vessel provisions.
(a) This section applies to each storage vessel that belongs to an
affected source, as determined by Sec. 63.1310(g). Except as provided
in paragraphs (b) through (d) of this section, the owner or operator of
said storage vessels shall comply with the requirements of Secs. 63.119
through 63.123 and 63.148, with the differences noted in paragraphs
(a)(1) through (a)(16) of this section for the purposes of this
subpart.
(1) When the term ``storage vessel'' is used in Secs. 63.119
through 63.123 and 63.148, the definition of this term in Sec. 63.1312
shall apply for the purposes of this subpart.
(2) When the term ``Group 1 storage vessel'' is used in
Secs. 63.119 through 63.123 and 63.148, the definition of this term in
Sec. 63.1312 shall apply for the purposes of this subpart.
(3) When the term ``Group 2 storage vessel'' is used in
Secs. 63.119 through 63.123 and 63.148, the definition of this term in
Sec. 63.1312 shall apply for the purposes of this subpart.
(4) When the emissions averaging provisions of Sec. 63.150 are
referred to in Secs. 63.119 and 63.123, the emissions averaging
provisions contained in Sec. 63.1332 shall apply for the purposes of
this subpart.
(5) When December 31, 1992, is referred to in Sec. 63.119, March
29, 1995 shall apply instead, for the purposes of this subpart.
(6) When April 22, 1994, is referred to in Sec. 63.119, September
12, 1996 shall apply instead, for the purposes of this subpart.
(7) Each owner or operator shall comply with this paragraph (a)(7)
instead of Sec. 63.120(d)(1)(ii) for the purposes of this subpart. If
the control device used to comply with this section is also used to
comply with Secs. 63.1315 through 63.1330, the performance test
required for these sections is acceptable for demonstrating compliance
with Sec. 63.119(e) for the purposes of this subpart. The owner or
operator is not required to prepare a design evaluation for the control
device as described in Sec. 63.120(d)(1)(i) for the purposes of this
subpart if the performance test meets the criteria specified in
Sec. 63.120 (d)(1)(ii)(A) and (d)(1)(ii)(B).
(8) When the term ``operating range'' is used in Sec. 63.120(d)(3),
the term ``level'' shall apply instead, for the purposes of this
subpart. This level shall be established using the procedures specified
in Sec. 63.1334.
(9) When the Notification of Compliance Status requirements
contained in Sec. 63.152(b) are referred to in Secs. 63.120, 63.122,
and 63.123, the Notification of Compliance Status requirements
contained in Sec. 63.1335(e)(5) shall apply for the purposes of this
subpart.
(10) When the Periodic Report requirements contained in
Sec. 63.152(c) are referred to in Secs. 63.120, 63.122, and 63.123, the
Periodic Report requirements contained in Sec. 63.1335(e)(6) shall
apply for the purposes of this subpart.
(11) When other reports as required in Sec. 63.152(d) are referred
to in Sec. 63.122, the reporting requirements contained in
Sec. 63.1335(e)(7) shall apply for the purposes of this subpart.
(12) When the Implementation Plan requirements contained in
Sec. 63.151(c) are referred to in Sec. 63.120 and Sec. 63.122, the
owner or operator of an affected source subject to this subpart need
not comply for the purposes of this subpart.
(13) When the Initial Notification Plan requirements contained in
Sec. 63.151(b) are referred to in Sec. 63.122, the owner or operator of
an affected source subject to this subpart need not comply for the
purposes of this subpart.
(14) When the determination of equivalence criteria in
Sec. 63.102(b) is referred to in Sec. 63.121(a), the provisions in
Sec. 63.6(g) shall apply for the purposes of this subpart.
[[Page 48239]]
(15) When a performance test is required under the provisions of
Sec. 63.120(d)(1)(ii), the use of Method 18 or Method 25A, 40 CFR part
60, appendix A is allowed for the purposes of this subpart. The use of
Method 25A, 40 CFR part 60, appendix A shall comply with paragraphs
(a)(15)(i) and (a)(15)(ii) of this section.
(i) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A shall be the single organic HAP representing
the largest percent by volume of the emissions.
(ii) The use of Method 25A, 40 CFR part 60, appendix A is
acceptable if the response from the high-level calibration gas is at
least 20 times the standard deviation of the response from the zero
calibration gas when the instrument is zeroed on the most sensitive
scale.
(16) The compliance date for storage vessels at affected sources
subject to the provisions of this section is specified in Sec. 63.1311.
(b) Owners or operators of Group 1 storage vessels that belong to a
new affected source producing SAN using a continuous process shall
control emissions to the levels indicated in paragraphs (b)(1) and
(b)(2) of this section.
(1) For storage vessels with capacities greater than or equal to
2,271 cubic meters (m\3\) containing a liquid mixture having a vapor
pressure greater than or equal to 0.5 kilopascal (kPa) but less than
0.7 kPa, emissions shall be controlled by at least 90 percent relative
to uncontrolled emissions.
(2) For storage vessels with capacities less than 151 m3
containing a liquid mixture having a vapor pressure greater than or
equal to 10 kPa, emissions shall be controlled by at least 98 percent
relative to uncontrolled emissions.
(c) Owners or operators of Group 1 storage vessels that belong to a
new or existing affected source producing ASA/AMSAN shall control
emissions by at least 98 percent relative to uncontrolled emissions.
(d) The provisions of this subpart do not apply to storage vessels
containing ethylene glycol at existing or new affected sources and
storage vessels containing styrene at existing affected sources.
Sec. 63.1315 Continuous process vents provisions.
(a) Except as provided in paragraphs (b) through (d) of this
section, the owner or operator of continuous process vents shall comply
with the requirements of Secs. 63.113 through 63.118, with the
differences noted in paragraphs (a)(1) through (a)(15) of this section
for the purposes of this subpart.
(1) When the term ``process vent'' is used in Secs. 63.113 through
63.118, apply the term ``continuous process vent,'' and the definition
of this term in Sec. 63.1312 shall apply for the purposes of this
subpart.
(2) When the term ``Group 1 process vent'' is used in Secs. 63.113
through 63.118, apply the term ``Group 1 continuous process vent,'' and
the definition of this term in Sec. 63.1312 shall apply for the
purposes of this subpart.
(3) When the term ``Group 2 process vent'' is used in Secs. 63.113
through 63.118, apply the term ``Group 2 continuous process vent,'' and
the definition of this term in Sec. 63.1312 shall apply for the
purposes of this subpart.
(4) When December 31, 1992, (i.e., subpart G of this part proposal
date) is referred to in Sec. 63.113, apply the date March 29, 1995
(i.e., proposal date for this subpart) for the purposes of this
subpart.
(5) When Sec. 63.151(f), alternative monitoring parameters, and
Sec. 63.152(e), submission of an operating permit, are referred to in
Secs. 63.114(c) and 63.117(e), Sec. 63.1335(f), alternative monitoring
parameters, and Sec. 63.1335(e)(8), submission of an operating permit,
respectively, shall apply for the purposes of this subpart.
(6) When the Notification of Compliance Status requirements
contained in Sec. 63.152(b) are referred to in Secs. 63.114, 63.117,
and 63.118, the Notification of Compliance Status requirements
contained in Sec. 63.1335(e)(5) shall apply for the purposes of this
subpart.
(7) When the Periodic Report requirements contained in
Sec. 63.152(c) are referred to in Secs. 63.117 and 63.118, the Periodic
Report requirements contained in Sec. 63.1335(e)(6) shall apply for the
purposes of this subpart.
(8) When the definition of excursion in Sec. 63.152(c)(2)(ii)(A) is
referred to in Sec. 63.118(f)(2), the definition of excursion in
Sec. 63.1334(f) of this subpart shall apply for the purposes of this
subpart.
(9) Owners and operators shall comply with Sec. 63.1334, parameter
monitoring levels and excursions, instead of Sec. 63.114(e) for the
purposes of this subpart. When the term ``range'' is used in
Secs. 63.117 and 63.118, the term ``level'' shall be used instead for
the purposes of this subpart. This level is determined in accordance
with Sec. 63.1334.
(10) If a batch process vent is combined with a continuous process
vent prior to being routed to a control device, the combined vent
stream shall comply with either paragraph (a)(10)(i) or (a)(10)(ii) of
this section, as appropriate.
(i) If the continuous process vent is a Group 1 continuous process
vent, the combined vent stream shall comply with all requirements for a
Group 1 continuous process vent stream in Secs. 63.113 through 63.118,
with the differences noted in paragraphs (a)(1) through (a)(9) of this
section, for the purposes of this subpart.
(ii) If the continuous process vent is a Group 2 continuous process
vent, the total resource effectiveness (TRE) index value for the
combined vent stream shall be calculated at the exit of any recovery
device and prior to the control device at maximum representative
operating conditions. For combined vent streams containing continuous
and batch process vents, the maximum representative operating
conditions shall be during periods when batch emission episodes are
venting to the control device, resulting in the highest concentration
of organic HAP in the combined vent stream.
(11) If a batch process vent is combined with a continuous process
vent prior to being routed to a recovery device, the TRE index value
for the combined vent stream shall be calculated at the exit of the
recovery device at maximum representative operating conditions for the
purposes of this subpart. For combined vent streams containing
continuous and batch process vents, the maximum representative
operating conditions shall be during periods when batch emission
episodes are venting to the recovery device, resulting in the highest
concentration of organic HAP in the combined vent stream.
(12) When reports of process changes are required under Sec. 63.118
(g), (h), (i), and (j), paragraphs (a)(12)(i) through (a)(12)(iv) of
this section shall apply for the purposes of this subpart.
(i) For the purposes of this subpart, whenever a process change, as
defined in Sec. 63.115(e), is made that causes a Group 2 continuous
process vent to become a Group 1 continuous process vent, the owner or
operator shall submit a report within 180 operating days after the
process change is made or the information regarding the process change
is known to the owner or operator. This report may be included in the
next Periodic Report, as specified in Sec. 63.1335(e)(6)(iii)(D)(2).
The following information shall be submitted:
(A) A description of the process change; and
(B) A schedule for compliance with the provisions of this subpart,
as required under Sec. 63.1335(e)(6)(iii)(D)(2).
[[Page 48240]]
(ii) Whenever a process change, as defined in Sec. 63.115(e), is
made that causes a Group 2 process vent with a TRE greater than 4.0 to
become a Group 2 process vent with a TRE less than 4.0, the owner or
operator shall submit a report within 180 operating days after the
process change is made or the information regarding the process change
is known to the owner or operator. This report may be included in the
next Periodic Report, as specified in Sec. 63.1335(e)(6)(iii)(D)(2).
The following information shall be submitted:
(A) A description of the process change; and
(B) A schedule for compliance with the provisions of this subpart,
as required under Sec. 63.1335(e)(6)(iii)(D)(2).
(iii) Whenever a process change, as defined in Sec. 63.115(e), is
made that causes a Group 2 process vent with a flow rate less than
0.005 standard cubic meter per minute to become a Group 2 process vent
with a flow rate of 0.005 standard cubic meter per minute or greater
and a TRE index value less than or equal to 4.0, the owner or operator
shall submit a report within 180 operating days after the process
change is made or the information regarding the process change is known
to the owner or operator. This report may be included in the next
Periodic Report, as specified in Sec. 63.1335(e)(6)(iii)(D)(2). The
following information shall be submitted:
(A) A description of the process change; and
(B) A schedule for compliance with the provisions of this subpart,
as required under Sec. 63.1335(e)(6)(iii)(D)(2).
(iv) Whenever a process change, as defined in Sec. 63.115(e), is
made that causes a Group 2 process vent with an organic HAP
concentration less than 50 parts per million by volume to become a
Group 2 process vent with an organic HAP concentration of 50 parts per
million by volume or greater and a TRE index value less than or equal
to 4.0, the owner or operator shall submit a report within 180
operating days after the process change is made or the information
regarding the process change is known to the owner or operator. This
report may be included in the next Periodic Report, as specified in
Sec. 63.1335(e)(6)(iii)(D)(2). The following information shall be
submitted:
(A) A description of the process change; and
(B) A schedule for compliance with the provisions of this subpart,
as required under Sec. 63.1335(e)(6)(iii)(D)(2).
(13) When the provisions of Sec. 63.116 (c)(3) and (c)(4) specify
that Method 18, 40 CFR part 60, appendix A shall be used, Method 18 or
Method 25A, 40 CFR part 60, appendix A may be used for the purposes of
this subpart. The use of Method 25A, 40 CFR part 60, appendix A shall
comply with paragraphs (a)(13)(i) and (a)(13)(ii) of this section.
(i) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A shall be the single organic HAP representing
the largest percent by volume of the emissions.
(ii) The use of Method 25A, 40 CFR part 60, appendix A is
acceptable if the response from the high-level calibration gas is at
least 20 times the standard deviation of the response from the zero
calibration gas when the instrument is zeroed on the most sensitive
scale.
(14) When the provisions of Sec. 63.116(b) identify conditions
under which a performance test is not required, for purposes of this
subpart, the exemption in paragraph (a)(14)(i) shall also apply.
Further, if a performance test meeting the conditions specified in
paragraph (a)(14)(ii) of this section has been conducted by the owner
or operator, the results of said performance test may be submitted and
a performance test, as required by this section, is not required.
(i) An incinerator burning hazardous waste for which the owner or
operator complies with the requirements of 40 CFR part 264, subpart O.
(ii) Performance tests done for other subparts in 40 CFR part 60 or
part 63 where total organic HAP or TOC was measured, provided the owner
or operator can demonstrate that operating conditions for the process
and control or recovery device during the performance test are
representative of current operating conditions.
(15) The compliance date for continuous process vents subject to
the provisions of this section is specified in Sec. 63.1311.
(b) Existing affected sources producing MBS shall comply with
either paragraph (b)(1) or (b)(2) of this section.
(1) Comply with paragraph (a) of this section, as specified in
paragraphs (b)(1)(i) and (b)(1)(ii).
(i) As specified in Sec. 63.1312, Group 1 continuous process vents
at MBS existing affected sources are those with a total resource
effectiveness value less than or equal to 3.7.
(ii) When complying with this paragraph (b), the term ``TRE of
4.0'', or related terms indicating a TRE value of 4.0, referred to in
Sec. 63.113 through Sec. 63.118 shall be replaced with ``TRE of 6.7,''
for the purposes of this subpart. The TRE range of 3.7 to 6.7 for
continuous process vents at existing affected sources producing MBS
corresponds to the TRE range of 1.0 to 4.0 for other continuous process
vents, as it applies to monitoring, recordkeeping, and reporting.
(2) Not allow organic HAP emissions from the collection of
continuous process vents at the affected source to be greater than
0.000590 kg organic HAP/Mg of product. Compliance with this paragraph
(b)(2) shall be determined using the procedures specified in
Sec. 63.1333(b).
(c) New affected sources producing SAN using a batch process shall
comply with the applicable requirements in Sec. 63.1321.
(d) Affected sources producing PET or polystyrene using a
continuous process are subject to the emissions control provisions of
Sec. 63.1316, the monitoring provisions of Sec. 63.1317, the testing
and compliance demonstration provisions of Sec. 63.1318, the
recordkeeping provisions of Sec. 63.1319, and the reporting provisions
of Sec. 63.1320.
Sec. 63.1316 PET and polystyrene continuous process affected sources--
emissions control provisions.
(a) The owner or operator of an affected source producing PET using
a continuous process shall comply with paragraph (b) of this section.
The owner or operator of an affected source producing polystyrene using
a continuous process shall comply with paragraph (c) of this section.
(b) Each owner or operator of an affected source producing PET
using a continuous process shall comply with the requirements specified
in paragraphs (b)(1) or (b)(2) of this section, as appropriate, and not
with any of the requirements specified in 40 CFR part 60, subpart DDD.
Compliance can be based on either organic HAP or TOC.
(1) Each owner or operator of an affected source producing PET
using a continuous dimethyl terephthalate process shall comply with
paragraphs (b)(1)(i) through (b)(1)(iv) of this section.
(i) For existing affected sources with organic HAP emissions from
continuous process vents in the collection of material recovery
sections (i.e., methanol recovery) within the affected source greater
than 0.12 kg organic HAP/Mg of product, as determined by the procedure
specified in Sec. 63.1318(b) and for all new affected sources, limit
organic HAP emissions from continuous process vents in the collection
of material recovery sections within the affected source by complying
with one of the following:
(A) Not allow emissions to be greater than 0.018 kg organic HAP/Mg
of product; or
[[Page 48241]]
(B) Not allow the outlet gas stream temperature from each final
condenser in a material recovery section to exceed +3 deg. C (+37 deg.
F).
(ii) Limit organic HAP emissions from the continuous process vents
in the collection of polymerization reaction sections within the
affected source (including emissions from any equipment used to further
recover ethylene glycol, but excluding emissions from process contact
cooling towers) to 0.02 kg organic HAP/Mg of product or less.
(iii) Limit organic HAP emissions from continuous process vents not
included in a material recovery section, as specified in paragraph
(b)(1)(i) of this section, or not included in a polymerization reaction
section, as specified in paragraph (b)(1)(ii) of this section, by
complying with Sec. 63.1315.
(iv) Limit organic HAP emissions from all batch process vents by
complying with Sec. 63.1321.
(2) Each owner or operator of an affected source producing PET
using a continuous terephthalic acid process shall comply with
paragraphs (b)(2)(i) through (b)(2)(iv) of this section.
(i) Limit organic HAP emissions from the continuous process vents
associated with the esterification vessels in the collection of raw
materials preparation sections within the affected source to 0.04 kg
organic HAP/Mg of product or less. Limit organic HAP emissions
associated with other continuous process vents in the collection of raw
materials preparation sections within the affected source by complying
with Sec. 63.1315.
(ii) Limit organic HAP emissions from the continuous process vents
in the collection of polymerization reaction sections within the
affected source (including emissions from any equipment used to further
recover ethylene glycol, but excluding emissions from process contact
cooling towers) to 0.02 kg organic HAP/Mg of product or less.
(iii) Limit organic HAP emissions from continuous process vents not
included in a raw materials preparation section, as specified in
paragraphs (b)(2)(i) of this section, or not included in a
polymerization reaction section, as specified in paragraph (b)(2)(ii)
of this section, by complying with Sec. 63.1315.
(iv) Limit organic HAP emissions from all batch process vents by
complying with Sec. 63.1321.
(c) Each owner or operator of an affected source producing
polystyrene resin using a continuous process shall comply with the
requirements specified in paragraphs (c)(1) through (c)(3) of this
section, as appropriate, and not with any of the requirements specified
in 40 CFR part 60, subpart DDD. Compliance can be based on either
organic HAP or TOC.
(1) Limit organic HAP emissions from continuous process vents in
the collection of material recovery sections within the affected source
by complying with one of the following:
(i) Not allow emissions to be greater than 0.0036 kg organic HAP/Mg
of product;
(ii) Not allow the outlet gas stream temperature from each final
condenser in a material recovery section to exceed -25 deg.C
(-13 deg.F); or
(iii) Comply with one of the following:
(A) Reduce emissions by 98 weight percent or to a concentration of
20 parts per million by volume (ppmv) on a dry basis, whichever is less
stringent. If an owner or operator elects to comply with the 20 ppmv
standard, the concentration shall include a correction to 3 percent
oxygen only when supplemental combustion air is used to combust the
emissions;
(B) Combust the emissions in a boiler or process heater with a
design heat input capacity of 150 million Btu/hr or greater by
introducing the emissions into the flame zone of the boiler or process
heater; or
(C) Combust the emissions in a flare that complies with the
requirements of Sec. 63.11(b).
(2) Limit organic HAP emissions from continuous process vents not
included in a material recovery section, as specified in paragraph
(c)(1)(i) of this section, by complying with Sec. 63.1315.
(3) Limit organic HAP emissions from all batch process vents by
complying with Sec. 63.1321.
Sec. 63.1317 PET and polystyrene continuous process affected
sources--monitoring provisions.
Continuous process vents using a control or recovery device to
comply with Sec. 63.1316 shall comply with the applicable monitoring
provisions specified for continuous process vents in Sec. 63.1315(a),
except as specified in paragraphs (a) and (b) of this section.
(a) For the purposes of paragraph (a) of this section, owners or
operators shall ignore references to group determinations (i.e., total
resource effectiveness) and are not required to comply with
Sec. 63.113.
(b) The monitoring period for condenser exit temperature when
complying with Sec. 63.1316(b)(1)(i)(B) or Sec. 63.1316(c)(1)(ii) shall
be each consecutive 3-hour continuous period (e.g., 6 am to 9 am, 9 am
to 12 pm). Each owner or operator shall designate said monitoring
period in the Notification of Compliance Status required by
Sec. 63.1335(e)(5).
Sec. 63.1318 PET and polystyrene continuous process affected
sources--testing and compliance demonstration provisions.
(a) Except as specified in paragraphs (b) through (d) of this
section, continuous process vents using a control or recovery device to
comply with Sec. 63.1316 shall comply with the applicable testing and
compliance provisions for continuous process vents specified in
Sec. 63.1315, except that, for the purposes of this paragraph (a),
owners or operators shall ignore references to group determination
(i.e., total resource effectiveness) and are not required to comply
with Sec. 63.113.
(b) PET Affected Sources Using a Dimethyl Terephthalate Process--
Applicability Determination Procedure. Owners or operators shall
calculate organic HAP emissions from the collection of material
recovery sections at an existing affected source producing PET using a
continuous dimethyl terephthalate process to determine whether
Sec. 63.1316(a)(1)(i) is applicable using the procedures specified in
either paragraph (b)(1) or (b)(2) of this section.
(1) Use Equation 1 of this subpart to determine mass emissions per
mass product as specified in paragraphs (b)(1)(i) and (b)(1)(ii) of
this section.
[GRAPHIC] [TIFF OMITTED] TR12SE96.000
where:
ER=Emission rate of total organic HAP or TOC, kg/Mg product.
Ei=Emission rate of total organic HAP or TOC in continuous process
vent i, kg/hr.
Pp=The rate of polymer produced, kg/hr.
n=Number of continuous process vents in the collection of material
recovery sections at the affected source.
0.001=Conversion factor, kg to Mg.
(i) The mass emission rate for each continuous process vent,
Ei, shall be determined according to the procedures specified in
Sec. 63.116(c)(4). The sampling site for determining whether
Sec. 63.1316(a)(1)(i) is applicable shall be before any add-on control
devices (i.e., those required by regulation) and after those recovery
devices installed as part of operating the material recovery section.
When the provisions of Sec. 63.116(c)(4) specify that Method 18, 40 CFR
part 60, appendix A shall be used, Method 18 or Method 25A, 40 CFR part
60, appendix A may be used for the purposes of this subpart. The use of
[[Page 48242]]
Method 25A, 40 CFR part 60, appendix A shall comply with paragraphs
(b)(1)(i)(A) and (b)(1)(i)(B) of this section.
(A) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A shall be the single organic HAP representing
the largest percent by volume of the emissions.
(B) The use of Method 25A, 40 CFR part 60, appendix A is acceptable
if the response from the high-level calibration gas is at least 20
times the standard deviation of the response from the zero calibration
gas when the instrument is zeroed on the most sensitive scale.
(ii) The rate of polymer produced, Pp (kg/hr), shall be
determined by dividing the weight (kg) of polymer pulled from the
process line during the performance test by the number of hours taken
to perform the performance test. The weight of polymer pulled shall be
determined by direct measurement or by an alternate methodology, such
as materials balance. If an alternate methodology is used, a
description of the methodology, including all procedures, data, and
assumptions shall be submitted as part of the Notification of
Compliance Status required by Sec. 63.1335(e)(5).
(2) Use engineering assessment, as described in
Sec. 63.1323(b)(6)(i), to demonstrate that mass emissions per mass
product are less than or equal to 0.07 kg organic HAP/Mg product. If
engineering assessment shows that mass emissions per mass product are
greater than 0.07 kg organic HAP/Mg product and the owner or operator
wishes to demonstrate that mass emissions per mass product are less
than the threshold emission rate of 0.12 kg organic HAP/Mg product, the
owner or operator shall use the procedures specified in paragraph
(b)(1) of this section.
(c) Compliance with Mass Emissions per Mass Product Standards.
Owners or operators complying with Sec. 63.1316 (b)(1)(i)(A),
(b)(1)(ii), (b)(2)(i), (b)(2)(ii), and (c)(1)(i) shall demonstrate
compliance with the mass emissions per mass product requirements using
the procedures specified in paragraph (b)(1) of this section, except
that the sampling site specified in paragraph (b)(1)(i) of this section
shall be at the outlet of the last control or recovery device.
(d) Compliance with Temperature Limits for Final Condensers. Owners
or operators complying with Sec. 63.1316(b)(1)(i)(B) or
Sec. 63.1316(c)(1)(ii) shall perform an initial performance test as
specified in paragraph (d)(1) of this section to demonstrate initial
compliance with the temperature limit requirements and shall
demonstrate continuous compliance as specified in paragraph (d)(2) of
this section.
(1) Using the temperature monitoring device specified by the
applicable monitoring provisions specified for continuous process vents
in Sec. 63.1315, an average exit temperature shall be determined based
on the average exit temperature for three performance tests. The
average exit temperature for each 3-hour performance test shall be
based on measurements taken at least every 15 minutes for 3 hours of
continuous operation under maximum representative operating conditions
for the process. For emissions streams containing continuous and batch
process vents, the maximum representative operating conditions shall be
during periods when batch emission episodes are venting to the control
device resulting in the highest concentration of organic HAP in the
emissions stream.
(2) As specified in Sec. 63.1317(b), continuous compliance shall be
determined based on an average exit temperature determined for each
consecutive 3-hour continuous period. Each 3-hour period where the
average exit temperature is more than 6 deg.C (10 deg.F) above the
applicable specified temperature limit shall be considered an
exceedance of the monitoring provisions.
Sec. 63.1319 PET and polystyrene continuous process affected sources--
recordkeeping provisions.
(a) Except as specified in paragraphs (b) and (c) of this section,
owners or operators using a control or recovery device to comply with
Sec. 63.1316 shall comply with the applicable recordkeeping provisions
specified in Sec. 63.1315, except that, for the purposes of this
paragraph (a), owners or operators shall ignore references to group
determinations (i.e., total resource effectiveness) and are not
required to comply with Sec. 63.113.
(b) Records Demonstrating Compliance With the Applicability
Determination Procedure for PET Affected Sources Using a Dimethyl
Terephthalate Process. Each owner or operator, as appropriate, shall
keep the following data, as appropriate, up-to-date and readily
accessible:
(1) Results of the mass emissions per mass product calculation
specified in Sec. 63.1318(b).
(2) If complying with Sec. 63.1316 by demonstrating that mass
emissions per mass product are less than or equal to the level
specified in Sec. 63.1316(a)(1)(i), the information specified in
paragraphs (b)(2)(i) and (b)(2)(ii) of this section.
(i) Each process operation variable (e.g., pressure, temperature,
type of catalyst) that may result in an increase in the mass emissions
per mass product should said variable be changed.
(ii) Records of any change in process operation that increases the
mass emissions per mass product.
(c) Records Demonstrating Compliance with Temperature Limits for
Final Condensers. Owners or operators of continuous process vents
complying with Sec. 63.1316(b)(1)(i)(B) or Sec. 63.1316(c)(1)(ii) shall
keep the following data, as appropriate, up-to-date and readily
accessible:
(1) Records of monitoring data as specified in Sec. 63.1315, except
that the monitoring period shall be each consecutive 3-hour continuous
period.
(2) Results of the performance test specified in Sec. 63.1318(d)(1)
and any other performance test that may be subsequently required.
Sec. 63.1320 PET and polystyrene continuous process affected sources--
reporting provisions.
(a) Except as specified in paragraphs (b) and (c) of this section,
owners and operators using a control or recovery device to comply with
Sec. 63.1316 shall comply with the applicable reporting provisions
specified in Sec. 63.1315, except that, for the purposes of this
paragraph (a), owners or operators shall ignore references to group
determinations (i.e., total resource effectiveness) and are not
required to comply with Sec. 63.113.
(b) Reporting for PET Affected Sources Using a Dimethyl
Terephthalate Process. Each owner or operator complying with
Sec. 63.1316 by demonstrating that mass emissions per mass product are
less than or equal to the level specified in Sec. 63.1316(a)(1)(i)
shall comply with paragraphs (b)(1) through (b)(3) of this section.
(1) Include the information specified in Sec. 63.1319(b)(2)(ii) in
each Periodic Report, required by Sec. 63.1335(e)(6), as appropriate.
(2) Include the information specified in Sec. 63.1319 (b)(1) or
(b)(2) in the Notification of Compliance Status, required by
Sec. 63.1335(e)(5), for the initial determination and in the
appropriate Periodic Report, required by Sec. 63.1335(e)(6), for any
subsequent determinations that may be required.
(3) Whenever a process change, as defined in Sec. 63.115(e), is
made that causes emissions from continuous process vents in the
collection of material recovery sections (i.e., methanol recovery)
within the affected source to be greater than 0.12 kg organic HAP/Mg of
product, the owner or operator shall submit a report within
[[Page 48243]]
180 operating days after the process change is made or the information
regarding the process change is known to the owner or operator. This
report may be included in the next Periodic Report as specified in
Sec. 63.1335(e)(6)(iii)(D)(2). The following information shall be
submitted:
(i) A description of the process change; and
(ii) A schedule for compliance with the provisions of this subpart,
as required under Sec. 63.1335(e)(6)(iii(D)(2).
(c) Reporting for Affected Sources Complying With Temperature
Limits for Final Condensers. Each owner or operator complying with
Sec. 63.1316(b)(1)(i)(B) or Sec. 63.1316(c)(1)(ii) shall comply with
paragraphs (c)(1) and (c)(2) of this section.
(1) Report periods when the 3-hour average exit temperature is more
than 6 deg. C (10 deg. F) above the applicable specified temperature
limit in each Periodic Report, required by Sec. 63.1335(e)(6), as
appropriate.
(2) Include the information specified in Sec. 63.1319(c)(2) in the
Notification of Compliance Status, required by Sec. 63.1335(e)(5), for
the initial performance test and in the appropriate Periodic Report,
required by Sec. 63.1335(e)(6), for any subsequent performance tests
that may be required.
(3) Include the information specified in Sec. 63.1317(b) in the
Notification of Compliance Status, required by Sec. 63.1335(e)(5).
Sec. 63.1321 Batch process vents provisions.
(a) Batch process vents. Except as specified in paragraphs (b) and
(c) of this section, owners and operators of new and existing affected
sources with batch process vents shall comply with the requirements in
Secs. 63.1322 through 63.1327. The batch process vent group status
shall be determined in accordance with Sec. 63.1323. Batch process
vents classified as Group 1 shall comply with the reference control
technology requirements for Group 1 batch process vents in
Sec. 63.1322, the monitoring requirements in Sec. 63.1324, the
performance test methods and procedures to determine compliance
requirements in Sec. 63.1325, the recordkeeping requirements in
Sec. 63.1326, and the reporting requirements in Sec. 63.1327. All Group
2 batch process vents shall comply with the applicable reference
control technology requirements in Sec. 63.1322, the recordkeeping
requirements in Sec. 63.1326, and the reporting requirements in
Sec. 63.1327.
(b) New SAN batch affected sources. Owners and operators of new SAN
affected sources using a batch process shall comply with the
requirements of Sec. 63.1322 through Sec. 63.1327 for batch process
vents and aggregate batch vent streams except as specified in
paragraphs (b)(1) through (b)(2) of this section. For continuous
process vents, owners and operators shall comply with the requirements
of Sec. 63.1322 through Sec. 63.1327 except as specified in paragraph
(b)(3) of this section.
(1) For batch process vents, the determination of group status
(i.e., Group 1/Group 2) under Sec. 63.1323 is not required.
(2) For batch process vents and aggregate batch vent streams, the
control requirements for individual batch process vents or aggregate
batch vent streams (e.g., 90 percent emission reduction) as specified
in Sec. 63.1322(a)(1), (a)(2), (b)(1), and (b)(2) shall not apply.
(3) Continuous process vents using a control or recovery device to
comply with Sec. 63.1322(a)(3) are subject to the applicable
requirements in Sec. 63.1315(a), as appropriate, except as specified in
paragraphs (b)(3)(i) and (b)(3)(ii) of this section.
(i) Said continuous process vents are not subject to the group
determination procedures of Sec. 63.115 for the purposes of this
subpart.
(ii) Said continuous process vents are not subject to the reference
control technology provisions of Sec. 63.113 for the purposes of this
subpart.
(c) Aggregate batch vent streams. Aggregate batch vent streams, as
defined in Sec. 63.1312, are subject to the control requirements for
individual batch process vents, as specified in Sec. 63.1322(b), as
well as the monitoring, testing, recordkeeping, and reporting
requirements specified in Sec. 63.1324 through Sec. 63.1327.
Sec. 63.1322 Batch process vents--reference control technology.
(a) Batch process vents. The owner or operator of a Group 1 batch
process vent, as determined using the procedures in Sec. 63.1323, shall
comply with the requirements of either paragraph (a)(1) or (a)(2) of
this section, except as provided for in paragraph (a)(3) of this
section. Compliance can be based on either organic HAP or TOC.
(1) For each batch process vent, reduce organic HAP emissions using
a flare.
(i) The flare shall comply with the requirements of Sec. 63.11(b).
(ii) Halogenated batch process vents, as defined in Sec. 63.1312,
shall not be vented to a flare.
(2) For each batch process vent, reduce organic HAP emissions for
the batch cycle by 90 weight percent using a control device. Owners or
operators may achieve compliance with this paragraph (a)(2) through the
control of selected batch emission episodes or the control of portions
of selected batch emission episodes. Documentation demonstrating how
the 90 weight percent emission reduction is achieved is required by
Sec. 63.1325(c)(2).
(3) The owner or operator of a new affected source producing SAN
using a batch process shall reduce organic HAP emissions from the
collection of batch process vents, aggregate batch vent streams, and
continuous process vents by 84 weight percent. Compliance with this
paragraph (a)(3) shall be demonstrated using the procedures specified
in Sec. 63.1333(c).
(b) Aggregate batch vent streams. The owner or operator of an
aggregate batch vent stream that contains one or more Group 1 batch
process vents shall comply with the requirements of either paragraph
(b)(1) or (b)(2) of this section, except as provided for in paragraph
(b)(3) of this section. Compliance can be based on either organic HAP
or TOC.
(1) For each aggregate batch vent stream, reduce organic HAP
emissions using a flare.
(i) The flare shall comply with the requirements of Sec. 63.11(b).
(ii) Halogenated aggregate batch vent streams, as defined in
Sec. 63.1312, shall not be vented to a flare.
(2) For each aggregate batch vent stream, reduce organic HAP
emissions by 90 weight percent on a continuous basis using a control
device.
(3) The owner or operator of a new affected source producing SAN
using a batch process shall comply with paragraph (a)(3) of this
section.
(c) Halogenated emissions. Halogenated Group 1 batch process vents,
halogenated aggregate batch vent streams, and halogenated continuous
process vents that are combusted as part of complying with paragraph
(a)(2), (a)(3), (b)(2), or (b)(3) of this section, as appropriate,
shall be controlled according to either paragraph (c)(1) or (c)(2) of
this section.
(1) If a combustion device is used to comply with paragraph (a)(2),
(a)(3), (b)(2), or (b)(3) of this section for a halogenated batch
process vent, halogenated aggregate batch vent stream, or halogenated
continuous process vent, said emissions shall be ducted from the
combustion device to an additional control device that reduces overall
emissions of hydrogen halides and halogens by 99 percent before said
emissions are discharged to the atmosphere.
(2) A control device may be used to reduce the halogen atom mass
emission
[[Page 48244]]
rate of said emissions to less than 3,750 kg/yr for batch process vents
or aggregate batch vent streams and to less than 0.45 kilograms per
hour for continuous process vents prior to venting to any combustion
control device, and thus make the batch process vent, aggregate batch
vent stream, or continuous process vent nonhalogenated. The
nonhalogenated batch process vent, aggregate batch vent stream, or
continuous process vent must then comply with the requirements of
either paragraph (a) or (b) of this section, as appropriate.
(d) If a boiler or process heater is used to comply with the
percent reduction requirement specified in paragraph (a)(2), (a)(3),
(b)(2), or (b)(3) of this section, the batch process vent, aggregate
batch vent stream, or continuous process vent shall be introduced into
the flame zone of such a device.
(e) Combination of batch process vents or aggregate batch vent
streams with continuous process vents. A batch process vent or
aggregate batch vent stream combined with a continuous process vent is
not subject to the provisions of Secs. 63.1323 through 63.1327,
providing the requirements of paragraphs (e)(1), (e)(2), and either
(e)(3) or (e)(4) of this section are met.
(1) The batch process vent or aggregate batch vent stream is
combined with a continuous process vent prior to routing the continuous
process vent to a control or recovery device. In this paragraph (e)(1),
the definitions of control device and recovery device as they relate to
continuous process vents shall be used.
(2) The only emissions to the atmosphere from the batch process
vent or aggregate batch vent stream prior to being combined with the
continuous process vent are from equipment subject to and in compliance
with Sec. 63.1331.
(3) If the batch process vent or aggregate batch vent stream is
combined with a continuous process vent prior to being routed to a
control device, the combined vent stream shall comply with the
requirements in Sec. 63.1315(a)(10). In this paragraph (e)(3), the
definition of control device as it relates to continuous process vents
shall be used.
(4) If the batch process vent or aggregate batch vent stream is
combined with a continuous process vent prior to being routed to a
recovery device, the combined vent stream shall comply with the
requirements in Sec. 63.1315(a)(11). In this paragraph (e)(4), the
definition of recovery device as it relates to continuous process vents
shall be used.
(f) Group 2 batch process vents with annual emissions greater than
or equal to the level specified in Sec. 63.1323(d). The owner or
operator of a Group 2 batch process vent with annual emissions greater
than or equal to the level specified in Sec. 63.1323(d) shall comply
with the provisions of (f)(1) and (f)(2) of this section.
(1) Establish a batch cycle limitation that ensures the Group 2
batch process vent does not become a Group 1 batch process vent.
(2) Comply with the recordkeeping requirements in
Sec. 63.1326(d)(2), and the reporting requirements in Sec. 63.1327
(a)(3) and (b).
(g) Group 2 batch process vents with annual emissions less than the
level specified in Sec. 63.1323(d). The owner or operator of a Group 2
batch process vent with annual emissions less than the level specified
in Sec. 63.1323(d) shall comply with either paragraphs (g)(1) and
(g)(2) of this section or with paragraphs (f)(1) and (f)(2) of this
section.
(1) Establish a batch cycle limitation that ensures emissions do
not exceed the level specified in Sec. 63.1323(d).
(2) Comply with the recordkeeping requirements in
Sec. 63.1326(d)(1), and the reporting requirements in Sec. 63.1327
(a)(2), (b), and (c).
Sec. 63.1323 Batch process vents--methods and procedures for group
determination.
(a) General requirements. Except as provided in paragraph (a)(3) of
this section and in Sec. 63.1321(b)(1), the owner or operator of batch
process vents at affected sources shall determine the group status of
each batch process vent in accordance with the provisions of this
section. This determination may be based on either organic HAP or TOC
emissions.
(1) The procedures specified in paragraphs (b) through (h) of this
section shall be followed for the expected mix of products for a given
batch process vent, as specified in paragraph (a)(1)(i) of this
section, or for the worst-case HAP emitting product, as specified in
paragraphs (a)(1)(ii) through (a)(1)(iv) of this section. ``Worst-case
HAP emitting product'' is defined in paragraph (a)(1)(iii) of this
section.
(i) If an owner or operator chooses to follow the procedures
specified in paragraphs (b) through (h) of this section for the
expected mix of products, an identification of the different products
and the number of batch cycles accomplished for each is required as
part of the group determination documentation, as specified in
Sec. 63.1326(a)(1).
(ii) If an owner or operator chooses to follow the procedures
specified in paragraphs (b) through (h) of this section for the worst-
case HAP emitting product, documentation identifying the worst-case HAP
emitting product is required as part of the group determination
documentation, as specified in Sec. 63.1326(a)(1).
(iii) Except as specified in paragraph (a)(1)(iii)(B) of this
section, the worst-case HAP emitting product is as defined in paragraph
(a)(1)(iii)(A) of this section.
(A) The worst-case HAP emitting product is the one with the highest
mass emission rate (kg organic HAP per hour) averaged over the entire
time period of the batch cycle.
(B) Alternatively, when one product is produced more than 75
percent of the time, accounts for more than 75 percent of the annual
mass of product, and the owner or operator can show that the mass
emission rate (kg organic HAP per hour) averaged over the entire time
period of the batch cycle can reasonably be expected to be similar to
the mass emission rate for other products having emissions from the
same batch process vent, said product may be considered the worst-case
HAP emitting product.
(C) An owner or operator shall determine the worst-case HAP
emitting product for a batch process vent as specified in paragraphs
(a)(1)(iii)(C)(1) through (a)(1)(iii)(C)(3) of this section.
(1) The emissions per batch emission episode shall be determined
using any of the procedures specified in paragraph (b) of this section.
The mass emission rate (kg organic HAP per hour) averaged over the
entire time period of the batch cycle shall be determined by summing
the emissions for each batch emission episode making up a complete
batch cycle and dividing by the total duration in hours of the batch
cycle.
(2) To determine the worst-case HAP emitting product as specified
under paragraph (a)(1)(iii)(A) of this section, the mass emission rate
for each product shall be determined and compared.
(3) To determine the worst-case HAP emitting product as specified
under paragraph (a)(1)(iii)(B) of this section, the mass emission rate
for the product meeting the time and mass criteria of paragraph
(a)(1)(iii)(B) of this section shall be determined, and the owner or
operator shall provide adequate information to demonstrate that the
mass emission rate for said product is similar to the mass emission
rates for the other products having emissions from the same batch
process vent. In addition, the owner or operator shall provide
information demonstrating that the selected product meets the time and
[[Page 48245]]
mass criteria of paragraph (a)(1)(iii)(B) of this section.
(iv) The annual production of the worst-case HAP emitting product
shall be determined by ratioing the production time of said product up
to a 12 month period of actual production. It is not necessary to ratio
up to a maximum production rate (i.e., 8,760 hours per year at maximum
design production).
(2) The annual uncontrolled organic HAP or TOC emissions and
average flow rate shall be determined at the exit from the batch unit
operation. For the purposes of these determinations, the primary
condenser operating as a reflux condenser on a distillation column, the
primary condenser recovering monomer or solvent from a batch stripping
operation, and the primary condenser recovering monomer or solvent from
a batch distillation operation shall be considered part of the batch
unit operation. All other devices that recover or oxidize organic HAP
or TOC vapors shall be considered control devices as defined in
Sec. 63.1312.
(3) The owner or operator of a batch process vent complying with
the flare provisions in Sec. 63.1322(a)(1) or Sec. 63.1322(b)(1) or
routing the batch process vent to a control device to comply with the
requirements in Sec. 63.1322(a)(2) or Sec. 63.1322(b)(2) is not
required to perform the batch process vent group determination
described in this section, but shall comply with all requirements
applicable to Group 1 batch process vents for said batch process vent.
(b) Determination of annual emissions. The owner or operator shall
calculate annual uncontrolled TOC or organic HAP emissions for each
batch process vent using the methods described in paragraphs (b)(1)
through (b)(8) of this section. Paragraphs (b)(1) through (b)(4) of
this section present procedures that can be used to calculate the
emissions from individual batch emission episodes. Emissions from batch
processes involving multicomponent systems are to be calculated using
the procedures in paragraphs (b)(1) through (b)(4) of this section.
Individual HAP partial pressures in multicomponent systems shall be
determined by the following methods: If the components are miscible in
one another, use Raoult's law to calculate the partial pressures; if
the solution is a dilute aqueous mixture use Henry's law constants to
calculate partial pressures; if Raoult's law or Henry's law are not
appropriate (or available) use experimentally obtained activity
coefficients, Henry's law constants, or solubility data; if Raoult's
law or Henry's law are not appropriate use models, such as the group-
contribution models, to predict activity coefficients; and if Raoult's
law or Henry's law are not appropriate assume the components of the
system behave independently and use the summation of all vapor
pressures from the HAP's as the total HAP partial pressure. Chemical
property data can be obtained from standard reference texts. Paragraph
(b)(5) of this section describes how direct measurement can be used to
estimate emissions. If the owner or operator can demonstrate that the
procedures in paragraphs (b)(1) through (b)(4) of this section are not
appropriate to estimate emissions from a batch emission episode,
emissions may be estimated using engineering assessment, as described
in paragraph (b)(6) of this section. Owners or operators are not
required to demonstrate that direct measurement is not appropriate
before utilizing engineering assessment. Paragraph (b)(6)(ii) of this
section describes how an owner or operator shall demonstrate that the
procedures in paragraphs (b)(1) through (b)(4) of this section are not
appropriate. Emissions from a batch cycle shall be calculated in
accordance with paragraph (b)(7) of this section, and annual emissions
from the batch process vent shall be calculated in accordance with
paragraph (b)(8) of this section.
(1) TOC or organic HAP emissions from the purging of an empty
vessel shall be calculated using Equation 2 of this subpart. Equation 2
of this subpart does not take into account evaporation of any residual
liquid in the vessel.
[GRAPHIC] [TIFF OMITTED] TR12SE96.001
where:
Eepisode=Emissions, kg/episode.
Vves=Volume of vessel, m3.
P=TOC or total organic HAP partial pressure, kPa.
MWwavg=Weighted average molecular weight of TOC or organic HAP in
vapor, determined in accordance with paragraph (b)(4)(iii) of this
section, kg/kmol.
R=Ideal gas constant, 8.314 m3bulletkPa/kmolbulletK.
T=Temperature of vessel vapor space, K.
m=Number of volumes of purge gas used.
(2) TOC or organic HAP emissions from the purging of a filled
vessel shall be calculated using Equation 3 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.002
where:
Eepisode=Emissions, kg/episode.
y=Saturated mole fraction of all TOC or organic HAP in vapor phase.
Vdr=Volumetric gas displacement rate, m3/min.
P=Pressure in vessel vapor space, kPa.
MWwavg=Weighted average molecular weight of TOC or organic HAP in
vapor, determined in accordance with paragraph (b)(4)(iii) of this
section, kg/kmol.
R=Ideal gas constant, 8.314 m3bulletkPa/kmolbulletK.
T=Temperature of vessel vapor space, K.
Pi=Vapor pressure of TOC or individual organic HAP i, kPa.
xi=Mole fraction of TOC or organic HAP i in the liquid.
n=Number of
organic HAP in stream.
[[Page 48246]]
Note: Summation not required if TOC emissions are being
estimated.
Tm=Minutes/episode.
(3) Emissions from vapor displacement due to transfer of material
into or out of a vessel shall be calculated using Equation 4 of this
subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.003
where:
Eepisode=Emissions, kg/episode.
y=Saturated mole fraction of all TOC or organic HAP in vapor phase.
V=Volume of gas displaced from the vessel, m3.
P=Pressure in vessel vapor space, kPa.
MWwavg=Weighted average molecular weight of TOC or organic HAP in
vapor, determined in accordance with paragraph (b)(4)(i)(D) of this
section, kg/kmol.
R=Ideal gas constant, 8.314 m3bulletkPa/kmolbulletK.
T=Temperature of vessel vapor space, K.
(4) Emissions caused by the heating of a vessel shall be calculated
using the procedures in either paragraphs (b)(4)(i), (b)(4)(ii), or
(b)(4)(iii) of this section, as appropriate.
(i) If the final temperature to which the vessel contents is heated
is lower than 50 K below the boiling point of the HAP in the vessel,
then emissions shall be calculated using the equations in paragraphs
(b)(4)(i)(A) through (b)(4)(i)(D) of this section.
(A) Emissions caused by heating of a vessel shall be calculated
using Equation 5 of this subpart. The assumptions made for this
calculation are atmospheric pressure of 760 millimeters of mercury (mm
Hg) and the displaced gas is always saturated with volatile organic
compounds (VOC) vapor in equilibrium with the liquid mixture.
[GRAPHIC] [TIFF OMITTED] TR12SE96.004
where:
Eepisode=Emissions, kg/episode.
(Pi)T1, (Pi)T2=Partial pressure (kPa) of TOC or each organic
HAP i in the vessel headspace at initial (T1) and final (T2)
temperature.
n=Number of organic HAP in stream. Note: Summation not required if TOC
emissions are being estimated.
trianglen=Number of kilogram-moles (kg-moles) of gas displaced,
determined in accordance with paragraph (b)(4)(i)(B) of this section.
101.325=Constant, kPa.
MWwavg=Weighted average molecular weight of TOC or organic HAP in
vapor, determined in accordance with paragraph (b)(4)(i)(D) of this
section, kg/kmol.
(B) The moles of gas displaced, trianglen, is calculated using
Equation 6 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.005
where:
trianglen=Number of kg-moles of gas displaced.
Vfs=Volume of free space in the vessel, m3.
R=Ideal gas constant, 8.314 m3bulletkPa/kmolbulletK.
Pa1=Initial noncondensible gas pressure in the vessel, kPa.
Pa2=Final noncondensible gas pressure, kPa.
T1=Initial temperature of vessel, K.
T2=Final temperature of vessel, K.
(C) The initial and final pressure of the noncondensible gas in the
vessel shall be calculated using Equation 7 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.006
where:
Pa=Initial or final partial pressure of noncondensible gas in the
vessel headspace, kPa.
101.325=Constant, kPa.
(Pi)T=Partial pressure of TOC or each organic HAP i in the vessel
headspace, kPa, at the initial or final temperature (T1 or T2).
n=Number of organic HAP in stream.
Note: Summation not required if TOC emissions are being
estimated.
(D) The weighted average molecular weight of TOC or organic HAP in
the displaced gas, MWwavg, shall be calculated using Equation 8 of
this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.007
where:
C=TOC or organic HAP component
n=Number of TOC or organic HAP components in stream.
(ii) If the vessel contents are heated to a temperature greater
than 50 K below the boiling point, then emissions from
[[Page 48247]]
the heating of a vessel shall be calculated as the sum of the emissions
calculated in accordance with paragraphs (b)(4)(ii)(A) and
(b)(4)(ii)(B) of this section.
(A) For the interval from the initial temperature to the
temperature 50 K below the boiling point, emissions shall be calculated
using Equation 5 of this subpart, where T2 is the temperature 50 K
below the boiling point.
(B
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
) For the interval from the temperature 50 K below the boiling
point to the final temperature, emissions shall be calculated as the
summation of emissions for each 5 K increment, where the emissions for
each increment shall be calculated using Equation 5 of this subpart.
(1) If the final temperature of the heatup is lower than 5 K below
the boiling point, the final temperature for the last increment shall
be the final temperature for the heatup, even if the last increment is
less than 5 K.
(2) If the final temperature of the heatup is higher than 5 K below
the boiling point, the final temperature for the last increment shall
be the temperature 5 K below the boiling point, even if the last
increment is less than 5 K.
(3) If the vessel contents are heated to the boiling point and the
vessel is not operating with a condenser, the final temperature for the
final increment shall be the temperature 5 K below the boiling point,
even if the last increment is less than 5 K.
(iii) If the vessel is operating with a condenser, and the vessel
contents are heated to the boiling point, the primary condenser, as
specified in paragraph (a)(2) of this section, is considered part of
the process. Emissions shall be calculated as the sum of emissions
calculated using Equation 5 of this subpart, which calculates emissions
due to heating the vessel contents to the temperature of the gas
existing the condenser, and emissions calculated using Equation 4 of
this subpart, which calculates emissions due to the displacement of the
remaining saturated noncondensible gas in the vessel. The final
temperature in Equation 5 of this subpart shall be set equal to the
exit gas temperature of the condenser. Equation 4 of this subpart shall
be used as written below in Equation 4a of this subpart, using free
space volume, and T is set equal to the condenser exit gas temperature.
[GRAPHIC] [TIFF OMITTED] TR12SE96.008
where:
Eepisode=Emissions, kg/episode.
y=Saturated mole fraction of all TOC or organic HAP in vapor phase.
Vfs=Volume of the free space in the vessel, m3.
P=Pressure in vessel vapor space, kPa.
MWwavg=Weighted average molecular weight of TOC or organic HAP in
vapor, determined in accordance with paragraph (b)(4)(i)(D) of this
section, kg/kmol.
R=Ideal gas constant, 8.314 m3bulletkPa/kmolbulletK.
T=Temperature of condenser exit stream, K.
(5) The owner or operator may estimate annual emissions for a batch
emission episode by direct measurement. If direct measurement is used,
the owner or operator shall either perform a test for the duration of a
representative batch emission episode or perform a test during only
those periods of the batch emission episode for which the emission rate
for the entire episode can be determined or for which the emissions are
greater than the average emission rate of the batch emission episode.
The owner or operator choosing either of these options must develop an
emission profile for the entire batch emission episode, based on either
process knowledge or test data collected, to demonstrate that test
periods are representative. Examples of information that could
constitute process knowledge include calculations based on material
balances and process stoichiometry. Previous test results may be used
provided the results are still relevant to the current batch process
vent conditions. Performance tests shall follow the procedures
specified in paragraphs (b)(5)(i) through (b)(5)(iii) of this section.
The procedures in either paragraph (b)(5)(iv) or (b)(5)(v) of this
section shall be used to calculate the emissions per batch emission
episode.
(i) Method 1 or 1A, 40 CFR part 60, appendix A as appropriate,
shall be used for selection of the sampling sites if the flow measuring
device is a pitot tube. No traverse is necessary when Method 2A or 2D,
40 CFR part 60, appendix A is used to determine gas stream volumetric
flow rate.
(ii) Gas stream volumetric flow rate and/or average flow rate shall
be determined as specified in paragraph (e) of this section.
(iii) Method 18 or Method 25A, 40 CFR part 60, appendix A, shall be
used to determine the concentration of TOC or organic HAP, as
appropriate. Alternatively, any other method or data that has been
validated according to the applicable procedures in Method 301 of
appendix A of this part may be used. The use of Method 25A, 40 CFR part
60, appendix A shall comply with paragraphs (b)(5)(iii)(A) and
(b)(5)(iii)(B) of this section.
(A) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A shall be the single organic HAP representing
the largest percent by volume of the emissions.
(B) The use of Method 25A, 40 CFR part 60, appendix A is acceptable
if the response from the high-level calibration gas is at least 20
times the standard deviation of the response from the zero calibration
gas when the instrument is zeroed on the most sensitive scale.
(iv) If an integrated sample is taken over the entire batch
emission episode to determine TOC or average total organic HAP
concentration, emissions shall be calculated using Equation 9 of this
subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.009
where:
Eepisode=Emissions, kg/episode.
K=Constant, 2.494 x 10-6 (ppmv)-1 (gm-mole/scm) (kg/gm)
(min/hr), where standard temperature is 20 deg.C.
Cj=Average concentration of TOC or sample organic HAP component j
of the gas stream, dry basis, ppmv.
Mj=Molecular weight of TOC or sample organic HAP component j of
the gas stream, gm/gm-mole.
AFR=Average flow rate of gas stream, dry basis, scmm.
Th=Hours/episode.
n=Number of organic HAP in stream.
Note: Summation not required if TOC emissions are being
estimated using a TOC concentration measured using Method 25A, 40
CFR part 60, appendix A.
[[Page 48248]]
(v) If grab samples are taken to determine TOC or average total
organic HAP concentration, emissions shall be calculated according to
paragraphs (b)(5)(v)(A) and (b)(5)(v)(B) of this section.
(A) For each measurement point, the emission rate shall be
calculated using Equation 10 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.010
where:
Epoint=Emission rate for individual measurement point, kg/hr.
K=Constant, 2.494 x 10-6 (ppmv)-1 (gm-mole/scm) (kg/gm) (min/
hr), where standard temperature is 20 deg.C.
Cj=Concentration of TOC or sample organic HAP component j of the
gas stream, dry basis, ppmv.
Mj=Molecular weight of TOC or sample organic HAP component j of
the gas stream, gm/gm-mole.
FR=Flow rate of gas stream for the measurement point, dry basis, scmm.
n=Number of organic HAP in stream.
Note: Summation not required if TOC emissions are being
estimated using a TOC concentration measured using Method 25A, 40
CFR part 60, appendix A.
(B) The emissions per batch emission episode shall be calculated
using Equation 11 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.011
where:
Eepisode=Emissions, kg/episode.
DUR=Duration of the batch emission episode, hr/episode.
Ei=Emissions for measurement point i, kg/hr.
n=Number of measurements.
(6) If the owner or operator can demonstrate that the methods in
paragraphs (b)(1) through (b)(4) of this section are not appropriate to
estimate emissions for a batch emissions episode, the owner or operator
may use engineering assessment to estimate emissions as specified in
paragraphs (b)(6)(i) and (b)(6)(ii) of this section. All data,
assumptions, and procedures used in an engineering assessment shall be
documented.
(i) Engineering assessment includes, but is not limited to, the
following:
(A) Previous test results, provided the tests are representative of
current operating practices;
(B) Bench-scale or pilot-scale test data representative of the
process under representative operating conditions;
(C) Flow rate, TOC emission rate, or organic HAP emission rate
specified or implied within a permit limit applicable to the batch
process vent; and
(D) Design analysis based on accepted chemical engineering
principles, measurable process parameters, or physical or chemical laws
or properties. Examples of analytical methods include, but are not
limited to:
(1) Use of material balances;
(2) Estimation of flow rate based on physical equipment design such
as pump or blower capacities; and
(3) Estimation of TOC or organic HAP concentrations based on
saturation conditions.
(ii) The emissions estimation equations in paragraphs (b)(1)
through (b)(4) of this section shall be considered inappropriate for
estimating emissions for a given batch emissions episode if one or more
of the criteria in paragraphs (b)(6)(ii)(A) through (b)(6)(ii)(B) of
this section are met.
(A) Previous test data are available that show a greater than 20
percent discrepancy between the test value and the estimated value.
(B) The owner or operator can demonstrate to the Administrator that
the emissions estimation equations are not appropriate for a given
batch emissions episode.
(C) Data or other information supporting a finding that the
emissions estimation equations are inappropriate as specified under
paragraph (b)(6)(ii)(A) of this section shall be reported in the
Notification of Compliance Status, as required in Sec. 63.1335(e)(5).
(D) Data or other information supporting a finding that the
emissions estimation equations are inappropriate as specified under
paragraph (b)(6)(ii)(B) of this section shall be reported in the
Precompliance Report, as required in Sec. 63.1335(e)(3).
(7) For each batch process vent, the TOC or organic HAP emissions
associated with a single batch cycle shall be calculated using Equation
12 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.012
where:
where:
Ecycle=Emissions for an individual batch cycle, kg/batch cycle
Eepisode i=Emissions from batch emission episode i, kg/episode
n=Number of batch emission episodes for the batch cycle
(8) Annual TOC or organic HAP emissions from a batch process vent
shall be calculated using Equation 13 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.013
where:
AE=Annual emissions from a batch process vent, kg/yr.
Ni=Number of type i batch cycles performed annually, cycles/year
Ecycle i=Emissions from the batch process vent associated with a
single type i batch cycle, as determined in paragraph (b)(7) of this
section, kg/batch cycle
n=Number of different types of batch cycles that cause the emission of
TOC or organic HAP from the batch process vent
(c) (Reserved)
(d) Minimum emission level exemption. A batch process vent with
annual emissions less than 11,800 kg/yr is considered a Group 2 batch
process vent and the owner or operator of said batch process vent shall
comply with the requirements in Sec. 63.1322 (f) or (g). The owner or
operator of said batch process vent is not required to comply with the
provisions in paragraphs (e) through (g) of this section.
(e) Determination of average flow rate. The owner or operator shall
determine the average flow rate for each batch emission episode in
accordance with one of the procedures provided in paragraphs (e)(1)
through (e)(2) of this section. The annual average flow rate for a
batch process vent shall be calculated as specified in paragraph (e)(3)
of this section.
(1) Determination of the average flow rate for a batch emission
episode by direct measurement shall be made using the procedures
specified in paragraphs (e)(1)(i) through (e)(1)(iii) of this section.
(i) The volumetric flow rate for a batch emission episode, in
standard cubic meters per minute (scmm) at 20 deg. C, shall be
determined using Method 2, 2A, 2C, or 2D, 40 CFR part 60, appendix A,
as appropriate.
(ii) The volumetric flow rate of a representative batch emission
episode shall be measured every 15 minutes.
(iii) The average flow rate for a batch emission episode shall be
calculated using Equation 14 of this subpart.
[[Page 48249]]
[GRAPHIC] [TIFF OMITTED] TR12SE96.014
where:
AFRepisode = Average flow rate for the batch emission episode,
scmm.
FRi = Flow rate for individual measurement i, scmm.
n = Number of flow rate measurements taken during the batch emission
episode.
(2) The average flow rate for a batch emission episode may be
determined by engineering assessment, as defined in paragraph (b)(6)(i)
of this section. All data, assumptions, and procedures used shall be
documented.
(3) The annual average flow rate for a batch process vent shall be
calculated using Equation 15 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.015
where:
AFR = Annual average flow rate for the batch process vent, scmm.
DURi = Duration of type i batch emission episodes annually, hrs/
yr.
AFRepisode, i = Average flow rate for type i batch emission
episode, scmm.
n = Number of types of batch emission episodes venting from the batch
process vent.
(f) Determination of cutoff flow rate. For each batch process vent,
the owner or operator shall calculate the cutoff flow rate using
Equation 16 of this subpart.
CFR = (0.00437) (AE)-51.6 [Eq. 16]
where:
CFR = Cutoff flow rate, scmm.
AE = Annual TOC or organic HAP emissions, as determined in paragraph
(b)(8) of this section, kg/yr.
(g) Group 1/Group 2 status determination. The owner or operator
shall compare the cutoff flow rate, calculated in accordance with
paragraph (f) of this section, with the annual average flow rate,
determined in accordance with paragraph (e)(4) of this section. The
group determination status for each batch process vent shall be made
using the criteria specified in paragraphs (g)(1) and (g)(2) of this
section.
(1) If the cutoff flow rate is greater than or equal to the annual
average flow rate of the stream, the batch process vent is classified
as a Group 1 batch process vent.
(2) If the cutoff flow rate is less than the annual average flow
rate of the stream, the batch process vent is classified as a Group 2
batch process vent.
(h) Determination of halogenation status. To determine whether a
batch process vent or an aggregate batch vent stream is halogenated,
the annual mass emission rate of halogen atoms contained in organic
compounds shall be calculated using the procedures specified in
paragraphs (h)(1) through (h)(3) of this section.
(1) The concentration of each organic compound containing halogen
atoms (ppmv, by compound) for each batch emission episode shall be
determined based on any one of the following procedures:
(i) Process knowledge that no halogens or hydrogen halides are
present in the process may be used to demonstrate that a batch emission
episode is nonhalogenated. Halogens or hydrogen halides that are
unintentionally introduced into the process shall not be considered in
making a finding that a batch emission episode is nonhalogenated.
(ii) Engineering assessment as discussed in paragraph (b)(6)(i) of
this section.
(iii) Concentration of organic compounds containing halogens and
hydrogen halides as measured by Method 26 or 26A, 40 CFR part 60,
appendix A.
(iv) Any other method or data that has been validated according to
the applicable procedures in Method 301 of appendix A of this part.
(2) The annual mass emissions of halogen atoms for a batch process
vent shall be calculated using Equation 17 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.016
where:
Ehalogen = Mass of halogen atoms, dry basis, kg/yr.
K = Constant, 0.022 (ppmv)-1 (kg-mole per scm) (minute/yr), where
standard temperature is 20 deg.C.
AFR = Annual average flow rate of the batch process vent, determined
according to paragraph (e) of this section, scmm.
Mj, i = Molecular weight of halogen atom i in compound j, kg/kg-
mole.
Lj, i = Number of atoms of halogen i in compound j.
n = Number of halogenated compounds j in the batch process vent.
m = Number of different halogens i in each compound j of the batch
process vent.
Cavgj = Average annual concentration of halogenated compound j in
the batch process vent as determined by using Equation 18 of this
subpart, dry basis, ppmv.
[GRAPHIC] [TIFF OMITTED] TR12SE96.017
where:
DURi = Duration of type i batch emission episodes annually, hrs/
yr.
Ci = Average concentration of halogenated compound j in type i
batch emission episode, ppmv.
n = Number of types of batch emission episodes venting from the batch
process vent.
(3) The annual mass emissions of halogen atoms for an aggregate
batch vent stream shall be the sum of the annual mass emissions of
halogen atoms for all batch process vents included in the aggregate
batch vent stream.
(i) Process changes affecting Group 2 batch process vents. Whenever
process changes, as described in paragraph (i)(1)
[[Page 48250]]
of this section, are made that affect one or more Group 2 batch process
vents, the owner or operator shall comply with paragraphs (i) (2) and
(3) of this section.
(1) Examples of process changes include, but are not limited to,
changes in production capacity, production rate, feedstock type, or
catalyst type; or whenever there is replacement, removal, or
modification of recovery equipment considered part of the batch unit
operation as specified in paragraph (a)(2) of this section. An increase
in the annual number of batch cycles beyond the batch cycle limitation
constitutes a process change. For purposes of this paragraph (i),
process changes do not include: process upsets; unintentional,
temporary process changes; and changes that are within the margin of
variation on which the original group determination was based.
(2) For each batch process vent affected by a process change, the
owner or operator shall redetermine the group status by repeating the
procedures specified in paragraphs (b) through (g) of this section, as
applicable; alternatively, engineering assessment, as described in
paragraph (b)(6)(i) of this section, can be used to determine the
effects of the process change.
(3) Based on the results from paragraph (i)(2) of this section,
owners or operators shall comply with either paragraph (i)(3) (i),
(ii), or (iii) of this section.
(i) If the redetermination described in paragraph (i)(2) of this
section indicates that a Group 2 batch process vent has become a Group
1 batch process vent as a result of the process change, the owner or
operator shall submit a report as specified in Sec. 63.1327(b) and
shall comply with the Group 1 provisions in Sec. 63.1322 through
Sec. 63.1327 in accordance with the compliance schedule described in
Sec. 63.1335(e)(6)(iii)(D)(2).
(ii) If the redetermination described in paragraph (i)(2) of this
section indicates that a Group 2 batch process vent with annual
emissions less than the level specified in paragraph (d) of this
section, that is in compliance with Sec. 63.1322(g), now has annual
emissions greater than or equal to the level specified in paragraph (d)
of this section but remains a Group 2 batch process vent, the owner or
operator shall submit a report as specified in Sec. 63.1327(c) and
shall comply with Sec. 63.1322(f) in accordance with the compliance
schedule required by Sec. 63.1335(e)(6)(iii)(D)(2).
(iii) If the redetermination described in paragraph (i)(2) of this
section indicates no change in group status or no change in the
relation of annual emissions to the levels specified in paragraph (d)
of this section, the owner or operator is not required to submit a
report, as described in Sec. 63.1327(e).
(j) Process changes to new SAN affected sources using a batch
process. Whenever process changes, as described in paragraph (j)(1) of
this section, are made to a new affected source producing SAN using a
batch process, the owner or operator shall comply with paragraphs (j)
(2) and (3) of this section.
(1) Examples of process changes include, but are not limited to,
changes in production capacity, production rate, feedstock type, or
catalyst type; replacement, removal, or addition of recovery equipment
considered part of a batch unit operation, as specified in paragraph
(a)(1) of this section; replacement, removal, or addition of control
equipment associated with a continuous or batch process vent or an
aggregate batch vent stream. For purposes of this paragraph (j)(1),
process changes do not include process upsets or unintentional,
temporary process changes.
(2) The owner or operator shall redetermine the percent emission
reduction achieved using the procedures specified in Sec. 63.1333(c).
If engineering assessment, as described in paragraph (b)(6)(i) of this
section, can demonstrate that the process change did not cause the
percent emission reduction to decrease, it may be used in lieu of
redetermining the percent reduction using the procedures specified in
Sec. 63.1333(c).
(3) Where the redetermined percent reduction is less than 84
percent, the owner or operator shall submit a report as specified in
Sec. 63.1327(d) and shall comply with Sec. 63.1322(a)(3) and all
associated provisions in accordance with the compliance schedule
described in Sec. 63.1335(e)(6)(iii)(D)(2).
Sec. 63.1324 Batch process vents--monitoring provisions.
(a) General requirements. Each owner or operator of a batch process
vent or aggregate batch vent stream that uses a control device to
comply with the requirements in Sec. 63.1322(a) or Sec. 63.1322(b),
shall install the monitoring equipment specified in paragraph (c) of
this section.
(1) This monitoring equipment shall be in operation at all times
when batch emission episodes, or portions thereof, that the owner or
operator has selected to control are vented to the control device, or
at all times when an aggregate batch vent stream is vented to the
control device.
(2) The owner or operator shall operate control devices such that
monitored parameters remain above the minimum level or below the
maximum level, as appropriate, established as specified in paragraph
(f) of this section.
(b) Continuous process vents. Each owner or operator of a
continuous process vent that uses a control device or recovery device
to comply with the requirements in Sec. 63.1322(a)(3) shall comply with
the applicable requirements of Sec. 63.1315(a) as specified in
Sec. 63.1321(b).
(c) Batch process vent and aggregate batch vent stream monitoring
parameters. The monitoring equipment specified in paragraphs (c)(1)
through (c)(8) of this section shall be installed as specified in
paragraph (a) of this section. The parameters to be monitored are
specified in Table 7 of this subpart.
(1) Where an incinerator is used, a temperature monitoring device
equipped with a continuous recorder is required.
(i) Where an incinerator other than a catalytic incinerator is
used, the temperature monitoring device shall be installed in the
firebox or in the ductwork immediately downstream of the firebox in a
position before any substantial heat exchange occurs.
(ii) Where a catalytic incinerator is used, temperature monitoring
devices shall be installed in the gas stream immediately before and
after the catalyst bed.
(2) Where a flare is used, a device (including but not limited to a
thermocouple, ultra-violet beam sensor, or infrared sensor) capable of
continuously detecting the presence of a pilot flame is required.
(3) Where a boiler or process heater of less than 44 megawatts
design heat input capacity is used, a temperature monitoring device in
the firebox equipped with a continuous recorder is required. Any boiler
or process heater in which all batch process vents or aggregate batch
vent streams are introduced with the primary fuel or are used as the
primary fuel is exempt from this requirement.
(4) Where a scrubber is used with an incinerator, boiler, or
process heater in concert with the combustion of halogenated batch
process vents or halogenated aggregate batch vent streams, the
following monitoring equipment is required for the scrubber.
(i) A pH monitoring device equipped with a continuous recorder to
monitor the pH of the scrubber effluent.
(ii) A flow meter equipped with a continuous recorder shall be
located at the scrubber influent to monitor the scrubber liquid flow
rate.
(5) Where an absorber is used, a scrubbing liquid temperature
[[Page 48251]]
monitoring device and a specific gravity monitoring device are
required, each equipped with a continuous recorder.
(6) Where a condenser is used, a condenser exit temperature
(product side) monitoring device equipped with a continuous recorder is
required.
(7) Where a carbon adsorber is used, an integrating regeneration
stream flow monitoring device having an accuracy of 10
percent, capable of recording the total regeneration stream mass flow
for each regeneration cycle; and a carbon bed temperature monitoring
device, capable of recording the carbon bed temperature after each
regeneration and within 15 minutes of completing any cooling cycle are
required.
(8) As an alternate to paragraphs (c)(5) through (c)(7) of this
section, the owner or operator may install an organic monitoring device
equipped with a continuous recorder.
(d) Alternative monitoring parameters. An owner or operator of a
batch process vent or aggregate batch vent stream may request approval
to monitor parameters other than those required by paragraph (c) of
this section. The request shall be submitted according to the
procedures specified in Sec. 63.1335(f). Approval shall be requested if
the owner or operator:
(1) Uses a control device other than those included in paragraph
(c) of this section; or
(2) Uses one of the control devices included in paragraph (c) of
this section, but seeks to monitor a parameter other than those
specified in Table 7 of this subpart and paragraph (c) of this section.
(e) Monitoring of bypass lines. Owners or operators of a batch
process vent or aggregate batch vent stream using a vent system that
contains bypass lines that could divert emissions away from a control
device used to comply with Sec. 63.1322(a) or Sec. 63.1322(b) shall
comply with either paragraph (d)(1), (d)(2), or (d)(3) of this section.
Equipment such as low leg drains, high point bleeds, analyzer vents,
open-ended valves or lines, and pressure relief valves needed for
safety purposes are not subject to this paragraph (e).
(1) Properly install, maintain, and operate a flow indicator that
takes a reading at least once every 15 minutes. Records shall be
generated as specified in Sec. 63.1326(e)(3). The flow indicator shall
be installed at the entrance to any bypass line that could divert
emissions away from the control device and to the atmosphere; or
(2) Secure the bypass line valve in the non-diverting position with
a car-seal or a lock-and-key type configuration. A visual inspection of
the seal or closure mechanism shall be performed at least once every
month to ensure that the valve is maintained in the non-diverting
position and emissions are not diverted through the bypass line.
Records shall be generated as specified in Sec. 63.1326(e)(4).
(3) Continuously monitor the bypass line valve position using
computer monitoring and record any periods when the position of the
bypass line valve has changed as specified in Sec. 63.1326(e)(4).
(f) Establishment of parameter monitoring levels. Parameter
monitoring levels for batch process vents and aggregate batch vent
streams shall be established as specified in paragraphs (f)(1) through
(f)(3) of this section. For continuous process vents complying with
Sec. 63.1322(a)(3), parameter monitoring levels shall be established as
specified in Sec. 63.1315(a), except as specified in paragraph (f)(4)
of this section.
(1) For each parameter monitored under paragraph (c) of this
section, the owner or operator shall establish a level, defined as
either a maximum or minimum operating parameter as denoted in Table 8
of this subpart, that indicates proper operation of the control device.
The level shall be established in accordance with the procedures
specified in Sec. 63.1334.
(i) For batch process vents using a control device to comply with
Sec. 63.1322(a)(2), the established level shall reflect the control
efficiency established as part of the initial compliance demonstration
specified in Sec. 63.1325(c)(2).
(ii) For aggregate batch vent streams using a control device to
comply with Sec. 63.1322(b)(2), the established level shall reflect the
control efficiency requirement specified in Sec. 63.1322(b)(2).
(iii) For batch process vents and aggregate batch vent streams
using a control device to comply with Sec. 63.1322(a)(3), the
established level shall reflect the control efficiency established as
part of the initial compliance demonstration specified in
Sec. 63.1325(f)(4).
(2) The established level, along with supporting documentation,
shall be submitted in the Notification of Compliance Status or the
operating permit application as required in Sec. 63.1335(e)(5) or
Sec. 63.1335(e)(8), respectively.
(3) The operating day shall be defined as part of establishing the
parameter monitoring level and shall be submitted with the information
in paragraph (f)(2) of this section. The definition of operating day
shall specify the times at which an operating day begins and ends. The
operating day shall not exceed 24 hours.
(4) For continuous process vents using a control or recovery device
to comply with Sec. 63.1322(a)(3), the established level shall reflect
the control efficiency established as part of the initial compliance
demonstration specified in Sec. 63.1325(f)(4).
Sec. 63.1325 Batch process vents--performance test methods and
procedures to determine compliance.
(a) Use of a flare. When a flare is used to comply with
Secs. 63.1322 (a)(1), (a)(3), (b)(1), or (b)(3), the owner or operator
shall comply with the flare provisions in Sec. 63.11(b).
(b) Exceptions to performance tests. An owner or operator is not
required to conduct a performance test when a control device specified
in paragraphs (b)(1) through (b)(5) of this section is used to comply
with Sec. 63.1322 (a)(2) or (a)(3). Further, if a performance test
meeting the conditions specified in paragraph (b)(6) of this section
has been conducted by the owner or operator, the results of said
performance test may be submitted and a performance test, as required
by this section, is not required.
(1) A boiler or process heater with a design heat input capacity of
44 megawatts or greater.
(2) A boiler or process heater where the vent stream is introduced
with the primary fuel or is used as the primary fuel.
(3) A control device for which a performance test was conducted for
determining compliance with a New Source Performance Standard (NSPS)
and the test was conducted using the same procedures specified in this
section and no process changes have been made since the test. Recovery
devices used for controlling emissions from continuous process vents
complying with Sec. 63.1322(a)(3) are also eligible for the exemption
described in this paragraph (b)(3).
(4) A boiler or process heater burning hazardous waste for which
the owner or operator:
(i) Has been issued a final permit under 40 CFR part 270 and
complies with the requirements of 40 CFR part 266, subpart H; or
(ii) Has certified compliance with the interim status requirements
of 40 CFR part 266, subpart H.
(5) An incinerator burning hazardous waste for which the owner or
operator complies with the requirements of 40 CFR part 264, subpart O.
(6) Performance tests done for other subparts in 40 CFR part 60 or
part 63 where total organic HAP or TOC was measured, provided the owner
or
[[Page 48252]]
operator can demonstrate that operating conditions for the process and
control device during the performance test are representative of
current operating conditions.
(c) Batch process vent testing and procedures for compliance with
Sec. 63.1322(a)(2). Except as provided in paragraph (b) of this
section, an owner or operator using a control device to comply with
Sec. 63.1322(a)(2) shall conduct a performance test using the
procedures specified in paragraph (c)(1) of this section in order to
determine the control efficiency of the control device. An owner or
operator shall determine the percent reduction for the batch cycle
using the control efficiency of the control device as specified in
paragraphs (c)(2)(i) through (c)(2)(iii) of this section and the
procedures specified in paragraph (c)(2) of this section. Compliance
may be based on either total organic HAP or TOC. For purposes of this
paragraph (c) and all paragraphs that are part of this paragraph (c),
the term ``batch emission episode'' shall have the meaning ``period of
the batch emission episode selected for control,'' which may be the
entire batch emission episode or may only be a portion of the batch
emission episode.
(1) Performance tests shall be conducted as specified in paragraphs
(c)(1)(i) through (c)(1)(v) of this section.
(i) Except as specified in paragraph (c)(1)(i)(A) of this section,
a test shall be performed for the entire period of each batch emission
episode in the batch cycle that the owner or operator selects to
control as part of achieving the required 90 percent emission reduction
for the batch cycle specified in Sec. 63.1322(a)(2). Only one test is
required for each batch emission episode selected by the owner or
operator for control. The owner or operator shall follow the procedures
listed in paragraphs (c)(1)(i)(B) through (c)(1)(i)(D) of this section.
(A) Alternatively, an owner or operator may choose to test only
those periods of the batch emission episode during which the emission
rate for the entire episode can be determined or during which the
emissions are greater than the average emission rate of the batch
emission episode. The owner or operator choosing either of these
options must develop an emission profile for the entire batch emission
episode, based on either process knowledge or test data collected, to
demonstrate that test periods are representative. Examples of
information that could constitute process knowledge include
calculations based on material balances and process stoichiometry.
Previous test results may be used provided the results are still
relevant to the current batch process vent conditions.
(B) Method 1 or 1A, 40 CFR part 60, appendix A, as appropriate,
shall be used for selection of the sampling sites if the flow measuring
device is a pitot tube. No traverse is necessary when Method 2A or 2D,
40 CFR part 60, appendix A is used to determine gas stream volumetric
flow rate. Inlet sampling sites shall be located as specified in
paragraphs (c)(1)(i)(B)(1) and (c)(1)(i)(B)(2) of this section. Outlet
sampling sites shall be located at the outlet of the control device
prior to release to the atmosphere.
(1) The control device inlet sampling site shall be located at the
exit from the batch unit operation before any control device.
Sec. 63.1323(a)(2) describes those recovery devices considered part of
the unit operation. Inlet sampling sites would be after these specified
recovery devices.
(2) If a batch process vent is introduced with the combustion air
or as a secondary fuel into a boiler or process heater with a design
capacity less than 44 megawatts, selection of the location of the inlet
sampling sites shall ensure the measurement of total organic HAP or TOC
(minus methane and ethane) concentrations in all batch process vents
and primary and secondary fuels introduced into the boiler or process
heater.
(C) Gas stream volumetric flow rate and/or average flow rate shall
be determined as specified in Sec. 63.1323(e).
(D) Method 18 or Method 25A, 40 CFR part 60, appendix A shall be
used to determine the concentration of organic HAP or TOC, as
appropriate. Alternatively, any other method or data that has been
validated according to the applicable procedures in Method 301 of
appendix A of this part may be used. The use of Method 25A, 40 CFR part
60, appendix A shall comply with paragraphs (c)(1)(i)(D)(1) and
(c)(1)(i)(D)(2) of this section.
(1) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A shall be the single organic HAP representing
the largest percent by volume of the emissions.
(2) The use of Method 25A, 40 CFR part 60, appendix A is acceptable
if the response from the high-level calibration gas is at least 20
times the standard deviation of the response from the zero calibration
gas when the instrument is zeroed on the most sensitive scale.
(ii) If an integrated sample is taken over the entire test period
to determine TOC or average total organic HAP concentration, emissions
per batch emission episode shall be calculated using Equations 19 and
20 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.018
[GRAPHIC] [TIFF OMITTED] TR12SE96.019
where:
Eepisode = Inlet or outlet emissions, kg/episode.
K = Constant, 2.494 x 10-6 (ppmv)-1 (gm-mole/scm) (kg/gm)
(min/hr), where standard temperature is 20 deg.C.
Cj = Average inlet or outlet concentration of TOC or sample
component j of the gas stream for the batch emission episode, dry
basis, ppmv.
Mj = Molecular weight of TOC or sample component j of the gas
stream, gm/gm-mole.
[[Page 48253]]
AFR = Average inlet or outlet flow rate of gas stream for the batch
emission episode, dry basis, scmm.
Th = Hours/episode
n = Number of organic HAP in stream.
Note: Summation not required if TOC emissions are being
estimated using a TOC concentration measured using Method 25A, 40
CFR part 60, appendix A.
(iii) If grab samples are taken to determine TOC or total organic
HAP concentration, emissions shall be calculated according to
paragraphs (c)(1)(iii) (A) and (B) of this section.
(A) For each measurement point, the emission rates shall be
calculated using Equations 21 and 22 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.020
[GRAPHIC] [TIFF OMITTED] TR12SE96.021
where:
Epoint = Inlet or outlet emission rate for the measurement point,
kg/hr.
K = Constant, 2.494 x 10-6 (ppmv)-1 (gm-mole/scm) (kg/gm)
(min/hr), where standard temperature is 20 deg.C.
Cj = Inlet or outlet concentration of TOC or sample organic HAP
component j of the gas stream, dry basis, ppmv.
Mj = Molecular weight of TOC or sample organic HAP component j of
the gas stream, gm/gm-mole.
FR = Inlet or outlet flow rate of gas stream for the measurement point,
dry basis, scmm.
n = Number of organic HAP in stream.
Note: Summation not required if TOC emissions are being
estimated using a TOC concentration measured using Method 25A, 40
CFR part 60, appendix A.
(B) The emissions per batch emission episode shall be calculated
using Equations 23 and 24 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.022
[GRAPHIC] [TIFF OMITTED] TR12SE96.023
where:
Eepisode = Inlet or outlet emissions, kg/episode.
DUR = Duration of the batch emission episode, hr/episode.
Epoint, i = Inlet or outlet emissions for measurement point i, kg/
hr.
n = Number of measurements.
(iv) The control efficiency for the control device shall be
calculated using Equation 25 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.024
where:
R = Control efficiency of control device, percent.
Einlet = Mass rate of TOC or total organic HAP for batch emission
episode i at the inlet to the control device as calculated under
paragraph (c)(1)(ii) or (c)(1)(iii) of this section, kg/hr.
Eoutlet = Mass rate of TOC or total organic HAP for batch emission
episode i at the outlet of the control device, as calculated under
paragraph (c)(1)(ii) or (c)(1)(iii) of this section, kg/hr.
n = Number of batch emission episodes in the batch cycle selected to be
controlled.
(v) If the batch process vent entering a boiler or process heater
with a design capacity less than 44 megawatts is introduced with the
combustion air or as a secondary fuel, the weight-percent reduction of
total organic HAP or TOC across the device shall be determined by
comparing the TOC or total organic HAP
[[Page 48254]]
in all combusted batch process vents and primary and secondary fuels
with the TOC or total organic HAP exiting the combustion device,
respectively.
(2) The percent reduction for the batch cycle shall be determined
using Equation 26 of this subpart and the control device efficiencies
specified in paragraphs (c)(2)(i) through (c)(2)(iii) of this section.
All information used to calculate the batch cycle percent reduction,
including a definition of the batch cycle identifying all batch
emission episodes, must be recorded as specified in Sec. 63.1326(b)(2).
This information shall include identification of those batch emission
episodes, or portions thereof, selected for control.
[GRAPHIC] [TIFF OMITTED] TR12SE96.025
where:
PR = Percent reduction
Eunc = Mass rate of TOC or total organic HAP for uncontrolled
batch emission episode i, kg/hr.
Einlet,con = Mass rate of TOC or total organic HAP for controlled
batch emission episode i at the inlet to the control device, kg/hr.
R = Control efficiency of control device as specified in paragraphs
(c)(2) (i) through (c) (2)(iii) of this section.
n = Number of uncontrolled batch emission episodes, controlled batch
emission episodes, and control devices. The value of n is not
necessarily the same for these three items.
(i) If a performance test is required by paragraph (c) of this
section, the control efficiency of the control device shall be as
determined in paragraph (c)(1)(iv) of this section.
(ii) If a performance test is not required by paragraph (c) of this
section for a combustion control device, as specified in paragraph (b)
of this section, the control efficiency shall be 98 percent. The
control efficiency for a flare shall be 98 percent.
(iii) If a performance test is not required by paragraph (c) of
this section for a noncombustion control device, the control efficiency
shall be determined by the owner or operator based on engineering
assessment.
(d) Batch process vent and aggregate batch vent stream testing for
compliance with Sec. 63.1322(c) [halogenated emission streams]. An
owner or operator controlling halogenated emissions in compliance with
Sec. 63.1322(c) shall conduct a performance test to determine
compliance with the control efficiency specified in Sec. 63.1322(c)(1)
or the emission limit specified in Sec. 63.1322(c)(2) for hydrogen
halides and halogens.
(1) Sampling sites shall be located at the inlet and outlet of the
scrubber or other control device used to reduce halogen emissions in
complying with Sec. 63.1322(c)(1) or at the outlet of the control
device used to reduce halogen emissions in complying with
Sec. 63.1322(c)(2).
(2) The mass emissions of each hydrogen halide and halogen compound
for the batch cycle or aggregate batch vent stream shall be calculated
from the measured concentrations and the gas stream flow rate(s)
determined by the procedures specified in paragraphs (d)(2)(i) and
(d)(2)(ii) of this section except as specified in paragraph (d)(5) of
this section.
(i) Method 26 or Method 26A, 40 CFR part 60, appendix A, shall be
used to determine the concentration, in Mg per dry scm, of total
hydrogen halides and halogens present in the emissions stream.
(ii) Gas stream volumetric flow rate and/or average flow rate shall
be determined as specified in Sec. 63.1323(e).
(3) To determine compliance with the percent reduction specified in
Sec. 63.1322(c)(1), the mass emissions for any hydrogen halides and
halogens present at the inlet of the scrubber or other control device
shall be summed together. The mass emissions of any hydrogen halides or
halogens present at the outlet of the scrubber or other control device
shall be summed together. Percent reduction shall be determined by
subtracting the outlet mass emissions from the inlet mass emissions and
then dividing the result by the inlet mass emissions.
(4) To determine compliance with the emission limit specified in
Sec. 63.1322(c)(2), the annual mass emissions for any hydrogen halides
and halogens present at the outlet of the control device and prior to
any combustion device shall be summed together and compared to the
emission limit specified in Sec. 63.1322(c)(2).
(5) The owner or operator may use any other method to demonstrate
compliance if the method or data has been validated according to the
applicable procedures of Method 301 of appendix A of this part.
(e) Aggregate batch vent stream testing for compliance with
Sec. 63.1322 (b)(2) or (b)(3). Owners or operators of aggregate batch
vent streams complying with Sec. 63.1322 (b)(2) or (b)(3) shall conduct
a performance test using the performance testing procedures for
continuous process vents in Sec. 63.116(c). For the purposes of this
subpart, when the provisions of Sec. 63.116(c) specify that Method 18,
40 CFR part 60, appendix A, shall be used, Method 18 or Method 25A, 40
CFR part 60, appendix A, may be used. The use of Method 25A, 40 CFR
part 60, appendix A, shall comply with paragraphs (e)(1) and (e)(2) of
this section.
(1) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A, shall be the single organic HAP representing
the largest percent by volume of the emissions.
(2) The use of Method 25A, 40 CFR part 60, appendix A, is
acceptable if the response from the high-level calibration gas is at
least 20 times the standard deviation of the response from the zero
calibration gas when the instrument is zeroed on the most sensitive
scale.
(f) Compliance with Sec. 63.1322(a)(3) [new SAN batch affected
sources]. Except as provided in paragraph (b) of this section, an owner
or operator using a control or recovery device to comply with the
percent reduction requirement in Sec. 63.1322(a)(3) shall conduct
performance tests as specified in either paragraph (f)(1), (f)(2), or
(f)(3) of this section, as applicable. Compliance with
Sec. 63.1322(a)(3) shall be determined as specified in paragraph (f)(4)
of this section.
(1) For batch process vents, performance tests shall be conducted
using the procedures specified in paragraph (c) of this section, except
that the owner or operator is not required to determine the percent
reduction for the batch cycle as specified in paragraph (c)(2) of this
section.
(2) For continuous process vents, performance tests shall be
conducted as required by the applicable requirements
[[Page 48255]]
of Sec. 63.1315(a) as specified in Sec. 63.1321(b).
(3) For aggregate batch vent streams, performance tests shall be
conducted as specified in paragraph (e) of this section.
(4) Compliance with the percent reduction requirement of
Sec. 63.1322(a)(3) shall be demonstrated using the procedures specified
in Sec. 63.1333(c) and the control device efficiencies specified in
either paragraph (f)(4)(i) or (f)(4)(ii) of this section. Emissions for
uncontrolled continuous process vents and aggregate batch vent streams
shall be determined based on the direct measurement procedures
specified in paragraph (f)(2) and (f)(3) of this section, respectively,
or based on engineering assessment, as specified in
Sec. 63.1323(b)(6)(i). At the discretion of the owner or operator,
emissions for uncontrolled batch process vents shall be determined
based on any of the procedures in Sec. 63.1323(b).
(i) For noncombustion devices, the control efficiency shall be as
determined by the performance test required by paragraph (f)(1),
(f)(2), or (f)(3) of this section. Alternatively, if a performance test
is not required by paragraph (c) of this section, the control
efficiency shall be determined by the owner or operator based on
engineering assessment.
(ii) For combustion devices, the control efficiency shall be as
determined by the performance test required by paragraph (f)(1),
(f)(2), or (f)(3) of this section. Alternatively, if a performance test
is not required, the control efficiency shall be 98 percent. The
control efficiency for a flare shall be 98 percent.
(g) Batch cycle limitation. The batch cycle limitation required by
Sec. 63.1322 (f) and (g) shall be established as specified in paragraph
(g)(1) of this section and shall include the elements specified in
paragraph (g)(2) of this section.
(1) The batch cycle limitation shall be determined by the owner or
operator such that annual emissions for the batch process vent remain
less than the level specified in Sec. 63.1323(d) when complying with
Sec. 63.1322(g). Alternatively, when complying with Sec. 63.1322(f),
the batch cycle limitation shall ensure that annual emissions remain at
a level such that said batch process vent remains a Group 2 batch
process vent, given the actual annual flow rate for said batch process
vent determined according to the procedures specified in
Sec. 63.1323(e). The batch cycle limitation shall be determined using
the same basis, as described in Sec. 63.1323(a)(1), used to make the
group determination (i.e., expected mix of products or worst-case HAP
emitting product). The establishment of the batch cycle limitation is
not dependent upon any past production or activity level.
(i) If the expected mix of products serves as the basis for the
batch cycle limitation, the batch cycle limitation shall be determined
such that any foreseeable combination of products which the owner or
operator desires the flexibility to manufacture shall be allowed.
Combinations of products not accounted for in the documentation
required by paragraph (g)(2)(iv) of this section shall not be allowed
within the restrictions of the batch cycle limitation.
(ii) If, for a batch process vent with more than one product, a
single worst-case HAP emitting product serves as the basis for the
batch cycle limitation, the batch cycle limitation shall be determined
such that the maximum number of batch cycles the owner or operator
desires the flexibility to accomplish, using the worst-case HAP
emitting product and ensuring that the batch process vent remains a
Group 2 batch process vent or that emissions remain less than the level
specified in Sec. 63.1323(d), shall be allowed. This value shall be the
total number of batch cycles allowed within the restrictions of the
batch cycle limitation regardless of which products are manufactured.
(2) Documentation supporting the establishment of the batch cycle
limitation shall include the information specified in paragraphs
(g)(2)(i) through (g)(2)(v) of this section, as appropriate.
(i) Identification that the purpose of the batch cycle limitation
is to comply with Sec. 63.1322 (f)(1) or (g)(1).
(ii) Identification that the batch cycle limitation is based on a
single worst-case HAP emitting product or on the expected mix of
products for said batch process vent as allowed under
Sec. 63.1323(a)(1).
(iii) Definition of operating year for purposes of determining
compliance with the batch cycle limitation.
(iv) If the batch cycle limitation is based on a single worst-case
HAP emitting product, documentation specified in Sec. 63.1323
(a)(1)(ii) through (a)(1)(iv), as appropriate, describing how the
single product meets the requirements for worst-case HAP emitting
product and the number of batch cycles allowed under the batch cycle
limitation.
(v) If the batch cycle limitation is based on the expected mix of
products, the owner or operator shall provide documentation that
describes as many scenarios for differing mixes of products (i.e., how
many batch cycles for each product) that the owner or operator desires
the flexibility to accomplish. Alternatively, the owner or operator
shall provide a description of the relationship among the mix of
products that will allow a determination of compliance with the batch
cycle limitation under an infinite number of scenarios. For example, if
a batch process vent has two products, each product has the same flow
rate and emits for the same amount of time, and product No. 1 has twice
the emissions as product No. 2, the relationship describing an infinite
number of scenarios would be that the owner or operator can accomplish
two batch cycles of product No. 2 for each batch cycle of product No. 1
within the restriction of the batch cycle limitation.
Sec. 63.1326 Batch process vents--recordkeeping provisions.
(a) Group determination records for batch process vents. Except as
provided in paragraphs (a)(7) through (a)(9) of this section, each
owner or operator of an affected source shall maintain the records
specified in paragraphs (a)(1) through (a)(6) of this section for each
batch process vent subject to the group determination procedures of
Sec. 63.1323. Except for paragraph (a)(1) of this section, the records
required by this paragraph (a) are restricted to the information
developed and used to make the group determination under
Sec. 63.1323(b) through Sec. 63.1323(g), as appropriate. The
information required by paragraph (a)(1) of this section is required
for all batch process vents subject to the group determination
procedures of Sec. 63.1323. If an owner or operator did not need to
develop certain information (e.g., annual average flow rate) to
determine the group status, this paragraph (a) does not require that
additional information be developed.
(1) An identification of each unique product that has emissions
from one or more batch emission episodes venting from the batch process
vent.
(2) A description of, and an emission estimate for, each batch
emission episode, and the total emissions associated with one batch
cycle for each unique product identified in paragraph (a)(1) of this
section that was considered in making the group determination under
Sec. 63.1323.
(3) Total annual uncontrolled TOC or organic HAP emissions,
determined at the exit from the batch unit operation before any control
device, determined in accordance with Sec. 63.1323(b).
(i) For Group 2 batch process vents, said emissions shall be
determined at the batch cycle limitation.
(ii) For Group 1 batch process vents, said emissions shall be those
used to determine the group status of the batch process vent.
[[Page 48256]]
(4) The annual average flow rate for the batch process vent,
determined in accordance with Sec. 63.1323(e).
(5) The cutoff flow rate, determined in accordance with
Sec. 63.1323(f).
(6) The results of the batch process vent group determination,
conducted in accordance with Sec. 63.1323(g).
(7) If a batch process vent is in compliance with Sec. 63.1322 (a)
or (b) and the control device is operating at all times when batch
emission episodes are venting from the batch process vent, none of the
records in paragraphs (a)(1) through (a)(6) of this section are
required.
(8) If a batch process vent is in compliance with Sec. 63.1322 (a)
or (b), but the control device is operated only during selected batch
emission episodes, only the records in paragraphs (a)(1) through (a)(3)
of this section are required.
(9) If the total annual emissions from the batch process vent are
less than the appropriate level specified in Sec. 63.1323(d), only the
records in paragraphs (a)(1) through (a)(3) of this section are
required.
(b) Compliance demonstration records. Each owner or operator of a
batch process vent or aggregate batch vent stream complying with
Sec. 63.1322 (a) or (b), shall keep the following records, as
applicable, up-to-date and readily accessible:
(1) The annual mass emissions of halogen atoms in the batch process
vent or aggregate batch vent stream determined according to the
procedures specified in Sec. 63.1323(h);
(2) If a batch process vent is in compliance with
Sec. 63.1322(a)(2), records documenting the batch cycle percent
reduction as specified in Sec. 63.1325(c)(2); and
(3) When using a flare to comply with Sec. 63.1322 (a)(1), (a)(3),
(b)(1), or (b)(3):
(i) The flare design (i.e., steam-assisted, air-assisted or non-
assisted);
(ii) All visible emission readings, heat content determinations,
flow rate measurements, and exit velocity determinations made during
the compliance determination required by Sec. 63.1325(a); and
(iii) All periods during the compliance determination required by
Sec. 63.1325(a) when the pilot flame is absent.
(4) The following information when using a control device to
achieve compliance with Sec. 63.1322 (a)(2), (a)(3), (b)(2), or (b)(3):
(i) For an incinerator or non-combustion control device, the
percent reduction of organic HAP or TOC achieved, as determined using
the procedures specified in Sec. 63.1325(c) for batch process vents and
Sec. 63.1325(e) for aggregate batch vent streams;
(ii) For a boiler or process heater, a description of the location
at which the vent stream is introduced into the boiler or process
heater;
(iii) For a boiler or process heater with a design heat input
capacity of less than 44 megawatts and where the vent stream is
introduced with combustion air or used as a secondary fuel and is not
mixed with the primary fuel, the percent reduction of organic HAP or
TOC achieved, as determined using the procedures specified in
Sec. 63.1325(c) for batch process vents and Sec. 63.1325(e) for
aggregate batch vent streams; and
(iv) For a scrubber or other control device following a combustion
device to control halogenated batch process vents or halogenated
aggregate batch vent streams, the percent reduction of total hydrogen
halides and halogens as determined under Sec. 63.1325(d)(3) or the
emission limit determined under Sec. 63.1325(d)(4).
(c) Establishment of parameter monitoring level records. For each
parameter monitored according to Sec. 63.1324(c) and Table 7 of this
subpart, or for alternate parameters and/or parameters for alternate
control devices monitored according to Sec. 63.1327(f) as allowed under
Sec. 63.1324(d), maintain documentation showing the establishment of
the level that indicates proper operation of the control device as
required by Sec. 63.1324(f) for parameters specified in Sec. 63.1324(c)
and as required by Sec. 63.1335(e) for alternate parameters. Said
documentation shall include the parameter monitoring data used to
establish the level.
(d) Group 2 batch process vent continuous compliance records. The
owner or operator of a Group 2 batch process vent shall comply with
either paragraph (d)(1) or (d)(2) of this section, as appropriate.
(1) The owner or operator of a Group 2 batch process vent complying
with Sec. 63.1322(g) shall keep the following records up-to-date and
readily accessible:
(i) Records designating the established batch cycle limitation
required by Sec. 63.1322(g)(1) and specified in Sec. 63.1325(g).
(ii) Records specifying the number and type of batch cycles
accomplished for each three month period.
(2) The owner or operator of a Group 2 batch process vent complying
with Sec. 63.1322(f) shall keep the following records up-to-date and
readily accessible:
(i) Records designating the established batch cycle limitation
required by Sec. 63.1322(f)(1) and specified in Sec. 63.1325(g).
(ii) Records specifying the number and type of batch cycles
accomplished for each three month period.
(e) Controlled batch process vent continuous compliance records.
Each owner or operator of a batch process vent that uses a control
device to comply with Sec. 63.1322(a) shall keep the following records,
as applicable, up-to-date and readily accessible:
(1) Continuous records of the equipment operating parameters
specified to be monitored under Sec. 63.1324(c) as applicable, and
listed in Table 7 of this subpart, or specified by the Administrator in
accordance with Sec. 63.1327(f) as allowed under Sec. 63.1324(d). Said
records shall be kept as specified under Sec. 63.1335(d), except as
specified in paragraphs (e)(1)(i) and (e)(1)(ii) of this section.
(i) For flares, the records specified in Table 7 of this subpart
shall be kept rather than averages.
(ii) For carbon adsorbers, the records specified in Table 7 of this
subpart shall be kept rather than averages.
(2) Records of the batch cycle daily average value of each
continuously monitored parameter, except as provided in paragraph
(e)(2)(iii) of this section, as calculated using the procedures
specified in paragraphs (e)(2)(i) through (e)(2)(ii) of this section.
(i) The batch cycle daily average shall be calculated as the
average of all parameter values measured for an operating day during
those batch emission episodes, or portions thereof, in the batch cycle
that the owner or operator has selected to control.
(ii) Monitoring data recorded during periods of monitoring system
breakdowns, repairs, calibration checks, and zero (low-level) and high-
level adjustments shall not be included in computing the batch cycle
daily averages.
(iii) If all recorded values for a monitored parameter during an
operating day are above the minimum or below the maximum level
established in accordance with Sec. 63.1324(f), the owner or operator
may record that all values were above the minimum or below the maximum
level established rather than calculating and recording a batch cycle
daily average for that operating day.
(3) Hourly records of whether the flow indicator for bypass lines
specified in Sec. 63.1324(e)(1) was operating and whether a diversion
was detected at any time during the hour. Also, records of the times of
all periods when the vent is diverted from the control device or the
flow indicator specified in Sec. 63.1324(e)(1) is not operating.
[[Page 48257]]
(4) Where a seal or closure mechanism is used to comply with
Sec. 63.1324(e)(2) or where computer monitoring of the position of the
bypass valve is used to comply with Sec. 63.1324(e)(3), hourly records
of flow are not required.
(i) For compliance with Sec. 63.1324(e)(2), the owner or operator
shall record whether the monthly visual inspection of the seals or
closure mechanisms has been done, and shall record the occurrence of
all periods when the seal mechanism is broken, the bypass line valve
position has changed, or the key for a lock-and-key type configuration
has been checked out, and records of any car-seal that has broken.
(ii) For compliance with Sec. 63.1324(e)(3), the owner or operator
shall record the times of all periods when the bypass line valve
position has changed.
(5) Records specifying the times and duration of periods of
monitoring system breakdowns, repairs, calibration checks, and zero
(low-level) and high-level adjustments. In addition, records specifying
any other periods of process or control device operation when monitors
are not operating.
(f) Aggregate batch vent stream continuous compliance records. In
addition to the records specified in paragraphs (b) and (c) of this
section, each owner or operator of an aggregate batch vent stream using
a control device to comply with Sec. 63.1322(b) shall keep records in
accordance with the requirements for continuous process vents in
Sec. 63.118 (a) and (b), as applicable and as appropriate, except that
when complying with Sec. 63.118(b), owners or operators shall disregard
statements concerning TRE index values for the purposes of this
subpart.
Sec. 63.1327 Batch process vents--reporting requirements.
(a) The owner or operator of a batch process vent or aggregate
batch vent stream at an affected source shall submit the information
specified in paragraphs (a)(1) through (a)(4) of this section, as
appropriate, as part of the Notification of Compliance Status specified
in Sec. 63.1335(e)(5).
(1) For each batch process vent complying Sec. 63.1322(a) and each
aggregate batch vent stream complying Sec. 63.1322(b), the information
specified in Sec. 63.1326 (b) and (c), as applicable.
(2) For each Group 2 batch process vent with annual emissions less
than the level specified in Sec. 63.1323(d), the information specified
in Sec. 63.1326(d)(1)(i).
(3) For each Group 2 batch process vent with annual emissions
greater than or equal to the level specified in Sec. 63.1323(d), the
information specified in Sec. 63.1326(d)(2)(i).
(4) For each batch process vent subject to the group determination
procedures, the information specified in Sec. 63.1326(a), as
appropriate.
(b) Whenever a process change, as defined in Sec. 63.1323(i)(1), is
made that causes a Group 2 batch process vent to become a Group 1 batch
process vent, the owner or operator shall submit a report within 180
operating days after the process change is made or the information
regarding the process change is known to the owner or operator. This
report may be included in the next Periodic Report, as specified in
Sec. 63.1335(e)(6)(iii)(D)(2). The following information shall be
submitted:
(1) A description of the process change; and
(2) A schedule for compliance with the provisions of Sec. 63.1322
(a) or (b), as appropriate, as required under
Sec. 63.1335(e)(6)(iii)(D)(2).
(c) Whenever a process change, as defined in Sec. 63.1323(i)(1), is
made that causes a Group 2 batch process vent with annual emissions
less than the level specified in Sec. 63.1323(d) that is in compliance
with Sec. 63.1322(g) to have annual emissions greater than or equal to
the level specified in Sec. 63.1323(d) but remains a Group 2 batch
process vent, the owner or operator shall submit a report within 180
operating days after the process change is made or the information
regarding the process change is known to the owner or operator. This
report may be included in the next Periodic Report, as specified in
Sec. 63.1335(e)(6)(iii)(D)(2). The following information shall be
submitted:
(1) A description of the process change;
(2) The results of the redetermination of the annual emissions,
average flow rate, and cutoff flow rate required under Sec. 63.1323(i)
and recorded under Sec. 63.1326 (a)(3) through (a)(5); and
(3) The batch cycle limitation determined in accordance with
Sec. 63.1322(f)(1).
(d) Whenever a process change, as defined in Sec. 63.1323(j)(1), is
made that causes the percent reduction for all process vents at a new
SAN affected source using a batch process to be less than 84 percent,
the owner or operator shall submit a report within 180 operating days
after the process change is made or the information regarding the
process change is known to the owner or operator. This report may be
included in the next Periodic Report, as specified in
Sec. 63.1335(e)(6)(iii)(D)(2). The following information shall be
submitted:
(1) A description of the process change; and
(2) A schedule for compliance with the provisions of
Sec. 63.1322(a)(3), as required under Sec. 63.1335(e)(6)(iii)(D)(2).
(e) The owner or operator is not required to submit a report of a
process change if one of the conditions specified in paragraphs (e)(1)
and (e)(2) of this section is met.
(1) The process change does not meet the description of a process
change in Sec. 63.1323 (i) or (j).
(2) The redetermined group status remains Group 2 for an individual
batch process vent with annual emissions greater than or equal to the
level specified in Sec. 63.1323(d), a Group 2 batch process vent with
annual emissions less than the level specified in Sec. 63.1323(d)
complying with Sec. 63.1322(g) continues to have emissions less than
the level specified in Sec. 63.1323(d), or the achieved emission
reduction remains at 84 percent or greater for new SAN affected sources
using a batch process.
(f) If an owner or operator uses a control device other than those
specified in Sec. 63.1324(c) and listed in Table 7 of this subpart or
requests approval to monitor a parameter other than those specified
Sec. 63.1324(c) and listed in Table 7 of this subpart, the owner or
operator shall submit a description of planned reporting and
recordkeeping procedures, as specified in Sec. 63.1335(f), as part of
the Precompliance Report required under Sec. 63.1335(e)(3). The
Administrator will specify appropriate reporting and recordkeeping
requirements as part of the review of the Precompliance Report.
(g) Owners or operators complying with Sec. 63.1324(e), shall
comply with paragraph (g)(1) or (g)(2) of this section, as appropriate.
(1) Reports of the times of all periods recorded under
Sec. 63.1326(e)(3) when the batch process vent is diverted from the
control device through a bypass line.
(2) Reports of all occurrences recorded under Sec. 63.1326(e)(4) in
which the seal mechanism is broken, the bypass line valve position has
changed, or the key to unlock the bypass line valve was checked out.
Sec. 63.1328 Heat exchange systems provisions.
(a) This section applies to each affected source with the exception
of each process contact cooling tower that is associated with an
affected source manufacturing PET. The owner or operator of said
affected source shall comply with Sec. 63.104, with the differences
noted in paragraphs (b)
[[Page 48258]]
through (d) of this section, for the purposes of this subpart.
(b) When the Periodic Report requirements contained in
Sec. 63.152(c) are referred to in Sec. 63.104(b), the Periodic Report
requirements contained in Sec. 63.1335(e)(6) shall apply for the
purposes of this subpart.
(c) When an owner or operator invokes the delay of repair
provisions as specified in Sec. 63.104(b)(3), the information required
by Sec. 63.104 (b)(4)(i) through (b)(4)(v) shall be included in the
next semi-annual Periodic Report required under Sec. 63.1335(e)(6), for
the purposes of this subpart. If the leak remains unrepaired, the
information shall also be submitted in each subsequent Periodic Report,
until the repair of the leak is reported.
(d) The compliance date for heat exchange systems subject to the
provisions of this section is specified in Sec. 63.1311.
Sec. 63.1329 Process contact cooling towers provisions.
(a) This section applies to each new affected source that
manufactures PET and each existing affected source that manufactures
PET using a continuous terephthalic acid high viscosity multiple end
finisher process. The owner or operator a new affected source shall
comply with paragraph (b) of this section. The owner or operator of an
existing affected source that manufactures PET using a continuous
terephthalic acid high viscosity multiple end finisher process shall
comply with paragraph (c) of this section. The compliance data for
process contact cooling towers subject to the provisions of this
section is specified in Sec. 63.1311.
(b) New affected source requirements. The owner or operator of a
new affected source subject to this section shall comply with
paragraphs (b)(1) through (b)(2) of this section.
(1) The owner or operator of a new affected source subject to this
section shall not send contact condenser effluent associated with a
vacuum system to a process contact cooling tower.
(2) The owner or operator of a new affected source subject to this
section shall indicate in the Notification of Compliance Status, as
required in Sec. 63.1335(e)(5), that contact condenser effluent
associated with vacuum systems is not sent to process contact cooling
towers.
(c) Existing affected source requirements. The owner or operator of
an existing affected source subject to this section who manufactures
PET using a continuous terephthalic acid high viscosity multiple end
finisher process, and who is subject or becomes subject to 40 CFR part
60, subpart DDD, shall maintain an ethylene glycol concentration in the
cooling tower at or below 4.0 percent by weight averaged on a daily
basis over a rolling 14-day period of operating days. Compliance with
this paragraph (c) shall be determined as specified in paragraphs
(c)(1) through (c)(4) of this section.
(1) To determine the ethylene glycol concentration, owners or
operators shall follow the procedures specified in 40 CFR 60.564(j)(1),
except as provided in paragraph (c)(2) of this section.
(i) At least one sample per operating day shall be collected using
the procedures specified in 40 CFR 60.564(j)(1)(i). An average ethylene
glycol concentration by weight shall be calculated on a daily basis
over a rolling 14-day period of operating days. Each daily average
ethylene glycol concentration so calculated constitutes a performance
test. Exceedance of the standard during the reduced testing program
specified in paragraph (b)(1)(ii) of this section is a violation of
these standards.
(ii) The owner or operator may elect to reduce the sampling program
to any 14 consecutive day period once every two calendar months, if at
least seventeen consecutive 14-day rolling average concentrations
immediately preceding the reduced sampling program are each less than
1.2 weight percent ethylene glycol. If the average concentration
obtained over the 14 day sampling during the reduced test period
exceeds the upper 95 percent confidence interval calculated from the
most recent test results in which no one 14-day average exceeded 1.2
weight percent ethylene glycol, then the owner or operator shall
reinstitute a daily sampling program. The 95 percent confidence
interval shall be calculated as specified in paragraph (b)(1)(iii) of
this section. A reduced program may be reinstituted if the requirements
specified in this paragraph (c)(1)(ii) are met.
(iii) The upper 95 percent confidence interval shall be calculated
using the Equation 27 of this subpart:
[GRAPHIC] [TIFF OMITTED] TR12SE96.026
where:
Xi = daily ethylene glycol concentration for each day used to
calculate each 14-day rolling average used in test results to justify
implementing the reduced testing program.
n = number of ethylene glycol concentrations.
(2) Measuring an alternative parameter, such as carbon oxygen
demand or biological oxygen demand, that is demonstrated to be directly
proportional to the ethylene glycol concentration shall be allowed.
Such parameter shall be measur
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
ed during the initial 14-day performance
test during which the facility is shown to be in compliance with the
ethylene glycol concentration standard whereby the ethylene glycol
concentration is determined using the procedures described in paragraph
(b)(1) of this section. The alternative parameter shall be measured on
a daily basis and the average value of the alternative parameter shall
be calculated on a daily basis over a rolling 14-day period of
operating days. Each daily average value of the alternative parameter
constitutes a performance test.
(3) During each performance test, daily measurement and daily
average 14-day rolling averages of the ethylene glycol concentration in
the cooling tower water shall be recorded. For the initial performance
test, these records shall be submitted in the Notification of
Compliance Status report.
(4) All periods when the 14-day rolling average exceeds the
standard shall be reported in the Periodic Report.
Sec. 63.1330 Wastewater provisions.
(a) The owner or operator of each affected source shall comply with
the requirements of Secs. 63.131 through 63.148, with the differences
noted in paragraphs (a)(1) through (a)(12) of this section for the
purposes of this subpart.
(1) When the determination of equivalence criteria in
Sec. 63.102(b) is referred to in Secs. 63.132, 63.133, and 63.137, the
provisions in Sec. 63.6(g) shall apply.
[[Page 48259]]
(2) When the storage tank requirements contained in Secs. 63.119
through 63.123 are referred to in Secs. 63.132 through 63.148,
Secs. 63.119 through 63.123 are applicable, with the exception of the
differences referred to in Sec. 63.1314, for the purposes of this
subpart.
(3) When the owner or operator requests to use alternatives to the
continuous operating parameter monitoring and recordkeeping provisions
referred to in Sec. 63.151(g), or the owner or operator submits an
operating permit application instead of an Implementation Plan as
specified in Sec. 63.152(e), as referred to in Sec. 63.146(a)(3),
Sec. 63.1335(g) and Sec. 63.1335(e)(8), respectively, shall apply for
the purposes of this subpart.
(4) When the Notification of Compliance Status requirements
contained in Sec. 63.152(b) are referred to in Secs. 63.146 and 63.147,
the Notification of Compliance Status requirements contained in
Sec. 63.1335(e)(5) shall apply for the purposes of this subpart.
(5) When the Periodic Report requirements contained in
Sec. 63.152(c) are referred to in Secs. 63.146 and 63.147, the Periodic
Report requirements contained in Sec. 63.1335(e)(6) shall apply for the
purposes of this subpart.
(6) When the Initial Notification Plan requirements in
Sec. 63.151(b) are referred to in Sec. 63.146, the owner or operator of
an affected source subject to this subpart need not comply for the
purposes of this subpart.
(7) When the Implementation Plan requirements contained in
Sec. 63.151 are referred to in Sec. 63.146, the owner or operator of an
affected source subject to this subpart need not comply for the
purposes of this subpart.
(8) When the term ``range'' is used in Sec. 63.143(f), the term
``level'' shall be used instead for the purposes of this subpart. This
level shall be determined using the procedures specified in
Sec. 63.1334.
(9) For the purposes of this subpart, owners or operators are not
required to comply with the provisions of Sec. 63.138(e)(2) which
specify that owners or operators shall demonstrate that 95 percent of
the mass of HAP, as listed in Table 9 of subpart G of this part, is
removed from the wastewater stream or combination of wastewater streams
by the procedure specified in Sec. 63.145(i) for a biological treatment
unit.
(10) For the purposes of this subpart, owners or operators are not
required to comply with the provisions of Sec. 63.138(j)(3) which
specify that owners or operators shall use the procedures specified in
appendix C of this part to demonstrate compliance when using a
biological treatment unit.
(11) When the provisions of Sec. 63.139(c)(1)(ii) or the provisions
of Sec. 63.145(e)(2)(ii)(B) specify that Method 18, 40 CFR part 60,
appendix A, shall be used, Method 18 or Method 25A, 40 CFR part 60,
appendix A, may be used for the purposes of this subpart. The use of
Method 25A, 40 CFR part 60, appendix A, shall comply with paragraphs
(a)(11)(i) and (a)(11)(ii) of this section.
(i) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A, shall be the single organic HAP representing
the largest percent by volume of the emissions.
(ii) The use of Method 25A, 40 CFR part 60, appendix A, is
acceptable if the response from the high-level calibration gas is at
least 20 times the standard deviation of the response from the zero
calibration gas when the instrument is zeroed on the most sensitive
scale.
(12) The compliance date for the affected source subject to the
provisions of this section is specified in Sec. 63.1311.
(b) For each affected source, the owner or operator shall comply
with the requirements for maintenance wastewater in Sec. 63.105, except
that when Sec. 63.105(a) refers to ``organic HAPs,'' the definition of
organic HAP in Sec. 63.1312 shall apply for the purposes of this
subpart.
Sec. 63.1331 Equipment leak provisions.
(a) Except as provided for in paragraphs (b) and (c) of this
section, the owner or operator of each affected source shall comply
with the requirements of subpart H of this part, with the differences
noted in paragraphs (a)(1) through (a)(9) of this section.
(1) For an affected source producing polystyrene resin, the
indications of liquids dripping, as defined in subpart H of this part,
from bleed ports in pumps and agitator seals in light liquid service
shall not be considered to be a leak. For purposes of this subpart, a
``bleed port'' is a technologically-required feature of the pump or
seal whereby polymer fluid used to provide lubrication and/or cooling
of the pump or agitator shaft exits the pump, thereby resulting in a
visible dripping of fluid.
(2) The compliance date for the equipment leak provisions contained
in this section is provided in Sec. 63.1311.
(3) Owners and operators of an affected source subject to this
subpart are not required to submit the Initial Notification required by
Sec. 63.182(a)(1) and Sec. 63.182(b).
(4) The Notification of Compliance Status required by paragraphs
Sec. 63.182(a)(2) and Sec. 63.182(c) shall be submitted within 150 days
(rather than 90 days) of the applicable compliance date specified in
Sec. 63.1311 for the equipment leak provisions. Said notification can
be submitted as part of the Notification of Compliance Status required
by Sec. 63.1335(e)(5).
(5) The Periodic Reports required by Sec. 63.182(a)(3) and
Sec. 63.182(d) may be submitted as part of the Periodic Reports
required by Sec. 63.1335(e)(6).
(6) For an affected source producing PET, an owner or operator
shall comply with the requirements of paragraphs (a)(6)(i) and
(a)(6)(ii) of this section instead of with the requirements of
Sec. 63.169 for pumps, valves, connectors, and agitators in heavy
liquid service; pressure relief devices in light liquid or heavy liquid
service; and instrumentation systems.
(i) A leak is determined to be detected if there is evidence of a
potential leak found by visual, audible, olfactory, or any other
detection method except that Method 21, 40 CFR part 60, appendix A
shall not be used to determine if a leak is detected.
(ii)(A) When a leak is detected, it shall be repaired as soon as
practicable, but not later than 15 calendar days after it is detected,
except as provided in Sec. 63.171.
(B) The first attempt at repair shall be made no later than 5
calendar days after each leak is detected.
(C) Repaired shall mean that the visual, audible, olfactory, or
other indications of a leak have been eliminated; that no bubbles are
observed at potential leak sites during a leak check using soap
solution; or that the system will hold a test pressure.
(7) For each affected source producing PET, an owner or operator is
not required to develop an initial list of identification numbers for
the equipment identified in paragraph (a)(6) of this section (i.e.,
pumps, valves, connectors, and agitators in heavy liquid service;
pressure relief devices in light liquid or heavy liquid service; and
instrumentation systems) as would otherwise be required under
Sec. 63.181(b)(1)(i).
(8) When the provisions of subpart H of this part specify that
Method 18, 40 CFR part 60, appendix A, shall be used, Method 18 or
Method 25A, 40 CFR part 60, appendix A, may be used for the purposes of
this subpart. The use of Method 25A, 40 CFR part 60, appendix A, shall
comply with paragraphs (a)(8)(i) and (a)(8)(ii) of this section.
(i) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A, shall be the single organic HAP representing
the largest percent by volume of the emissions.
[[Page 48260]]
(ii) The use of Method 25A, 40 CFR part 60, appendix A, is
acceptable if the response from the high-level calibration gas is at
least 20 times the standard deviation of the response from the zero
calibration gas when the instrument is zeroed on the most sensitive
scale.
(9) For purposes of this subpart, bottoms receivers and surge
control vessels are not considered equipment for purposes of this
section and are not subject to the requirements of subpart H of this
part.
(b) The provisions of this section do not apply to each TPPU
producing PET using a process other than a continuous terephthalic acid
(TPA) high viscosity multiple end finisher process that is part of an
affected source if all of the components in the TPPU are either in
vacuum service or in heavy liquid service.
(1) Owners and operators of a TPPU exempted under paragraph (b) of
this section shall retain at the facility information, data, and
analyses used to demonstrate that all of the components in the exempted
TPPU are either in vacuum service or in heavy liquid service. Such
documentation shall include an analysis or demonstration that the
process fluids do not meet the criteria of ``in light liquid service''
or ``in gas or vapor service.'' Examples of information that could
document this include, but are not limited to, records of chemicals
purchased for the process, analyses of process stream composition,
engineering calculations, or process knowledge.
(2) If changes occur at a TPPU exempted under paragraph (b) of this
section such that all of the components in the TPPU are no longer
either in vacuum service or in heavy liquid service (e.g., by either
process changes or the addition of new components), the owner or
operator shall comply with the provisions of this section for all of
the components at the TPPU. The owner or operator shall submit a report
within 180 days after the process change is made or the information
regarding the process change is known to the owner or operator. This
report may be included in the next Periodic Report, as specified in
paragraph (a)(5) of this section. The following information shall be
submitted:
(i) A description of the process change; and
(ii) A schedule for compliance with the provisions of
Sec. 63.1331(a), as specified in paragraphs (b)(2)(ii)(A) and
(b)(2)(ii)(B) of this section.
(A) The owner or operator shall submit to the Administrator for
approval a compliance schedule and a justification for the schedule.
(B) The Administrator shall approve the compliance schedule or
request changes within 120 operating days of receipt of the compliance
schedule and justification.
(c) The provisions of this section do not apply to each affected
source producing PET using a continuous TPA high viscosity multiple end
finisher process.
Sec. 63.1332 Emissions averaging provisions.
(a) This section applies to owners or operators of existing
affected sources who seek to comply with Sec. 63.1313(b) by using
emissions averaging rather than following the provisions of
Secs. 63.1314, 63.1315, 63.1316 through 63.1320, 63.1321, and 63.1330.
(1) The following emission point limitations apply to the use of
these provisions:
(i) All emission points included in an emissions average shall be
from the same affected source. There may be an emissions average for
each affected source located at a plant site.
(ii)(A) If a plant site has only one affected source for which
emissions averaging is being used to demonstrate compliance, the number
of emission points allowed in the emissions average for said affected
source is limited to twenty. This number may be increased by up to five
additional emission points if pollution prevention measures are used to
control five or more of the emission points included in the emissions
average.
(B) If a plant site has two or more affected sources for which
emissions averaging is being used to demonstrate compliance, the number
of emission points allowed in the emissions averages for said affected
sources is limited to twenty. This number may be increased by up to
five additional emission points if pollution prevention measures are
used to control five or more of the emission points included in the
emissions averages.
(2) Compliance with the provisions of this section can be based on
either organic HAP or TOC.
(3) For the purposes of these provisions, whenever Method 18, 40
CFR part 60, appendix A is specified within the paragraphs of this
section or is specified by reference through provisions outside this
section, Method 18 or Method 25A, 40 CFR part 60, appendix A may be
used. The use of Method 25A, 40 CFR part 60, appendix A shall comply
with paragraphs (a)(3)(i) and (a)(3)(ii) of this section.
(i) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A shall be the single organic HAP representing
the largest percent by volume of the emissions.
(ii) The use of Method 25A, 40 CFR part 60, appendix A is
acceptable if the response from the high-level calibration gas is at
least 20 times the standard deviation of the response from the zero
calibration gas when the instrument is zeroed on the most sensitive
scale.
(b) Unless an operating permit application has been submitted, the
owner or operator shall develop and submit for approval an Emissions
Averaging Plan containing all of the information required in
Sec. 63.1335(e)(4) for all emission points to be included in an
emissions average.
(c) Paragraphs (c)(1) through (c)(5) of this section describe the
emission points that can be used to generate emissions averaging
credits if control was applied after November 15, 1990, and if
sufficient information is available to determine the appropriate value
of credits for the emission point. Paragraph (c)(6) of this section
discusses the use of pollution prevention in generating emissions
averaging credits.
(1) Storage vessels, batch process vents, aggregate batch vent
streams, continuous process vents subject to Sec. 63.1315, and process
wastewater streams that are determined to be Group 2 emission points.
The term ``continuous process vents subject to Sec. 63.1315'' includes
continuous process vents subject to Sec. 63.1316 (b)(1)(iii),
(b)(2)(iii), and (c)(2), which reference Sec. 63.1315.
(2) Continuous process vents located in the collection of material
recovery sections within the affected source at an existing affected
source producing PET using a continuous dimethyl terephthalate process
subject to Sec. 63.1316(b)(1)(i) where the uncontrolled organic HAP
emissions from said continuous process vents are equal to or less than
0.12 kg organic HAP per Mg of product. These continuous process vents
shall be considered Group 2 emission points for the purposes of this
section.
(3) Storage vessels, continuous process vents subject to
Sec. 63.1315, and process wastewater streams that are determined to be
Group 1 emission points and that are controlled by a technology that
the Administrator or permitting authority agrees has a higher nominal
efficiency than the reference control technology. Information on the
nominal efficiencies for such technologies must be submitted and
approved as provided in paragraph (i) of this section.
(4) Batch process vents and aggregate batch vent streams that are
determined to be Group 1 emission points and that
[[Page 48261]]
are controlled to a level more stringent than the applicable standard.
(5) Continuous process vents subject to Sec. 63.1316 (b)(1)(i),
(b)(1)(ii), (b)(2)(i), (b)(2)(ii), or (c)(1) located in the collection
of process sections within the affected source, as specified in
paragraphs (c)(5)(i) through (c)(5)(ii) of this section. The continuous
process vents identified in paragraphs (c)(5)(i) through (c)(5)(ii) of
this section shall be considered to be Group 1 emission points for the
purposes of this section.
(i) Continuous process vents subject to Sec. 63.1316(b)(1)(i)
located in the collection of material recovery sections within the
affected source where the uncontrolled organic HAP emissions for said
continuous process vents are greater than 0.12 kg organic HAP per Mg of
product and said continuous process vents are controlled to a level
more stringent than the applicable standard.
(ii) Continuous process vents subject to Sec. 63.1316(b)(1)(ii),
(b)(2)(i), (b)(2)(ii), or (c)(1) located in the collection of process
sections within the affected source where the uncontrolled organic HAP
emissions from said continuous process vents are controlled to a level
more stringent than the applicable standard.
(6) The percent reduction for any storage vessel, batch process
vent, aggregate batch vent stream, continuous process vent, and process
wastewater stream from which emissions are reduced by pollution
prevention measures shall be determined using the procedures specified
in paragraph (j) of this section.
(i) For a Group 1 storage vessel, batch process vent, aggregate
batch vent stream, continuous process vent, or process wastewater
stream, the pollution prevention measure must reduce emissions more
than if the applicable reference control technology or standard had
been applied to the emission point instead of the pollution prevention
measure, except as provided in paragraph (c)(6)(ii) of this section.
(ii) If a pollution prevention measure is used in conjunction with
other controls for a Group 1 storage vessel, batch process vent,
aggregate batch vent stream, continuous process vent, or process
wastewater stream, the pollution prevention measure alone does not have
to reduce emissions more than the applicable reference control
technology or standard, but the combination of the pollution prevention
measure and other controls must reduce emissions more than if the
applicable reference control technology or standard had been applied
instead of the pollution prevention measure.
(d) The following emission points cannot be used to generate
emissions averaging credits:
(1) Emission points already controlled on or before November 15,
1990, cannot be used to generate credits unless the level of control is
increased after November 15, 1990. In this case, credit will be allowed
only for the increase in control after November 15, 1990.
(2) Group 1 emission points, identified in paragraph (c)(3) of this
section, that are controlled by a reference control technology cannot
be used to generate credits unless the reference control technology has
been approved for use in a different manner and a higher nominal
efficiency has been assigned according to the procedures in paragraph
(i) of this section.
(3) Emission points for nonoperating TPPU cannot be used to
generate credits. TPPU that are shutdown cannot be used to generate
credits or debits.
(4) Maintenance wastewater cannot be used to generate credits.
Wastewater streams treated in biological treatment units cannot be used
to generate credits. These two types of wastewater cannot be used to
generate credits or debits. For the purposes of this section, the terms
wastewater and wastewater stream are used to mean process wastewater.
(5) Emission points controlled to comply with a State or Federal
rule other than this subpart cannot be used to generate credits, unless
the level of control has been increased after November 15, 1990, to a
level above what is required by the other State or Federal rule. Only
the control above what is required by the other State or Federal rule
will be credited. However, if an emission point has been used to
generate emissions averaging credit in an approved emissions average,
and the emission point is subsequently made subject to a State or
Federal rule other than this subpart, the emission point can continue
to generate emissions averaging credit for the purpose of complying
with the previously approved emissions average.
(e) For all emission points included in an emissions average, the
owner or operator shall perform the following tasks:
(1) Calculate and record monthly debits for all Group 1 emission
points that are controlled to a level less stringent than the reference
control technology or standard for those emission points. Said Group 1
emission points are identified in paragraphs (c)(3) through (c)(5) of
this section. Equations in paragraph (g) of this section shall be used
to calculate debits.
(2) Calculate and record monthly credits for all Group 1 and Group
2 emission points that are over-controlled to compensate for the
debits. Equations in paragraph (h) of this section shall be used to
calculate credits. Emission points and controls that meet the criteria
of paragraph (c) of this section may be included in the credit
calculation, whereas those described in paragraph (d) of this section
shall not be included.
(3) Demonstrate that annual credits calculated according to
paragraph (h) of this section are greater than or equal to debits
calculated for the same annual compliance period according to paragraph
(g) of this section.
(i) The owner or operator may choose to include more than the
required number of credit-generating emission points in an emissions
average in order to increase the likelihood of being in compliance.
(ii) The initial demonstration in the Emissions Averaging Plan or
operating permit application that credit-generating emission points
will be capable of generating sufficient credits to offset the debits
from the debit-generating emission points must be made under
representative operating conditions. After the compliance date, actual
operating data will be used for all debit and credit calculations.
(4) Demonstrate that debits calculated for a quarterly (3-month)
period according to paragraph (g) of this section are not more than
1.30 times the credits for the same period calculated according to
paragraph (h) of this section. Compliance for the quarter shall be
determined based on the ratio of credits and debits from that quarter,
with 30 percent more debits than credits allowed on a quarterly basis.
(5) Record and report quarterly and annual credits and debits in
the Periodic Reports as specified in Sec. 63.1335(e)(6). Every fourth
Periodic Report shall include a certification of compliance with the
emissions averaging provisions as required by
Sec. 63.1335(e)(6)(vi)(D)(2).
(f) Debits and credits shall be calculated in accordance with the
methods and procedures specified in paragraphs (g) and (h) of this
section, respectively, and shall not include emissions during the
following periods:
(1) Emissions during periods of start-up, shutdown, and
malfunction, as described in the Start-up, Shutdown, and Malfunction
Plan.
(2) Emissions during periods of monitoring excursions, as defined
in Sec. 63.1334(d). For these periods, the calculation of monthly
credits and debits shall be adjusted as specified in
[[Page 48262]]
paragraphs (f)(2)(i) through (f)(2)(iii) of this section.
(i) No credits would be assigned to the credit-generating emission
point.
(ii) Maximum debits would be assigned to the debit-generating
emission point.
(iii) The owner or operator may demonstrate to the Administrator
that full or partial credits or debits should be assigned using the
procedures in paragraph (l) of this section.
(g) Debits are generated by the difference between the actual
emissions from a Group 1 emission point that is uncontrolled or is
controlled to a level less stringent than the applicable reference
control technology or standard and the emissions allowed for the Group
1 emission point. Said Group 1 emission points are identified in
paragraphs (c)(3) through (c)(5) of this section. Debits shall be
calculated as follows:
(1) Source-wide debits shall be calculated using Equation 28 of
this subpart. Debits and all terms of Equation 28 of this subpart are
in units of megagrams per month.
[GRAPHIC] [TIFF OMITTED] TR12SE96.027
where:
ECPViACTUAL=Emissions from each Group 1 continuous process vent i
subject to Sec. 63.1315 that is uncontrolled or is controlled to a
level less stringent than the applicable reference control technology.
ECPViACTUAL is calculated according to paragraph (g)(2) of this
section.
(0.02)ECPViu=Emissions from each Group 1 continuous process vent i
subject to Sec. 63.1315 if the applicable reference control technology
had been applied to the uncontrolled emissions. ECPViu is
calculated according to paragraph (g)(2) of this section.
ECPVSjACTUAL=Emissions from Group 1 continuous process vents
subject to Sec. 63.1316 (b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii),
or (c)(1) located in the collection of process sections j within the
affected source that are uncontrolled or controlled to a level less
stringent than the applicable standard. ECPVSjACTUAL is calculated
according to paragraph (g)(3) of this section.
ECPVSjSTD=Emissions from Group 1 continuous process vents subject
to Sec. 63.1316 (b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii), or (c)(1)
located in the collection of process sections j within the affected
source if the applicable standard had been applied to the uncontrolled
emissions. ECPVSjSTD is calculated according to paragraph (g)(3)
of this section.
ESiACTUAL=Emissions from each Group 1 storage vessel i that is
uncontrolled or is controlled to a level less stringent than the
applicable reference control technology or standard. ESiACTUAL is
calculated according to paragraph (g)(4) of this section.
(BL)ESiu=Emissions from each Group 1 storage vessel i if the
applicable reference control technology or standard had been applied to
the uncontrolled emissions. ESiu is calculated according to
paragraph (g)(4) of this section. For calculating emissions, BL=0.05
for each Group 1 storage vessel i subject to Sec. 63.1314(a); and
BL=0.02 for each storage vessel i subject to Sec. 63.1314(c).
EWWiACTUAL=Emissions from each Group 1 wastewater stream i that is
uncontrolled or is controlled to a level less stringent than the
applicable reference control technology. EWWiACTUAL is calculated
according to paragraph (g)(5) of this section.
EWWic=Emissions from each Group 1 wastewater stream i if the
reference control technology had been applied to the uncontrolled
emissions. EWWic is calculated according to paragraph (g)(5) of
this section.
EBPViACTUAL=Emissions from each Group 1 batch process vent i that
is uncontrolled or is controlled to a level less stringent than the
applicable reference control technology. EBPViiACTUAL is
calculated according to paragraph (g)(6) of this section.
(0.10)EBPViu=Emissions from each Group 1 batch process vent i if
the applicable reference control technology had been applied to the
uncontrolled emissions. EBPViu is calculated according to
paragraph (g)(6) of this section.
EABViACTUAL=Emissions from each Group 1 aggregate batch vent
stream i that is uncontrolled or is controlled to a level less
stringent than the applicable reference control technology.
EBPViiACTUAL is calculated according to paragraph (g)(7) of this
section.
(0.10)EABViu=Emissions from each Group 1 aggregate batch vent
stream i if the applicable reference control technology had been
applied to the uncontrolled emissions. EBPViu is calculated
according to paragraph (g)(7) of this section.
n=The number of emission points being included in the emissions
average.
(2) Emissions from continuous process vents subject to Sec. 63.1315
shall be calculated as follows:
(i) For purposes of determining continuous process vent stream flow
rate, organic HAP concentrations, and temperature, the sampling site
shall be after the final product recovery device, if any recovery
devices are present; before any control device (for continuous process
vents, recovery devices shall not be considered control devices); and
before discharge to the atmosphere. Method 1 or 1A, 40 CFR
[[Page 48263]]
part 60, appendix A, shall be used for selection of the sampling site.
(ii) ECPViu for each continuous process vent i shall be
calculated using Equation 29 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.028
where:
ECPViu=Uncontrolled continuous process vent emission rate from
continuous process vent i, megagrams per month.
Q=Vent stream flow rate, dry standard cubic meters per minute, measured
using Method 2, 2A, 2C, or 2D, 40 CFR part 60, appendix A, as
appropriate.
h=Monthly hours of operation during which positive flow is present in
the continuous process vent, hours per month.
Cj=Concentration, parts per million by volume, dry basis, of organic
HAP j as measured by Method 18, 40 CFR part 60, appendix A.
Mj=Molecular weight of organic HAP j, gram per gram-mole.
n=Number of organic HAP in stream.
(A) The values of Q and Cj shall be determined during a performance
test conducted under representative operating conditions. The values of
Q and Cj shall be established in the Notification of Compliance Status
and must be updated as provided in paragraph (g)(2)(ii)(B) of this
section.
(B) If there is a change in capacity utilization other than a
change in monthly operating hours, or if any other change is made to
the process or product recovery equipment or operation such that the
previously measured values of Q and Cj are no longer representative, a
new performance test shall be conducted to determine new representative
values of Q and Cj. These new values shall be used to calculate debits
and credits from the time of the change forward, and the new values
shall be reported in the next Periodic Report.
(iii) The following procedures and equations shall be used to
calculate ECPViACTUAL:
(A) If the continuous process vent is not controlled by a control
device or pollution prevention measure, ECPViACTUAL=ECPViu,
where ECPViu is calculated according to the procedures in
paragraphs (g)(2)(i) and (g)(2)(ii) of this section.
(B) If the continuous process vent is controlled using a control
device or a pollution prevention measure achieving less than 98 percent
reduction, calculate ECPViACTUAL using Equation 30 of this
subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.029
(1) The percent reduction shall be measured according to the
procedures in Sec. 63.116 if a combustion control device is used. For a
flare meeting the criteria in Sec. 63.116(a), or a boiler or process
heater meeting the criteria in Sec. 63.116(b), the percent reduction
shall be 98 percent. If a noncombustion control device is used, percent
reduction shall be demonstrated by a performance test at the inlet and
outlet of the device, or, if testing is not feasible, by a control
design evaluation and documented engineering calculations.
(2) For determining debits from Group 1 continuous process vents,
product recovery devices shall not be considered control devices and
cannot be assigned a percent reduction in calculating ECPViACTUAL.
The sampling site for measurement of uncontrolled emissions is after
the final product recovery device. However, as provided in
Sec. 63.113(a)(3), a Group 1 continuous process vent may add sufficient
product recovery to raise the TRE index value above 1.0 or, for Group 1
continuous process vents at an existing affected source producing MBS,
above 3.7, thereby becoming a Group 2 continuous process vent. Such a
continuous process vent would not be a Group 1 continuous process vent
and would, therefore, not be included in determining debits under this
paragraph (g)(2)(iii)(B)(2).
(3) Procedures for calculating the percent reduction of pollution
prevention measures are specified in paragraph (j) of this section.
(3) Emissions from continuous process vents located in the
collection of process sections within the affected source subject to
Sec. 63.1316 (b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii), or (c)(1)
shall be calculated as follows:
(i) The total organic HAP emissions from continuous process vents
located in the collection of process sections j within the affected
source, ECPVSjACTUAL, shall be calculated as follows. The
procedures in paragraph (g)(2)(iii) of this section shall be used to
determine the organic HAP emissions for each individual continuous
process vent, except that paragraph (g)(2)(iii)(B)(2) of this section
shall not apply and the sampling site shall be after those recovery
devices installed as part of normal operation; before any add-on
control devices (i.e., those required by regulation); and prior to
discharge to the atmosphere. Then, individual continuous process vent
emissions shall be summed to determine ECPVSjACTUAL.
(ii)(A) ECPVSjstd shall be calculated using Equation 31 of this
subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.030
where:
ECPVSjstd=Emissions if the applicable standard had been applied to
the uncontrolled emissions, megagrams per month.
EFstd=0.000018 Mg organic HAP/Mg of product, if the collection of
process sections within the affected source is subject to
Sec. 63.1316(b)(1)(i).
=0.00002 Mg organic HAP/Mg of product, if the collection of process
sections within the affected source is subject to Sec. 63.1316
(b)(1)(ii) or (b)(2)(ii).
=0.00004 Mg organic HAP/Mg of product, if the collection of process
sections within the affected source is subject to
Sec. 63.1316(b)(2)(i).
=0.0000036 Mg organic HAP/Mg of product, if the collection of
process sections within the affected source is subject to
Sec. 63.1316(c)(1).
[[Page 48264]]
PPj=Polymer produced, Mg/month, for the collection of process sections
j within the affected source, as calculated according to paragraph
(g)(3)(ii)(B) of this section.
(B) The amount of polymer produced, Mg per month, for the
collection of process sections j within the affected source shall be
determined by determining the weight of polymer pulled from the process
line(s) during a 30-day period. The polymer produced shall be
determined by direct measurement or by an alternate methodology, such
as materials balance. If an alternate methodology is used, a
description of the methodology, including all procedures, data, and
assumptions shall be submitted as part of the Emissions Averaging Plan
required by Sec. 63.1335(e)(4).
(C) Alternatively, ECPVSjstd for continuous process vents
located in the collection of process sections within the affected
source subject to Sec. 63.1316(c)(1) may be calculated using the
procedures in paragraph (g)(2)(i) and (g)(2)(ii) of this section to
determine the organic HAP emissions for each individual continuous
process vent, except that the sampling site shall be after recovery
devices installed as part of normal operation; before any add-on
control devices (i.e., those required by regulation); and prior to
discharge to the atmosphere. Then, individual continuous process vent
emissions shall be summed and multiplied by 0.02 to determine
ECPVSjstd.
(4) Emissions from storage vessels shall be calculated using the
procedures specified in Sec. 63.150(g)(3).
(5) Emissions from wastewater streams shall be calculated using the
procedures in Sec. 63.150(g)(5).
(6) Emissions from batch process vents shall be calculated as
follows:
(i) EBPViu for each batch process vent i shall be calculated
using the procedures specified in Sec. 63.1323(b).
(ii) The following procedures and equations shall be used to
determine EBPViACTUAL:
(A) If the batch process vent is not controlled by a control device
or pollution prevention measure, EBPViACTUAL=EBPViu, where
EBPViu is calculated using the procedures in Sec. 63.1323(b).
(B) If the batch process vent is controlled using a control device
or a pollution prevention measure achieving less than 90 percent
reduction for the batch cycle, calculate EBPViACTUAL using
Equation 32 of this subpart, where percent reduction is for the batch
cycle.
[GRAPHIC] [TIFF OMITTED] TR12SE96.031
(1) The percent reduction for the batch cycle shall be calculated
according to the procedures in Sec. 63.1325(c)(2).
(2) The percent reduction for control devices shall be calculated
according to the procedures in Sec. 63.1325 (c)(2)(i) through
(c)(2)(iii).
(3) The percent reduction of pollution prevention measures shall be
calculated using the procedures specified in paragraph (j) of this
section.
(7) Emissions from aggregate batch vent streams shall be calculated
as follows:
(i) For purposes of determining aggregate batch vent stream flow
rate, organic HAP concentrations, and temperature, the sampling site
shall be before any control device and before discharge to the
atmosphere. Method 1 or 1A, 40 CFR part 60, appendix A, shall be used
for selection of the sampling site.
(ii) EABViu for each aggregate batch vent stream i shall be
calculated using Equation 33 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.032
where:
EABViu=Uncontrolled aggregate batch vent stream emission rate from
aggregate batch vent stream i, megagrams per month.
Q=Vent stream flow rate, dry standard cubic meters per minute, measured
using Method 2, 2A, 2C, or 2D, 40 CFR part 60, appendix A, as
appropriate.
h=Monthly hours of operation during which positive flow is present from
the aggregate batch vent stream, hours per month.
Cj=Concentration, parts per million by volume, dry basis, of
organic HAP j as measured by Method 18, 40 CFR part 60, appendix A.
Mj=Molecular weight of organic HAP j, gram per gram-mole.
n=Number of organic HAP in the stream.
(A) The values of Q and Cj shall be determined during a
performance test conducted under representative operating conditions.
The values of Q and Cj shall be established in the Notification of
Compliance Status and must be updated as provided in paragraph
(g)(7)(ii)(B) of this section.
(B) If there is a change in capacity utilization other than a
change in monthly operating hours, or if any other change is made to
the process or product recovery equipment or operation such that the
previously measured values of Q and Cj are no longer
representative, a new performance test shall be conducted to determine
new representative values of Q and Cj. These new values shall be
used to calculate debits and credits from the time of the change
forward, and the new values shall be reported in the next Periodic
Report.
(iii) The following procedures and equations shall be used to
calculate EABViACTUAL:
(A) If the aggregate batch vent stream is not controlled by a
control device or pollution prevention measure, EABViACTUAL =
EABViu, where EABViu is calculated according to the
procedures in paragraphs (g)(7)(i) and (g)(7)(ii) of this section.
(B) If the aggregate batch vent stream is controlled using a
control device or a pollution prevention measure achieving less than 90
percent reduction, calculate EABViACTUAL using Equation 34 of this
subpart.
[[Page 48265]]
[GRAPHIC] [TIFF OMITTED] TR12SE96.033
(1) The percent reduction for control devices shall be determined
according to the procedures in Sec. 63.1325(e).
(2) The percent reduction for pollution prevention measures shall
be calculated according to the procedures specified in paragraph (j) of
this section.
(h) Credits are generated by the difference between emissions that
are allowed for each Group 1 and Group 2 emission point and the actual
emissions from that Group 1 or Group 2 emission point that has been
controlled after November 15, 1990 to a level more stringent than what
is required by this subpart or any other State or Federal rule or
statute. Said Group 1 and Group 2 emission points are identified in
paragraphs (c)(1) through (c)(5) of this section. Credits shall be
calculated using Equation 35 of this subpart.
(1) Sourcewide credits shall be calculated using Equation 35 of
this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.034
Credits and all terms of Equation 35 of this subpart are in units of
megagrams per month, the baseline date is November 15, 1990.
where:
D=Discount factor=0.9 for all credit generating emission points except
those controlled by a pollution prevention measure; discount factor=1.0
for each credit generating emission point controlled by a pollution
prevention measure (i.e., no discount provided).
ECPV1iACTUAL=Emissions for each Group 1 continuous process vent i
subject to Sec. 63.1315 that is controlled to a level more stringent
than the reference control technology. ECPV1iACTUAL is calculated
according to paragraph (h)(2) of this section.
(0.02)ECPV1iu=Emissions from each Group 1 continuous process vent
i subject to Sec. 63.1315 if the applicable reference control
technology had been applied to the uncontrolled emissions. ECPV1iu
is calculated according to paragraph (h)(2) of this section.
[[Page 48266]]
ECPVS1jSTD=Emissions from Group 1 continuous process vents subject
to Sec. 63.1316 (b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii), or (c)(1)
located in the collection of process sections j within the affected
source if the applicable standard had been applied to the uncontrolled
emissions. ECPVS1jSTD is calculated according to paragraph (h)(3)
of this section.
ECPVS1jACTUAL=Emissions from Group 1 continuous process vents
subject to Sec. 63.1316 (b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii),
or (c)(1) located in the collection of process sections j within the
affected source that are controlled to a level more stringent than the
applicable standard. ECPVS1jACTUAL is calculated according to
paragraph (h)(3) of this section.
ECPV2iACTUAL=Emissions from each Group 2 continuous process vent i
subject to Sec. 63.1315 that is controlled. ECPV2iACTUAL is
calculated according to paragraph (h)(2) of this section.
ECPV2iBASE=Emissions from each Group 2 continuous process vent i
subject to Sec. 63.1315 at the baseline date. ECPV2iBASE is
calculated according to paragraph (h)(2) of this section.
ECPVS2jBASE=Emissions from Group 2 continuous process vents
subject to Sec. 63.1316(b)(1)(i) located in the collection of material
recovery sections j within the affected source at the baseline date.
ECPVS2jBASE is calculated according to paragraph (h)(3) of this
section.
ECPVS2jACTUAL=Emissions from Group 2 continuous process vents
subject to Sec. 63.1316(b)(1)(i) located in the collection of material
recovery sections j within the affected source that are controlled.
ECPVS2jACTUAL is calculated according to paragraph (h)(3) of this
section.
ES1iACTUAL=Emissions from each Group 1 storage vessel i that is
controlled to a level more stringent than the applicable reference
control technology or standard. ES1iACTUAL is calculated according
to paragraph (h)(4) of this section.
(BL)ES1iu=Emissions from each Group 1 storage vessel i if the
applicable reference control technology or standard had been applied to
the uncontrolled emissions. ES1iu is calculated according to
paragraph (h)(4) of this section. For calculating these emissions,
BL=0.05 for each Group 1 storage vessel i subject to Sec. 63.1314(a);
and BL=0.02 for each storage vessel i subject to Sec. 63.1314(c).
ES2iACTUAL=Emissions from each Group 2 storage vessel i that is
controlled. ES2iACTUAL is calculated according to paragraph (h)(4)
of this section.
ES2iBASE=Emissions from each Group 2 storage vessel i at the
baseline date. ES2iBASE is calculated according to paragraph
(h)(4) of this section.
EWW1iACTUAL=Emissions from each Group 1 wastewater stream i that
is controlled to a level more stringent than the reference control
technology. EWW1iACTUAL is calculated according to paragraph
(h)(5) of this section.
EWW1ic=Emissions from each Group 1 wastewater stream i if the
reference control technology had been applied to the uncontrolled
emissions. EWW1ic is calculated according to paragraph (h)(5) of
this section.
EWW2iACTUAL=Emissions from each Group 2 wastewater stream i that
is controlled. EWW2iACTUAL is calculated according to paragraph
(h)(5) of this section.
EWW2iBASE=Emissions from each Group 2 wastewater stream i at the
baseline date. EWW2iBASE is calculated according to paragraph
(h)(5) of this section.
(0.10)EBPV1iu=Emissions from each Group 1 batch process vent i if
the applicable reference control technology had been applied to the
uncontrolled emissions. EBPV1iu is calculated according to
paragraph (h)(6) of this section.
EBPV1iACTUAL=Emissions from each Group 1 batch process vent i that
is controlled to a level more stringent than the reference control
technology. EBPV1iACTUAL is calculated according to paragraph
(h)(6) of this section.
(0.10)EABV1iu=Emissions from each Group 1 aggregate batch vent
stream i if the applicable reference control technology had been
applied to the uncontrolled emissions. EABV1iu is calculated
according to paragraph (h)(7) of this section.
EABV1iACTUAL=Emissions from each Group 1 aggregate batch vent
stream i that is controlled to a level more stringent than the
reference control technology. EABV1iACTUAL is calculated according
to paragraph (h)(7) of this section.
EBPV2iBASE=Emissions from each Group 2 batch process vent i at the
baseline date. EBPV2iBASE is calculated according to paragraph
(h)(6) of this section.
EBPV2iACTUAL=Emissions from each Group 2 batch process vent i that
is controlled. EBPV2iACTUAL is calculated according to paragraph
(h)(6) of this section.
EABV2iBASE=Emissions from each Group 2 aggregate batch vent stream
i at the baseline date. EABV2iBASE is calculated according to
paragraph (h)(7) of this section.
EABV2iACTUAL=Emissions from each Group 2 aggregate batch vent
stream i that is controlled. EABV2iACTUAL is calculated according
to paragraph (h)(7) of this section.
n=Number of Group 1 emission points included in the emissions average.
The value of n is not necessarily the same for continuous process
vents, batch process vents, aggregate batch vent streams, storage
vessels, wastewater streams, or the collection of process sections
within the affected source.
m=Number of Group 2 emission points included in the emissions average.
The value of m is not necessarily the same for continuous process
vents, batch process vents, aggregate batch vent streams, storage
vessels, wastewater streams, or the collection of process sections
within the affected source.
(i) Except as specified in paragraph (h)(1)(iv) of this section,
for an emission point controlled using a reference control technology,
the percent reduction for calculating credits shall be no greater than
the nominal efficiency associated with the reference control
technology, unless a higher nominal efficiency is assigned as specified
in paragraph (h)(1)(ii) of this section.
(ii) For an emission point controlled to a level more stringent
than the reference control technology, the nominal efficiency for
calculating credits shall be assigned as described in paragraph (i) of
this section. A reference control technology may be approved for use in
a different manner and assigned a higher nominal efficiency according
to the procedures in paragraph (i) of this section.
(iii) For an emission point controlled using a pollution prevention
measure, the nominal efficiency for calculating credits shall be as
determined as described in paragraph (j) of this section.
(iv) For Group 1 and Group 2 batch process vents and Group 1 and
Group 2 aggregate batch vent streams, the percent reduction for
calculating credits shall be the percent reduction determined according
to the procedures in paragraphs (h)(6)(ii) and (h)(6)(iii) of this
section for batch process vents and paragraphs (h)(7)(ii) and
(h)(7)(iii) of this section for aggregate batch vent streams.
[[Page 48267]]
(2) Emissions from continuous process vents subject to Sec. 63.1315
shall be determined as follows:
(i) Uncontrolled emissions from Group 1 continuous process vents
(ECPV1iu) shall be calculated according to the procedures and
equation for ECPViu in paragraphs (g)(2)(i) and (g)(2)(ii) of this
section.
(ii) Actual emissions from Group 1 continuous process vents
controlled using a technology with an approved nominal efficiency
greater than 98 percent or a pollution prevention measure achieving
greater than 98 percent emission reduction (ECPV1iACTUAL) shall be
calculated using Equation 36 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.035
(iii) The following procedures shall be used to calculate actual
emissions from Group 2 continuous process vents (ECPV2iACTUAL):
(A) For a Group 2 continuous process vent controlled by a control
device, a recovery device applied as a pollution prevention project, or
a pollution prevention measure, where the control achieves a percent
reduction less than or equal to 98 percent reduction, use Equation 37
of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.036
(1) ECPV2iu shall be calculated according to the equations and
procedures for ECPViu in paragraphs (g)(2)(i) and (g)(2)(ii) of
this section, except as provided in paragraph (h)(2)(iii)(A)(3) of this
section.
(2) The percent reduction shall be calculated according to the
procedures in paragraphs (g)(2)(iii)(B)(1) through (g)(2)(iii)(B)(3) of
this section, except as provided in paragraph (h)(2)(iii)(A)(4) of this
section.
(3) If a recovery device was added as part of a pollution
prevention project, ECPV2iu shall be calculated prior to that
recovery device. The equation for ECPViu in paragraph (g)(2)(ii)
of this section shall be used to calculate ECPV2iu; however, the
sampling site for measurement of vent stream flow rate and organic HAP
concentration shall be at the inlet of the recovery device.
(4) If a recovery device was added as part of a pollution
prevention project, the percent reduction shall be demonstrated by
conducting a performance test at the inlet and outlet of that recovery
device.
(B) For a Group 2 continuous process vent controlled using a
technology with an approved nominal efficiency greater than 98 percent
or a pollution prevention measure achieving greater than 98 percent
reduction, use Equation 38 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.037
(iv) Emissions from Group 2 continuous process vents at baseline
shall be calculated as follows:
(A) If the continuous process vent was uncontrolled on November 15,
1990, ECPV2iBASE=ECPV2iu and shall be calculated according to
the procedures and equation for ECPViu in paragraphs (g)(2)(i) and
(g)(2)(ii) of this section.
(B) If the continuous process vent was controlled on November 15,
1990, use Equation 39 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.038
(1) ECPV2iu is calculated according to the procedures and
equation for ECPViu in paragraphs (g)(2)(i) and (g)(2)(ii) of this
section.
(2) The percent reduction shall be calculated according to the
procedures specified in paragraphs (g)(2)(iii)(B)(1) through
(g)(2)(iii)(B)(3) of this section.
(C) If a recovery device was added as part of a pollution
prevention project initiated after November 15, 1990,
ECPV2iBASE=ECPV2iu, where ECPV2iu is calculated
according to paragraph (h)(2)(iii)(A)(3) of this section.
(3) Emissions from continuous process vents subject to
Sec. 63.1316(b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii), or (c)(1)
shall be determined as follows:
(i) Emissions from Group 1 continuous process vents located in the
collection of process sections j within the affected source if the
applicable standard had been applied to the uncontrolled emissions
(ECPVS1jstd) shall be calculated according to paragraph (g)(3)(ii)
of this section.
(ii) Actual emissions from Group 1 continuous process vents located
in the collection of process sections j within the affected source
controlled to a level more stringent than the applicable standard
(ECPVS1jACTUAL) shall be calculated using the procedures in
paragraphs (g)(3)(ii)(A) and (g)(3)(ii)(B) of this section, except that
the actual emission level, Mg organic HAP/Mg of product, shall be used
as EFstd in Equation 31 of this subpart. Further,
ECPVS1jACTUAL for continuous process vents subject to
Sec. 63.1316(c)(1) controlled in accordance with
Sec. 63.1316(c)(1)(iii) shall be calculated using the procedures in
paragraph
[[Page 48268]]
(h)(2)(ii) of this section for individual continuous process vents and
then summing said emissions to get ECPVS1jACTUAL, except that the
sampling site shall be after recovery devices installed as part of
normal operation; before any add-on control devices (i.e., those
required by regulation); and prior to discharge to the atmosphere.
(iii) Actual emissions from Group 2 continuous process vents
subject to Sec. 63.1316(b)(1)(i) located in the collection of material
recovery sections j within the affected source (ECPVS2jACTUAL)
shall be calculated using the procedures in paragraphs (g)(3)(ii)(A)
and (g)(3)(ii)(B) of this section, except that the actual emission
level, Mg organic HAP/Mg of product, shall be used as EFstd in
Equation 31 of this subpart.
(iv) Emissions from Group 2 continuous process vents subject to
Sec. 63.1316(b)(1)(i) located in the collection of material recovery
sections j within the affected source at baseline (ECPVS2jBASE)
shall be calculated using the procedures in paragraphs (g)(3)(ii)(A)
and (g)(3)(ii)(B) of this section, except that the actual emission
level, Mg organic HAP/Mg of product, at baseline shall be used as
EFstd in Equation 31 of this subpart.
(4)(i) Emissions from storage vessels shall be calculated using the
procedures specified in Sec. 63.150(h)(3).
(ii) Actual emissions from Group 1 storage vessels at an existing
affected source producing ASA/AMSAN subject to Sec. 63.1314(c) using a
technology with an approved nominal efficiency greater than 98 percent
or a pollution prevention measure achieving greater than 98 percent
emission reduction shall be calculated using the procedures specified
in Sec. 63.150(h)(3)(ii).
(5) Emissions from wastewater streams shall be calculated using the
procedures specified in Sec. 63.150(h)(5).
(6) Emissions from batch process vents shall be determined as
follows:
(i) Uncontrolled emissions from Group 1 batch process vents
(EBPV1iu) shall be calculated using the procedures
Sec. 63.1323(b).
(ii) Actual emissions from Group 1 batch process vents controlled
to a level more stringent than the reference control technology
(EBPV1iACTUAL) shall be calculated using Equation 40 of this
subpart, where percent reduction is for the batch cycle.
[GRAPHIC] [TIFF OMITTED] TR12SE96.039
(A) The percent reduction for the batch cycle shall be calculated
according to the procedures in Sec. 63.1325(c)(2).
(B) The percent reduction for control devices shall be determined
according to the procedures in Sec. 63.1325(c)(2)(i) through
(c)(2)(iii).
(C) The percent reduction of pollution prevention measures shall be
calculated using the procedures specified in paragraph (j) of this
section.
(iii) Actual emissions from Group 2 batch process vents
(EBPV2iACTUAL) shall be calculated using Equation 41 of this
subpart and the procedures in paragraphs (h)(6)(ii)(A) through
(h)(6)(ii)(C) of this section. EBPV2iu shall be calculated using
the procedures specified in Sec. 63.1323(b).
[GRAPHIC] [TIFF OMITTED] TR12SE96.040
(iv) Emissions from Group 2 batch process vents at baseline
(EBPV2iBASE) shall be calculated as follows:
(A) If the batch process vent was uncontrolled on November 15,
1990, EBPV2iBASE=EBPV2iu and shall be calculated using the
procedures specified in Sec. 63.1323(b).
(B) If the batch process vent was controlled on November 15, 1990,
use Equation 42 of this subpart and the procedures in paragraphs
(h)(6)(ii)(A) through (h)(6)(ii)(C) of this section. EBPV2iu shall
be calculated using the procedures specified in Sec. 63.1323(b).
[GRAPHIC] [TIFF OMITTED] TR12SE96.041
(7) Emissions from aggregate batch vent streams shall be determined
as follows:
(i) Uncontrolled emissions from Group 1 aggregate batch vent
streams (EABV1iu) shall be calculated according to the procedures
and equation for EABViu in paragraphs (g)(7)(i) and (g)(7)(ii) of
this section.
(ii) Actual emissions from Group 1 aggregate batch vent streams
controlled to a level more stringent than the reference control
technology (EABV1iACTUAL) shall be calculated using Equation 43 of
this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.042
[[Page 48269]]
(A) The percent reduction for control devices shall be determined
according to the procedures in Sec. 63.1325(e).
(B) The percent reduction of pollution prevention measures shall be
calculated using the procedures specified in paragraph (j) of this
section.
(iii) Actual emissions from Group 2 aggregate batch vent streams
(EABV2iACTUAL) shall be calculated using Equation 44 of this
subpart and the procedures in paragraphs (h)(7)(ii)(A) through
(h)(7)(ii)(B) of this section. EABV2iu shall be calculated
according to the equations and procedures for EABViu in paragraphs
(g)(7)(i) and (g)(7)(ii) of this section.
[GRAPHIC] [TIFF OMITTED] TR12SE96.043
(iv) Emissions from Group 2 aggregate batch vent streams at
baseline shall be calculated as follows:
(A) If the aggregate batch vent stream was uncontrolled on November
15, 1990, EABV2iBASE=EABV2iu and shall be calculated
according to the procedures and equation for EABViu in paragraphs
(g)(7)(i) and (g)(7)(ii) of this section.
(B) If the aggregate batch vent stream was controlled on November
15, 1990, use Equation 45 of this subpart and the procedures in
paragraphs (h)(7)(ii)(A) through (h)(7)(ii)(B) of this section.
EABV2iu shall be calculated according to the equations and
procedures for EABViu in paragraphs (g)(7)(i) and (g)(7)(ii) of
this section.
[GRAPHIC] [TIFF OMITTED] TR12SE96.044
(i) The following procedures shall be followed to establish nominal
efficiencies for emission controls for storage vessels, continuous
process vents, and process wastewater streams. The procedures in
paragraphs (i)(1) through (i)(6) of this section shall be followed for
control technologies that are different in use or design from the
reference control technologies and achieve greater percent reductions
than the percent efficiencies assigned to the reference control
technologies in Sec. 63.111.
(1) In those cases where the owner or operator is seeking
permission to take credit for use of a control technology that is
different in use or design from the reference control technology, and
the different control technology will be used in more than three
applications at a single plant-site, the owner or operator shall submit
the information specified in paragraphs (i)(1)(i) through (i)(1)(iv) of
this section to the Director of the EPA Office of Air Quality Planning
and Standards in writing:
(i) Emission stream characteristics of each emission point to which
the control technology is or will be applied including the kind of
emission point, flow, organic HAP concentration, and all other stream
characteristics necessary to design the control technology or determine
its performance.
(ii) Description of the control technology including design
specifications.
(iii) Documentation demonstrating to the Administrator's
satisfaction the control efficiency of the control technology. This may
include performance test data collected using an appropriate EPA Method
or any other method validated according to Method 301 of appendix A of
this part. If it is infeasible to obtain test data, documentation may
include a design evaluation and calculations. The engineering basis of
the calculation procedures and all inputs and assumptions made in the
calculations shall be documented.
(iv) A description of the parameter or parameters to be monitored
to ensure that the control technology will be operated in conformance
with its design and an explanation of the criteria used for selection
of that parameter (or parameters).
(2) The Administrator shall determine within 120 operating days
whether an application presents sufficient information to determine
nominal efficiency. The Administrator reserves the right to request
specific data in addition to the items listed in paragraph (i)(1) of
this section.
(3) The Administrator shall determine within 120 operating days of
the submittal of sufficient data whether a control technology shall
have a nominal efficiency and the level of that nominal efficiency. If,
in the Administrator's judgment, the control technology achieves a
level of emission reduction greater than the reference control
technology for a particular kind of emission point, the Administrator
will publish a Federal Register notice establishing a nominal
efficiency for the control technology.
(4) The Administrator may grant permission to take emission credits
for use of the control technology. The Administrator may also impose
requirements that may be necessary to ensure operation and maintenance
to achieve the specified nominal efficiency.
(5) In those cases where the owner or operator is seeking
permission to take credit for use of a control technology that is
different in use or design from the reference control technology and
the different control technology will be used in no more than three
applications at a single plant site, the information listed in
paragraphs (i)(1)(i) through (i)(1)(iv) of this section can be
submitted to the permitting authority for the affected source for
approval instead of the Administrator.
(i) In these instances, use and conditions for use of the control
technology can be approved by the permitting authority as part of an
operating permit application or modification. The permitting authority
shall follow the procedures specified in paragraphs (i)(2) through
(i)(4) of this section except that, in these instances, a Federal
Register notice is not required to establish the nominal efficiency for
the different technology.
(ii) If, in reviewing the application, the permitting authority
believes the control technology has broad applicability for use by
other affected sources, the permitting authority shall submit the
information provided in the application to the Director of the EPA
Office of Air Quality Planning and Standards. The Administrator shall
[[Page 48270]]
review the technology for broad applicability and may publish a Federal
Register notice; however, this review shall not affect the permitting
authority's approval of the nominal efficiency of the control
technology for the specific application.
(6) If, in reviewing an application for a control technology for an
emission point, the Administrator or permitting authority determines
the control technology is not different in use or design from the
reference control technology, the Administrator or permitting authority
shall deny the application.
(j) The following procedures shall be used for calculating the
efficiency (percent reduction) of pollution prevention measures for
storage vessels, continuous process vents, batch process vents,
aggregate batch vent streams, and wastewater streams:
(1) A pollution prevention measure is any practice that meets the
criteria of paragraphs (j)(1)(i) and (j)(1)(ii) of this section.
(i) A pollution prevention measure is any practice that results in
a lesser quantity of organic HAP emissions per unit of product released
to the atmosphere prior to out-of-process recycling, treatment, or
control of emissions, while the same product is produced.
(ii) Pollution prevention measures may include: substitution of
feedstocks that reduce organic HAP emissions; alterations to the
production process to reduce the volume of materials released to the
environment; equipment modifications; housekeeping measures; and in-
process recycling that returns waste materials directly to production
as raw materials. Production cutbacks do not qualify as pollution
prevention.
(2) The emission reduction efficiency of pollution prevention
measures implemented after November 15, 1990, can be used in
calculating the actual emissions from an emission point in the debit
and credit equations in paragraphs (g) and (h) of this section.
(i) For pollution prevention measures, the percent reduction used
in the equations in paragraphs (g)(2) through (g)(7) of this section
and paragraphs (h)(2) through (h)(7) of this section is the percent
difference between the monthly organic HAP emissions for each emission
point after the pollution prevention measure for the most recent month
versus monthly emissions from the same emission point before the
pollution prevention measure, adjusted by the volume of product
produced during the two monthly periods.
(ii) Equation 46 of this subpart shall be used to calculate the
percent reduction of a pollution prevention measure for each emission
point.
[GRAPHIC] [TIFF OMITTED] TR12SE96.045
where:
Percent reduction=Efficiency of pollution prevention measure (percent
organic HAP reduction).
EB=Monthly emissions before the pollution prevention measure,
megagrams per month, determined as specified in paragraphs
(j)(2)(ii)(A), (j)(2)(ii)(B), and (j)(2)(ii)(C) of this section.
Epp=Monthly emissions after the pollution prevention measure,
megagrams per month, as determined for the most recent month,
determined as specified in either paragraphs (j)(2)(ii)(D) or
(j)(2)(ii)(E) of this section.
PB=Monthly production before the pollution prevention measure,
megagrams per month, during the same period over which EB is
calculated.
Ppp=Monthly production after the pollution prevention measure,
megagrams per month, as determined for the most recent month.
(A) The monthly emissions before the pollution prevention measure,
EB, shall be determined in a manner consistent with the equations
and procedures in paragraphs (g)(2) and (g)(3) of this section for
continuous process vents, paragraph (g)(4) of this section for storage
vessels, paragraph (g)(6) of this section for batch process vents, and
paragraph (g)(7) of this section for aggregate batch vent streams.
(B) For wastewater, EB shall be calculated using Equation 47
of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.046
where:
n=Number of wastewater streams.
QBi=Average flow rate for wastewater stream i before the
pollution prevention measure, defined and determined according to
Sec. 63.144(c)(3), liters per minute, before implementation of the
pollution prevention measure.
HBi=Number of hours per month that wastewater stream i was
discharged before the pollution prevention measure, hours per month.
s=Total number of organic HAP in wastewater stream i.
Fem=Fraction emitted of organic HAP m in wastewater from Table 9
of subpart G of this part, dimensionless.
HAPBim=Average concentration of organic HAP m in wastewater stream
i, defined and determined according to paragraph (g)(5)(i) of this
section, before the pollution prevention measure, parts per million by
weight, as measured before the implementation of the pollution measure.
(C) If the pollution prevention measure was implemented prior to
September 12, 1996 records may be used to determine EB.
(D) The monthly emissions after the pollution prevention measure,
Epp, may be determined during a performance test or by a design
evaluation and documented engineering calculations. Once an emissions-
to-production ratio has been established, the ratio can be
[[Page 48271]]
used to estimate monthly emissions from monthly production records.
(E) For wastewater, Epp shall be calculated using Equation 48
of this subpart and n, Qppi, Hppi, s, Fem, and
HAPppim are defined and determined as described in paragraph
(j)(2)(ii)(B) of this section, except that Qppi, Hppi, and
HAPppim shall be determined after the pollution prevention measure
has been implemented.
[GRAPHIC] [TIFF OMITTED] TR12SE96.047
(iii) All equations, calculations, test procedures, test results,
and other information used to determine the percent reduction achieved
by a pollution prevention measure for each emission point shall be
fully documented.
(iv) The same pollution prevention measure may reduce emissions
from multiple emission points. In such cases, the percent reduction in
emissions for each emission point must be calculated.
(v) For the purposes of the equations in paragraphs (h)(2) through
(h)(7) of this section used to calculate credits for emission points
controlled more stringently than the reference control technology, the
nominal efficiency of a pollution prevention measure is equivalent to
the percent reduction of the pollution prevention measure. When a
pollution prevention measure is used, the owner or operator of an
affected source is not required to apply to the Administrator for a
nominal efficiency and is not subject to paragraph (i) of this section.
(k) The owner or operator must demonstrate that the emissions from
the emission points proposed to be included in the emissions average
will not result in greater hazard or, at the option of the
Administrator, greater risk to human health or the environment than if
the emission points were controlled according to the provisions in
Secs. 63.1314, 63.1315, 63.1316 through 63.1320, 63.1321, and 63.1330.
(1) This demonstration of hazard or risk equivalency shall be made
to the satisfaction of the Administrator.
(i) The Administrator may require owners and operators to use
specific methodologies and procedures for making a hazard or risk
determination.
(ii) The demonstration and approval of hazard or risk equivalency
shall be made according to any guidance that the Administrator makes
available for use.
(2) Owners and operators shall provide documentation demonstrating
the hazard or risk equivalency of their proposed emissions average in
their operating permit application or in their Emissions Averaging Plan
if an operating permit application has not yet been submitted.
(3) An Emissions Averaging Plan that does not demonstrate hazard or
risk equivalency to the satisfaction of the Administrator shall not be
approved. The Administrator may require such adjustments to the
Emissions Averaging Plan as are necessary in order to ensure that the
emissions average will not result in greater hazard or risk to human
health or the environment than would result if the emission points were
controlled according to Secs. 63.1314, 63.1315, 63.1316 through
63.1320, 63.1321, and 63.1330.
(4) A hazard or risk equivalency demonstration must:
(i) Be a quantitative, bona fide chemical hazard or risk
assessment;
(ii) Account for differences in chemical hazard or risk to human
health or the environment; and
(iii) Meet any requirements set by the Administrator for such
demonstrations.
(l) For periods of parameter monitoring excursions, an owner or
operator may request that the provisions of paragraphs (l)(1) through
(l)(4) of this section be followed instead of the procedures in
paragraphs (f)(3)(i) and (f)(3)(ii) of this section.
(1) The owner or operator shall notify the Administrator of
monitoring excursions in the Periodic Reports as required in
Sec. 63.1335(e)(6).
(2) The owner or operator shall demonstrate that other types of
monitoring data or engineering calculations are appropriate to
establish that the control device for the emission point was operating
in such a fashion to warrant assigning full or partial credits and
debits. This demonstration shall be made to the Administrator's
satisfaction, and the Administrator may establish procedures of
demonstrating compliance that are acceptable.
(3) The owner or operator shall provide documentation of the
excursion and the other type of monitoring data or engineering
calculations to be used to demonstrate that the control device for the
emission point was operating in such a fashion to warrant assigning
full or partial credits and debits.
(4) The Administrator may assign full or partial credit and debits
upon review of the information provided.
(m) For each emission point included in an emissions average, the
owner or operator shall perform testing, monitoring, recordkeeping, and
reporting equivalent to that required for Group 1 emission points
complying with Secs. 63.1314, 63.1315, 63.1316 through 63.1320,
63.1321, and 63.1330, as applicable. The specific requirements for
continuous process vents, batch process vents, aggregate batch vent
streams, storage vessels, and wastewater operations that are included
in an emissions average for an affected source are identified in
paragraphs (m)(1) through (m)(7) of this section.
(1) For each continuous process vent subject to Sec. 63.1315
equipped with a flare, incinerator, boiler, or process heater, as
appropriate to the control technique:
(i) Determine whether the continuous process vent is Group 1 or
Group 2 according to the procedures specified in Sec. 63.1315;
(ii) Conduct initial performance tests to determine percent
reduction according to the procedures specified in Sec. 63.1315; and
(iii) Monitor the operating parameters, keep records, and submit
reports according to the proce
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
dures specified in Sec. 63.1315.
(2) For each continuous process vent subject to Sec. 63.1315
equipped with a carbon adsorber, absorber, or condenser but not
equipped with a control device, as appropriate to the control
technique:
(i) Determine the flow rate, organic HAP concentration, and TRE
index value according to the procedures specified in Sec. 63.1315; and
(ii) Monitor the operating parameters, keep records, and submit
reports according to the procedures specified in Sec. 63.1315.
(3) For continuous process vents subject to Sec. 63.1316(b)(1)(i),
(b)(1)(ii), (b)(2)(i), (b)(2)(ii), or (c)(1):
(i) Determine whether the emissions from the continuous process
vents subject to Sec. 63.1316(b)(1)(i) located in the collection of
material recovery sections within the affected source are greater than,
equal to, or less than 0.12 kg organic HAP per Mg of product according
to the procedures specified in Sec. 63.1318(b);
[[Page 48272]]
(ii) Determine the emission rate, ERHAP, for each collection
of process sections within the affected source according to the
procedures specified in Sec. 63.1318(b); and
(iv) Monitor the operating parameters, keep records, and submit
reports according to the procedures specified in Sec. 63.1317,
Sec. 63.1319, Sec. 63.1320.
(4) For each storage vessel controlled with an internal floating
roof, external roof, or a closed vent system with a control device, as
appropriate to the control technique:
(i) Perform the monitoring or inspection procedures according to
the procedures specified in Sec. 63.1314;
(ii) Perform the reporting and recordkeeping procedures according
to the procedures specified in Sec. 63.1314; and
(iii) For closed vent systems with control devices, conduct an
initial design evaluation and submit an operating plan according to the
procedures specified in Sec. 63.1314.
(5) For wastewater emission points, as appropriate to the control
technique:
(i) For wastewater treatment processes, conduct tests according to
the procedures specified in Sec. 63.1330;
(ii) Conduct inspections and monitoring according to the procedures
specified in Sec. 63.1330;
(iii) Implement a recordkeeping program according to the procedures
specified in Sec. 63.1330; and
(iv) Implement a reporting program according to the procedures
specified in Sec. 63.1330.
(6) For each batch process vent and aggregate batch vent stream
equipped with a control device, as appropriate to the control
technique:
(i) Determine whether the batch process vent or aggregate batch
vent stream is Group 1 or Group 2 according to the procedures in
Sec. 63.1323;
(ii) Conduct performance tests according to the procedures
specified in Sec. 63.1325;
(iii) Conduct monitoring according to the procedures specified in
Sec. 63.1324; and
(iv) Perform the recordkeeping and reporting procedures according
to the procedures specified in Secs. 63.1326 and 63.1327.
(7) If an emission point in an emissions average is controlled
using a pollution prevention measure or a device or technique for which
no monitoring parameters or inspection procedures are required by
Secs. 63.1314, 63.1315, 63.1316 through 63.1320, 63.1321, or 63.1330,
the owner or operator shall submit the information specified in
Sec. 63.1335(f) for alternate monitoring parameters or inspection
procedures in the Emissions Averaging Plan or operating permit
application.
(n) Records of all information required to calculate emission
debits and credits shall be retained for 5 years.
(o) Precompliance Reports, Emission Averaging Plans, Notifications
of Compliance Status, Periodic Reports, and other reports shall be
submitted as required by Sec. 63.1335.
Sec. 63.1333 Additional test methods and procedures.
(a) Performance testing shall be conducted in accordance with
Sec. 63.7(a)(3), (d), (e), (g), and (h), with the exceptions specified
in paragraphs (a)(1) through (a)(4) of this section and the additions
specified in paragraphs (b) through (d) of this section. Sections
63.1314 through 63.1330 also contain specific testing requirements.
(1) Performance tests shall be conducted according to the
provisions of Sec. 63.7(e), except that performance tests shall be
conducted at maximum representative operating conditions for the
process.
(2) References in Sec. 63.7(g) to the Notification of Compliance
Status requirements in Sec. 63.7(h) shall refer to the requirements in
Sec. 63.1335(e)(5).
(3) Because the site-specific test plans in Sec. 63.7(c)(3) are not
required, Sec. 63.7(h)(4)(ii) is not applicable.
(4) The owner or operator shall notify the Administrator of the
intention to conduct a performance test at least 30 calendar days
before the performance test is scheduled to allow the Administrator the
opportunity to have an observer present during the test.
(b) Each owner or operator of an existing affected source producing
MBS complying with Sec. 63.1315(b)(2) shall determine compliance with
the mass emission per mass product standard by using Equation 49 of
this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.048
where:
ERMBS=Emission rate of organic HAP or TOC from continuous process
vents, kg/Mg product.
Ei=Emission rate of organic HAP or TOC from continuous process
vent i as calculated using the procedures specified in
Sec. 63.116(c)(4), kg/month.
PPM=Amount of polymer produced in one month as determined by the
procedures specified in Sec. 63.1318(b)(1)(ii), Mg/month.
n=Number of continuous process vents.
When determining Ei, when the provisions of Sec. 63.116(c)(4)
specify that Method 18, 40 CFR part 60, appendix A, shall be used,
Method 18 or Method 25A, 40 CFR part 60, appendix A, may be used for
the purposes of this subpart. The use of Method 25A, 40 CFR part 60,
appendix A, shall comply with paragraphs (b)(1) and (b)(2) of this
section.
(1) The organic HAP used as the calibration gas for Method 25A, 40
CFR part 60, appendix A, shall be the single organic HAP representing
the largest percent by volume.
(2) The use of Method 25A, 40 CFR part 60, appendix A, is
acceptable if the response from the high-level calibration gas is at
least 20 times the standard deviation of the response from the zero
calibration gas when the instrument is zeroed on the most sensitive
scale.
(c) The owner or operator of an affected source, complying with
Sec. 63.1322(a)(3) shall determine compliance with the percent
reduction requirement using Equation 50 of this subpart.
[GRAPHIC] [TIFF OMITTED] TR12SE96.049
where:
PR=Percent reduction
Hj=Number of operating hours in a year for control device j.
Ei=Mass rate of TOC or total organic HAP at the inlet of control
device
[[Page 48273]]
j, calculated as specified in Sec. 63.1325(f), kg/hr. This value
includes all continuous process vents, batch process vents, and
aggregate batch vent streams routed to control device j.
Eo=Mass rate of TOC or total organic HAP at the outlet of control
device j, calculated as specified in Sec. 63.1325(f), kg/hr.
Hk=Number of hours of operation during which positive flow is
present in uncontrolled continuous process vent or aggregate batch vent
stream k, hr/yr.
Eku=Mass rate of TOC or total organic HAP of uncontrolled
continuous process vent or aggregate batch vent stream k, calculated as
specified in Sec. 63.1325(f)(4), kg/hr.
AEunc=Mass rate of TOC or total organic HAP of uncontrolled batch
process vent l, calculated as specified in Sec. 63.1325(f)(4), kg/yr.
n=Number of control devices, uncontrolled continuous process vents and
aggregate batch vent streams, and uncontrolled batch process vents. The
value of n is not necessarily the same for these three items.
(d) Data shall be reduced in accordance with the EPA approved
methods specified in the applicable subpart or, if other test methods
are used, the data and methods shall be validated according to the
protocol in Method 301 of appendix A of this part.
Sec. 63.1334 Parameter monitoring levels and excursions.
(a) Establishment of parameter monitoring levels. The owner or
operator of a control or recovery device that has one or more parameter
monitoring level requirements specified under this subpart shall
establish a maximum or minimum level for each measured parameter using
the procedures specified in paragraph (b), (c), or (d) of this section.
The procedures specified in paragraph (b) of this section have been
approved by the Administrator. The procedures in paragraphs (c) and (d)
of this section have not been approved by the Administrator and
determination of the parameter monitoring level using the procedures in
paragraph (c) or (d) of this section is subject to review and approval
by the Administrator. Said determination and supporting documentation
shall be included in the Precompliance Report, specified in
Sec. 63.1335(e)(3).
(1) The owner or operator shall operate control and recovery
devices such that monitored parameters remain above the minimum
established level or below the maximum established level.
(2) As specified in Sec. 63.1335(e)(5) and Sec. 63.1335(e)(8), all
established levels, along with their supporting documentation and the
definition of an operating day, shall be approved as part of and
incorporated into the Notification of Compliance Status or operating
permit, respectively.
(3) Nothing in this section shall be construed to allow a
monitoring parameter excursion caused by an activity that violates
other applicable provisions of subpart A, F, or G of this part.
(b) Establishment of parameter monitoring levels based on
performance tests. The procedures specified in paragraphs (b)(1)
through (b)(3) of this section shall be used, as applicable, in
establishing parameter monitoring levels. Level(s) established under
this paragraph (b) shall be based on the parameter values measured
during the performance test.
(1) Storage tanks and wastewater. The maximum and/or minimum
monitoring levels shall be based on the parameter values measured
during the performance test, supplemented, if desired, by engineering
assessments and/or manufacturer's recommendations.
(2) Continuous process vents. During initial compliance testing,
the appropriate parameter shall be continuously monitored during the
required 1-hour runs. The monitoring level(s) shall then be established
as the average of the maximum (or minimum) point values from the three
test runs. The average of the maximum values shall be used when
establishing a maximum level, and the average of the minimum values
shall be used when establishing a minimum level.
(3) Batch process vents. The monitoring level(s) shall be
established using the procedures specified in paragraphs (b)(3)(i)
through (b)(3)(ii) of this section, as appropriate. The procedures
specified in this paragraph (b)(3) may only be used if the batch
emission episodes, or portions thereof, selected to be controlled were
tested, and monitoring data were collected, during the entire period in
which emissions were vented to the control device, as specified in
Sec. 63.1325(c)(1)(i). If the owner or operator chose to test only a
portion of the batch emission episode, or portion thereof, selected to
be controlled, as specified in Sec. 63.1325(c)(1)(i)(A), the procedures
in paragraph (c) of this section must be used.
(i) If more than one batch emission episode or more than one
portion of a batch emission episode has been selected to be controlled,
a single level for the batch cycle shall be calculated as follows:
(A) During initial compliance testing, the appropriate parameter
shall be monitored continuously at all times when batch emission
episodes, or portions thereof, selected to be controlled are vented to
the control device.
(B) The average monitored parameter value shall be calculated for
each batch emission episode, or portion thereof, in the batch cycle
selected to be controlled. The average shall be based on all values
measured during the required performance test.
(C) If the level to be established is a maximum operating
parameter, the level shall be defined as the minimum of the average
parameter values of the batch emission episodes, or portions thereof,
in the batch cycle selected to be controlled.
(D) If the level to be established is a minimum operating
parameter, the level shall be defined as the maximum of the average
parameter values of the batch emission episodes, or portions thereof,
in the batch cycle selected to be controlled.
(E) Alternatively, an average monitored parameter value shall be
calculated for the entire batch cycle based on all values measured
during each batch emission episode, or portion thereof, selected to be
controlled.
(ii) Instead of establishing a single level for the batch cycle, as
described in paragraph (b)(3)(i) of this section, an owner or operator
may establish separate levels for each batch emission episode, or
portion thereof, selected to be controlled. Each level shall be
determined as specified in paragraphs (b)(3)(i)(A) and (b)(3)(i)(B) of
this section.
(iii) The batch cycle shall be defined in the Notification of
Compliance Status, as specified in Sec. 63.1335(e)(5). Said definition
shall include an identification of each batch emission episode and the
information required to determine parameter monitoring compliance for
partial batch cycles (i.e., when part of a batch cycle is accomplished
during two different operating days).
(4) Aggregate batch vent streams. For aggregate batch vent streams,
the monitoring level shall be established in accordance with paragraph
(b)(2) of this section.
(c) Establishment of parameter monitoring levels based on
performance tests, engineering assessments, and/or manufacturer's
recommendations. As required in paragraph (a) of this section,
[[Page 48274]]
the information specified in paragraphs (c)(2) and (c)(3) of this
section shall be provided in the Precompliance Report.
(1) Parameter monitoring levels established under this paragraph
(c) shall be based on the parameter values measured during the
performance test supplemented by engineering assessments and
manufacturer's recommendations. Performance testing is not required to
be conducted over the entire range of expected parameter values.
(2) The specific level of the monitored parameter(s) for each
emission point.
(3) The rationale for the specific level for each parameter for
each emission point, including any data and calculations used to
develop the level and a description of why the level indicates proper
operation of the control or recovery device.
(d) Establishment of parameter monitoring based on engineering
assessments and/or manufacturer's recommendations. If a performance
test is not required by this subpart for a control or recovery device,
the maximum or minimum level may be based solely on engineering
assessments and/or manufacturer's recommendations. As required in
paragraph (a) of this section, the determined level and all supporting
documentation shall be provided in the Precompliance Report.
(e) Compliance determinations. The provisions of this paragraph (e)
apply only to emission points and control or recovery devices for which
continuous monitoring is required under this subpart.
(1) The parameter monitoring data for storage vessels, process
vents, process wastewater streams, and emission points included in
emissions averages that are required to perform continuous monitoring
shall be used to determine compliance for the monitored control or
recovery devices.
(2) Except as provided in paragraphs (e)(3) and (g) of this
section, for each excursion, as defined in paragraph (f) of this
section, the owner or operator shall be deemed out of compliance with
the provisions of this subpart.
(3) If the daily average value of a monitored parameter is above
the maximum level or below the minimum level established, or if
monitoring data cannot be collected during monitoring device
calibration check or monitoring device malfunction, but the affected
source is operated during the periods of start-up, shutdown, or
malfunction in accordance with the affected source's Start-up,
Shutdown, and Malfunction Plan, then the event shall not be considered
a monitoring parameter excursion.
(f) Parameter monitoring excursion definitions.
(1) For storage vessels, continuous process vents, aggregate batch
vent streams, and wastewater streams, an excursion means any of the
three cases listed in paragraphs (f)(1)(i) through (f)(1)(iii) of this
section. For a control or recovery device where multiple parameters are
monitored, if one or more of the parameters meets the excursion
criteria in paragraphs (f)(1)(i) through (f)(1)(iii) of this section,
this is considered a single excursion for the control or recovery
device.
(i) When the daily average value of one or more monitored
parameters is above the maximum level or below the minimum level
established for the given parameters.
(ii) When the period of control or recovery device operation is 4
hours or greater in an operating day and monitoring data are
insufficient, as defined in paragraph (f)(1)(iv) of this section, to
constitute a valid hour of data for at least 75 percent of the
operating hours.
(iii) When the period of control or recovery device operation is
less than 4 hours in an operating day and more than two of the hours
during the period of operation do not constitute a valid hour of data
due to insufficient monitoring data, as defined in paragraph (f)(1)(iv)
of this section.
(iv) Monitoring data are insufficient to constitute a valid hour of
data, as used in paragraphs (f)(1)(ii) and (f)(1)(iii) of this section,
if measured values are unavailable for any of the 15-minute periods
within the hour. For data compression systems approved under
Sec. 63.1335(g)(3), monitoring data are insufficient to calculate a
valid hour of data if there are less than four data measurements made
during the hour.
(2) For batch process vents, an excursion means one of the two
cases listed in paragraphs (f)(2)(i) and (f)(2)(ii) of this section.
For a control device where multiple parameters are monitored, if one or
more of the parameters meets the excursion criteria in either paragraph
(f)(2)(i) or (f)(2)(ii) of this section, this is considered a single
excursion for the control device.
(i) When the batch cycle daily average value of one or more
monitored parameters is above the maximum or below the minimum
established level for the given parameters.
(ii) When monitoring data are insufficient. Monitoring data shall
be considered insufficient when measured values are not available for
at least 75 percent of the 15-minute periods when batch emission
episodes, or portions thereof, selected to be controlled are being
vented to the control device during the operating day.
(g) Excused excursions. A number of excused excursions shall be
allowed for each control or recovery device for each semiannual period.
The number of excused excursions for each semiannual period is
specified in paragraphs (g)(1) through (g)(6) of this section. This
paragraph (g) applies to affected sources required to submit Periodic
Reports semiannually or quarterly. The first semiannual period is the
6-month period starting the date the Notification of Compliance Status
is due.
(1) For the first semiannual period--six excused excursions.
(2) For the second semiannual period--five excused excursions.
(3) For the third semiannual period--four excused excursions.
(4) For the fourth semiannual period--three excused excursions.
(5) For the fifth semiannual period--two excused excursions.
(6) For the sixth and all subsequent semiannual periods--one
excused excursion.
Sec. 63.1335 General recordkeeping and reporting provisions.
(a) Data retention. Each owner or operator of an affected source
shall keep copies of all applicable records and reports required by
this subpart for at least 5 years, unless otherwise specified in this
subpart.
(b) Requirements of subpart A of this part. The owner or operator
of an affected source shall comply with the applicable recordkeeping
and reporting requirements in subpart A of this part as specified in
Table 1 of this subpart. These requirements include, but are not
limited to, the requirements specified in paragraphs (b)(1) and (b)(2)
of this section.
(1) Start-up, shutdown, and malfunction plan. The owner or operator
of an affected source shall develop and implement a written start-up,
shutdown, and malfunction plan as specified in Sec. 63.6(e)(3). This
plan shall describe, in detail, procedures for operating and
maintaining the affected source during periods of start-up, shutdown,
and malfunction and a program for corrective action for malfunctioning
process and air pollution control equipment used to comply with this
subpart. The affected source shall keep this plan onsite and shall
incorporate it by reference into their operating permit. Records
associated with the plan shall be kept as specified in paragraphs
(b)(1)(i)(A) through (b)(1)(i)(D) of this section.
[[Page 48275]]
Reports related to the plan shall be submitted as specified in
paragraph (b)(1)(ii) of this section.
(i) Records of start-up, shutdown, and malfunction. The owner or
operator shall keep the records specified in paragraphs (b)(1)(i)(A)
through (b)(1)(i)(D) of this section.
(A) Records of the occurrence and duration of each malfunction of
air pollution control equipment or continuous monitoring systems used
to comply with this subpart.
(B) For each start-up, shutdown, or malfunction, a statement that
the procedures specified in the affected source's start-up, shutdown,
and malfunction plan were followed; alternatively, documentation of any
actions taken that are not consistent with the plan.
(C) For continuous monitoring systems used to comply with this
subpart, records documenting the completion of calibration checks and
maintenance of continuous monitoring systems that are specified in the
manufacturer's instructions.
(D) Records specified in paragraphs (b)(1)(i)(B) and (b)(1)(i)(C)
of this section are not required if they pertain solely to Group 2
emission points that are not included in an emissions average or to
Group 2 continuous process vents subject to Sec. 63.1315(a) with a
total resource effectiveness value greater than 4.0 or, for Group 2
continuous process vents subject to Sec. 63.1315(b), with a total
resource effectiveness value greater than 6.7.
(ii) Reports of start-up, shutdown, and malfunction. For the
purposes of this subpart, the semiannual start-up, shutdown, and
malfunction reports shall be submitted on the same schedule as the
Periodic Reports required under paragraph (e)(6) of this section
instead of the schedule specified in Sec. 63.10(d)(5)(i). Said reports
shall include the information specified in paragraphs (b)(1)(i)(A)
through (b)(1)(i)(C) of this section and shall contain the name, title,
and signature of the owner or operator or other responsible official
who is certifying its accuracy.
(2) Application for approval of construction or reconstruction. For
new affected sources, each owner or operator shall comply with the
provisions in Sec. 63.5 regarding construction and reconstruction,
excluding the provisions specified in Sec. 63.5 (d)(1)(ii)(H), (d)(2),
and (d)(3)(ii).
(c) Requirements of subpart H of this part. Owners or operators of
affected sources shall comply with the reporting and recordkeeping
requirements in subpart H of this part, except as specified in
Sec. 63.1331.
(d) Recordkeeping and documentation. Owners or operators required
to keep continuous records shall keep records as specified in
paragraphs (d)(1) through (d)(8) of this section, unless an alternative
recordkeeping system has been requested and approved as specified in
paragraph (g) or (h) of this section. Documentation requirements are
specified in paragraphs (d)(9) and (d)(10) of this section.
(1) The monitoring system shall measure data values at least once
every 15 minutes.
(2) The owner or operator shall record either each measured data
value or block average values for 1 hour or shorter periods calculated
from all measured data values during each period. If values are
measured more frequently than once per minute, a single value for each
minute may be used to calculate the hourly (or shorter period) block
average instead of all measured values. Owners or operators of batch
process vents must record each measured data value.
(3) Daily average (or batch cycle daily average) values of each
continuously monitored parameter shall be calculated for each operating
day as specified in paragraphs (d)(3)(i) through (d)(3)(ii) of this
section, except as specified in paragraph (d)(6) of this section.
(i) The daily average value or batch cycle daily average shall be
calculated as the average of all parameter values recorded during the
operating day. As specified in Sec. 63.1326(e)(2)(i), only parameter
values measured during those batch emission episodes, or portions
thereof, in the batch cycle that the owner or operator has chosen to
control shall be used to calculate the average. The calculated average
shall cover a 24-hour period if operation is continuous, or the number
of hours of operation per operating day if operation is not continuous.
(ii) The operating day shall be the period the owner or operator
specifies in the operating permit or the Notification of Compliance
Status. It may be from midnight to midnight or another 24-hour period.
(4) Records required when out of compliance. If the daily average
(or batch cycle daily average) value of a monitored parameter for a
given operating day is below the minimum level or above the maximum
level established in the Notification of Compliance Status or operating
permit, the owner or operator shall retain the data recorded that
operating day under paragraph (d)(2) of this section.
(5) Records required when in compliance for daily average value or
batch cycle daily average value. If the daily average (or batch cycle
daily average) value of a monitored parameter for a given operating day
is above the minimum level or below the maximum level established in
the Notification of Compliance Status or operating permit, the owner or
operator shall either:
(i) Retain block average values for 1 hour or shorter periods for
that operating day; or
(ii) Retain the data recorded in paragraph (d)(2) of this section.
(6) Records required when all recorded values are in compliance. If
all recorded values for a monitored parameter during an operating day
are above the minimum level or below the maximum level established in
the Notification of Compliance Status or operating permit, the owner or
operator may record that all values were above the minimum level or
below the maximum level rather than calculating and recording a daily
average (or batch cycle daily average) for that operating day. For
these operating days, the records required in paragraph (d)(5) of this
section shall also be retained for 5 years.
(7) Monitoring data recorded during periods of monitoring system
breakdowns, repairs, calibration checks, and zero (low-level) and high-
level adjustments shall not be included in any average computed under
this subpart. Records shall be kept of the times and durations of all
such periods.
(8) In addition to the periods specified in paragraph (d)(7) of
this section, records shall be kept of the times and durations of any
other periods during process operation or control device operation when
monitors are not operating. For batch process vents, this paragraph
(d)(8) only applies during batch emission episodes, or portions
thereof, that the owner or operator has selected to control.
(9) For each TPPU that is not part of the affected source because
it does not use as a reactant or process solvent, or produce as a by-
product or co-product any organic HAP, the owner or operator shall
maintain the documentation specified in Sec. 63.1310(b)(1).
(10) For each flexible operation unit in which the primary product
is determined to be something other than a thermoplastic product, the
owner or operator shall maintain the documentation specified in
Sec. 63.1310(f)(6).
(e) Reporting and notification.
(1) In addition to the reports and notifications required by
subparts A and H of this part, as specified in this
[[Page 48276]]
subpart, the owner or operator of an affected source shall prepare and
submit the reports listed in paragraphs (e)(3) through (e)(8) of this
section, as applicable.
(2) All reports required under this subpart shall be sent to the
Administrator at the addresses listed in Sec. 63.13. If acceptable to
both the Administrator and the owner or operator of an affected source,
reports may be submitted on electronic media.
(3) Precompliance Report. Affected sources requesting an extension
for compliance, or requesting approval to use alternative monitoring
parameters, alternative continuous monitoring and recordkeeping, or
alternative controls, shall submit a Precompliance Report according to
the schedule described in paragraph (e)(3)(i) of this section. The
Precompliance Report shall contain the information specified in
paragraphs (e)(3)(ii) through (e)(3)(vi) of this section, as
appropriate.
(i) Submittal dates. The Precompliance Report shall be submitted to
the Administrator no later than 12 months prior to the compliance date.
For new affected sources, the Precompliance Report shall be submitted
to the Administrator with the application for approval of construction
or reconstruction required in paragraph (b)(2) of this section.
(ii) A request for an extension for compliance must be submitted in
the Precompliance Report, if it has not been submitted to the operating
permit authority as part of the operating permit application. The
request for a compliance extension will include the data outlined in
Sec. 63.6(i)(6)(i) (A), (B), and (D), as required in
Sec. 63.1311(e)(1).
(iii) The alternative monitoring parameter information required in
paragraph (f) of this section shall be submitted if, for any emission
point, the owner or operator of an affected source seeks to comply
through the use of a control technique other than those for which
monitoring parameters are specified in this subpart or in subpart G of
this part or seeks to comply by monitoring a different parameter than
those specified in this subpart or in subpart G of this part.
(iv) If the affected source seeks to comply using alternative
continuous monitoring and recordkeeping as specified in paragraph (g)
of this section, the information requested in paragraph (e)(3)(iv)(A)
or (e)(3)(iv)(B) of this section must be submitted in the Precompliance
Report.
(A) The owner or operator must submit notification of the intent to
use the provisions specified in paragraph (g) of this section; or
(B) The owner or operator must submit a request for approval to use
alternative continuous monitoring and recordkeeping provisions as
specified in paragraph (g) of this section.
(v) The owner or operator shall report the intent to use
alternative controls to comply with the provisions of this subpart.
Alternative controls must be deemed by the Administrator to be
equivalent to the controls required by the standard, under the
procedures outlined in Sec. 63.6(g).
(vi) If an owner or operator demonstrates that the emissions
estimation equations contained in Sec. 63.1323(b) are inappropriate as
specified in Sec. 63.1323(b)(6)(ii)(B), the information required by
Sec. 63.1323(b)(6)(ii)(D) shall be submitted.
(vii) If an owner or operator establishes parameter monitoring
levels according to the procedures contained in Sec. 63.1334 (c) or
(d), the information specified by Sec. 63.1334 (c) or (d), as
appropriate.
(4) Emissions Averaging Plan. For all existing affected sources
using emissions averaging, an Emissions Averaging Plan shall be
submitted for approval according to the schedule and procedures
described in paragraph (e)(4)(i) of this section. The Emissions
Averaging Plan shall contain the information specified in paragraph
(e)(4)(ii) of this section, unless the information required in
paragraph (e)(4)(ii) of this section is submitted with an operating
permit application. An owner or operator of an affected source who
submits an operating permit application instead of an Emissions
Averaging Plan shall submit the information specified in paragraph
(e)(8) of this section. In addition, a supplement to the Emissions
Averaging Plan, as required under paragraph (e)(4)(iii) of this
section, is to be submitted whenever alternative controls or operating
scenarios may be used to comply with this subpart. Updates to the
Emissions Averaging Plan shall be submitted in accordance with
paragraph (e)(4)(iv) of this section.
(i) Submittal and approval. The Emissions Averaging Plan shall be
submitted no later than 18 months prior to the compliance date, and it
is subject to Administrator approval. The Administrator shall determine
within 120 operating days whether the Emissions Averaging Plan
submitted presents sufficient information. The Administrator shall
either approve the Emissions Averaging Plan, request changes, or
request that the owner or operator submit additional information. Once
the Administrator receives sufficient information, the Administrator
shall approve, disapprove, or request changes to the plan within 120
operating days.
(ii) Information required. The Emissions Averaging Plan shall
contain the information listed in paragraphs (e)(4)(ii)(A) through
(e)(4)(ii)(K) of this section for all emission points included in an
emissions average.
(A) The required information shall include the identification of
all emission points in the planned emissions average and, where
applicable, notation of whether each storage vessel, continuous process
vent, batch process vent, aggregate batch vent stream, and process
wastewater stream is a Group 1 or Group 2 emission point, as defined in
Sec. 63.1312 or as designated under Sec. 63.1332 (c)(3) through (c)(5).
(B) The required information shall include the projected emission
debits and credits for each emission point and the sum for the emission
points involved in the average calculated according to Sec. 63.1332.
The projected credits must be greater than or equal to the projected
debits, as required under Sec. 63.1332(e)(3).
(C) The required information shall include the specific control
technology or pollution prevention measure that will be used for each
emission point included in the average and date of application or
expected date of application.
(D) The required information shall include the specific
identification of each emission point affected by a pollution
prevention measure. To be considered a pollution prevention measure,
the criteria in Sec. 63.1332(j)(1) must be met. If the same pollution
prevention measure reduces or eliminates emissions from multiple
emission points in the average, the owner or operator must identify
each of these emission points.
(E) The required information shall include a statement that the
compliance demonstration, monitoring, inspection, recordkeeping, and
reporting provisions in Sec. 63.1332 (m), (n), and (o) that are
applicable to each emission point in the emissions average will be
implemented beginning on or before the date of compliance.
(F) The required information shall include documentation of the
data listed in paragraphs (e)(4)(ii)(F)(1) through (e)(4)(ii)(F)(5) of
this section for each storage vessel and continuous process vent
subject to Sec. 63.1315 included in the average.
(1) The required documentation shall include the values of the
parameters used to determine whether the emission point is Group 1 or
Group 2. Where TRE index value is used for continuous
[[Page 48277]]
process vent group determination, the estimated or measured values of
the parameters used in the TRE equation in Sec. 63.115(d) and the
resulting TRE index value shall be submitted.
(2) The required documentation shall include the estimated values
of all parameters needed for input to the emission debit and credit
calculations in Sec. 63.1332 (g) and (h). These parameter values shall
be specified in the affected source's Emissions Averaging Plan (or
operating permit) as enforceable operating conditions. Changes to these
parameters must be reported as required by paragraph (e)(4)(iv) of this
section.
(3) The required documentation shall include the estimated percent
reduction if a control technology achieving a lower percent reduction
than the efficiency of the applicable reference control technology or
standard is or will be applied to the emission point.
(4) The required documentation shall include the anticipated
nominal efficiency if a control technology achieving a greater percent
emission reduction than the efficiency of the reference control
technology is or will be applied to the emission point. The procedures
in Sec. 63.1332(i) shall be followed to apply for a nominal efficiency.
(5) The required documentation shall include the operating plan
required by Sec. 63.1314, as specified in Sec. 63.122 (a)(2) and (b)
for each storage vessel controlled with a closed-vent system with a
control device other than a flare.
(G) The information specified in paragraph (f) of this section
shall be included in the Emissions Averaging Plan for:
(1) Each continuous process vent subject to Sec. 63.1315 controlled
by a pollution prevention measure or control technique for which
monitoring parameters or inspection procedures are not specified in
Sec. 63.114; and
(2) Each storage vessel controlled by pollution prevention or a
control technique other than an internal or external floating roof or a
closed vent system with a control device.
(H) The required information shall include documentation of the
data listed in paragraphs (e)(4)(ii)(H)(1) through (e)(4)(ii)(H)(5) of
this section for each collection of continuous process vents located in
a process section within the affected source subject to Sec. 63.1316
(b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii), or (c)(1) included in the
average.
(1) For continuous process vents subject to Sec. 63.1316(b)(1)(i),
the required documentation shall include the values of the parameters
used to determine whether the emission point is Group 1 or Group 2.
Continuous process vents subject to Sec. 63.1316 (b)(1)(ii), (b)(2)(i),
(b)(2)(ii), or (c)(1) are considered Group 1 emission points for
purposes of emissions averaging, as specified in Sec. 63.1332(c)(5).
(2) The required documentation shall include the estimated values
of all parameters needed for input to the emission debit and credit
calculations in Sec. 63.1332 (g) and (h). These parameter values shall
be specified in the affected source's Emissions Averaging Plan (or
operating permit) as enforceable operating conditions. Changes to these
parameters must be reported as required by paragraph (e)(4)(iv) of this
section.
(3) For process sections generating debits or credits by comparing
actual emissions expressed as kg HAP emissions per Mg of product to the
applicable standard, the required documentation shall include the
actual emission level expressed as kg HAP emissions per Mg of product.
(4) For process sections using combustion control devices, the
required documentation shall include the estimated percent reduction if
a control technology achieving a lower percent reduction than the
efficiency of the applicable reference control technology or standard
is or will be applied to the emission point.
(5) For process sections using combustion control devices, the
required documentation shall include the anticipated nominal efficiency
if a control technology achieving a greater percent emission reduction
than the efficiency of the reference control technology is or will be
applied to the emission point. The procedures in Sec. 63.1332(i) shall
be followed to apply for a nominal efficiency.
(I) For each pollution prevention measure or control device used to
reduce air emissions of organic HAP from each collection of continuous
process vents located in a process section within the affected source
subject to Sec. 63.1316 (b)(1)(i), (b)(1)(ii), (b)(2)(i), (b)(2)(ii),
or (c)(1) and for which no monitoring parameters or inspection
procedures are specified in Sec. 63.114, the information specified in
paragraph (f) of this section, Alternative Monitoring Parameters, shall
be included in the Emissions Averaging Plan.
(J) The required information shall include documentation of the
data listed in paragraphs (e)(4)(ii)(J)(1) through (e)(4)(ii)(J)(3) of
this section for each batch process vent and aggregate batch vent
stream included in the average.
(1) The required documentation shall include the values of the
parameters used to determine whether the emission point is Group 1 or
Group 2.
(2) The required documentation shall include the estimated values
of all parameters needed for input to the emission debit and credit
calculations in Sec. 63.1332 (g) and (h). These parameter values shall
be specified in the affected source's Emissions Averaging Plan (or
operating permit) as enforceable operating conditions. Changes to these
parameters must be reported as required by paragraph (e)(4)(iv) of this
section.
(3) For batch process vents, the required documentation shall
include the estimated percent reduction for the batch cycle. For
aggregate batch vent streams, the required documentation shall include
the estimated percent reduction achieved on a continuous basis.
(K) For each pollution prevention measure or control device used to
reduce air emissions of organic HAP from batch process vents or
aggregate batch vent streams and for which no monitoring parameters or
inspection procedures are specified in Sec. 63.1324, the information
specified in paragraph (f) of this section, Alternative Monitoring
Parameters, shall be included in the Emissions Averaging Plan.
(L) The required information shall include documentation of the
data listed in paragraphs (e)(4)(ii)(L)(1) through (e)(4)(ii)(L)(4) of
this section for each process wastewater stream included in the
average.
(1) The required documentation shall include the data used to
determine whether the wastewater stream is a Group 1 or Group 2
wastewater stream and the information specified in Table 14b of subpart
G of this part for wastewater streams at new and existing affected
sources.
(2) The required documentation shall include the estimated values
of all parameters needed for input to the wastewater emission credit
and debit calculations in Sec. 63.1332 (g) and (h). These parameter
values shall be specified in the affected source's Emissions Averaging
Plan (or operating permit) as enforceable operating conditions. Changes
to these parameters must be reported as required by paragraph
(e)(4)(iv) of this section.
(3) The required documentation shall include the estimated percent
reduction if:
(i) A control technology that achieves an emission reduction less
than or equal to the emission reduction that would otherwise have been
achieved by a steam stripper designed to the specifications found in
Sec. 63.138(g) is or
[[Page 48278]]
will be applied to the wastewater stream;
(ii) A control technology achieving less than or equal to 95
percent emission reduction is or will be applied to the vapor stream(s)
vented and collected from the treatment processes; or
(iii) A pollution prevention measure is or will be applied.
(4) The required documentation shall include the anticipated
nominal efficiency if the owner or operator plans to apply for a
nominal efficiency under Sec. 63.1332(i). A nominal efficiency shall be
applied for if:
(i) A control technology that achieves an emission reduction
greater than the emission reduction that would have been achieved by a
steam stripper designed to the specifications found in Sec. 63.138(g),
is or will be applied to the wastewater stream; or
(ii) A control technology achieving greater than 95 percent
emission reduction is or will be applied to the vapor stream(s) vented
and collected from the treatment processes.
(M) For each pollution prevention measure, treatment process, or
control device used to reduce air emissions of organic HAP from
wastewater and for which no monitoring parameters or inspection
procedures are specified in Sec. 63.143, the information specified in
paragraph (f) of this section, Alternative Monitoring Parameters, shall
be included in the Emissions Averaging Plan.
(N) The required information shall include documentation of the
data required by Sec. 63.1332(k). The documentation must demonstrate
that the emissions from the emission points proposed to be included in
the average will not result in greater hazard or, at the option of the
Administrator, greater risk to human health or the environment than if
the emission points were not included in an emissions average.
(iii) Supplement to Emissions Averaging Plan. The owner or operator
required to prepare an Emissions Averaging Plan under paragraph (e)(4)
of this section shall also prepare a supplement to the Emissions
Averaging Plan for any alternative controls or operating scenarios that
may be used to achieve compliance.
(iv) Updates to Emissions Averaging Plan. The owner or operator of
an affected source required to submit an Emissions Averaging Plan under
paragraph (e)(4) of this section shall also submit written updates of
the Emissions Averaging Plan to the Administrator for approval under
the circumstances described in paragraphs (e)(4)(iv)(A) and
(e)(4)(iv)(B) of this section unless the relevant information has been
included and submitted in an operating permit application or amendment.
(A) The owner or operator who plans to make a change listed in
either paragraph (e)(4)(iv)(A)(1) or (e)(4)(iv)(A)(2) of this section
shall submit an Emissions Averaging Plan update at least 120 operating
days prior to making the change.
(1) An Emissions Averaging Plan update shall be submitted whenever
an owner or operator elects to achieve compliance with the emissions
averaging provisions in Sec. 63.1332 by using a control technique other
than that specified in the Emissions Averaging Plan or plans to monitor
a different parameter or operate a control device in a manner other
than that specified in the Emissions Averaging Plan.
(2) An Emissions Averaging Plan update shall be submitted whenever
an emission point or a TPPU is added to an existing affected source and
is planned to be included in an emissions average, or whenever an
emission point not included in the emissions average described in the
Emissions Averaging Plan is to be added to an emissions average. The
information in paragraph (e)(4) of this section shall be updated to
include the additional emission point.
(B) The owner or operator who has made a change as defined in
paragraph (e)(4)(iv)(B)(1) or (e)(4)(iv)(B)(2) of this section shall
submit an Emissions Averaging Plan update within 90 operating days
after the information regarding the change is known to the affected
source. The update may be submitted in the next quarterly periodic
report if the change is made after the date the Notification of
Compliance Status is due.
(1) An Emissions Averaging Plan update shall be submitted whenever
a process change is made such that the group status of any emission
point in an emissions average changes.
(2) An Emissions Averaging Plan update shall be submitted whenever
a value of a parameter in the emission credit or debit equations in
Sec. 63.1332 (g) or (h) changes such that it is below the minimum or
above the maximum established level specified in the Emissions
Averaging Plan and causes a decrease in the projected credits or an
increase in the projected debits.
(C) The Administrator shall approve or request changes to the
Emissions Averaging Plan update within 120 operating days of receipt of
sufficient information regarding the change for emission points
included in emissions averages.
(5) Notification of Compliance Status. For existing and new
affected sources, a Notification of Compliance Status shall be
submitted within 150 operating days after the compliance dates
specified in Sec. 63.1311. The notification shall contain the
information listed in paragraphs (e)(5)(i) through (e)(5)(viii) of this
section.
(i) The results of any emission point group determinations, process
section applicability determinations, performance tests, inspections,
continuous monitoring system performance evaluations, any other
information used to demonstrate compliance, and any other information
required to be included in the Notification of Compliance Status under
Sec. 63.122 for storage vessels, Sec. 63.117 for continuous process
vents, Sec. 63.146 for process wastewater, Sec. 63.1316 through
Sec. 63.1320 for continuous process vents subject to Sec. 63.1316,
Sec. 63.1327 for batch process vents, Sec. 63.1329 for process contact
cooling towers, and Sec. 63.1332 for emission points included in an
emissions average. In addition, each owner or operator shall comply
with paragraph (e)(5)(i)(A) and (e)(5)(i)(B) of this section.
(A) For performance tests, group determinations, and process
section applicability determinations that are based on measurements,
the Notification of Compliance Status shall include one complete test
report, as described in paragraph (e)(5)(i)(B) of this section, for
each test method used for a particular kind of emission point. For
additional tests performed for the same kind of emission point using
the same method, the results and any other required information shall
be submitted, but a complete test report is not required.
(B) A complete test report shall include a brief process
description, sampling site description, description of sampling and
analysis procedures and any modifications to standard procedures,
quality assurance procedures, record of operating conditions during the
test, record of preparation of standards, record of calibrations, raw
data sheets for field sampling, raw data sheets for field and
laboratory analyses, documentation of calculations, and any other
information required by the test method.
(ii) For each monitored parameter for which a maximum or minimum
level is required to be established under Sec. 63.120(d)(3) for storage
vessels, Sec. 63.114(e) for continuous process vents, Sec. 63.1324 for
batch process vents and aggregate batch vent streams, Sec. 63.143(f)
for process wastewater, Sec. 63.1332(m) for emission points in
emissions averages,
[[Page 48279]]
paragraph (e)(8) or (f) of this section, the Notification of Compliance
Status shall contain the information specified in paragraphs
(e)(5)(ii)(A) through (e)(5)(ii)(D) of this section, unless this
information has been established and provided in the operating permit.
(A) The required information shall include the specific maximum or
minimum level of the monitored parameter(s) for each emission point.
(B) The required information shall include the rationale for the
specific maximum or minimum level for each parameter for each emission
point, including any data and calculations used to develop the level
and a description of why the level indicates proper operation of the
control device.
(C) The required information shall include a definition of the
affected source's operating day, as specified in paragraph (d)(3)(ii)
of this section, for purposes of determining daily average values or
batch cycle daily average values of monitored parameters.
(D) For batch process vents, the required information shall include
a definition of each batch cycle that requires the control of one or
more batch emission episodes during the cycle, as specified in
Sec. 63.1325(c)(2) and Sec. 63.1334(b)(3)(iii).
(iii) For emission points included in an emissions average, the
Notification of Compliance Status shall contain the values of all
parameters needed for input to the emission credit and debit equations
in Sec. 63.1332 (g) and (h), calculated or measured according to the
procedures in Sec. 63.1332 (g) and (h), and the resulting calculation
of credits and debits for the first quarter of the year. The first
quarter begins on the compliance date specified.
(iv) The determination of applicability for flexible operation
units as specified in Sec. 63.1310(f)(6).
(v) The parameter monitoring levels for flexible operation units,
and the basis on which these levels were selected, or a demonstration
that these levels are appropriate at all times, as specified in
Sec. 63.1310(f)(7).
(vi) The results for each predominant use determination for storage
vessels belonging to an affected source subject to this subpart that is
made under Sec. 63.1310(g)(6).
(vii) The results for each predominant use determination for
recovery operation equipment belonging to an affected source subject to
this subpart that is made under Sec. 63.1310(h)(6).
(viii) For owners or operators of Group 2 batch process vents
establishing a batch cycle limitation as specified in Sec. 63.1325(g),
the affected source's operating year for purposes of determining
compliance with the batch cycle limitation.
(6) Periodic Reports. For existing and new affected sources, each
owner or operator shall submit Periodic Reports as specified in
paragraphs (e)(6)(i) through (e)(6)(xi) of this section.
(i) Except as specified in paragraphs (e)(6)(x) and (e)(6)(xi) of
this section, a report containing the information in paragraph
(e)(6)(ii) of this section or containing the information in paragraphs
(e)(6)(iii) through (e)(6)(ix) of this section, as appropriate, shall
be submitted semiannually no later than 60 operating days after the end
of each 180 day period. The first report shall be submitted no later
than 240 days after the date the Notification of Compliance Status is
due and shall cover the 6-month period beginning on the date the
Notification of Compliance Status is due. Subsequent reports shall
cover each preceding 6-month period.
(ii) If none of the compliance exceptions specified in paragraphs
(e)(6)(iii) through (e)(6)(ix) of this section occurred during the 6-
month period, the Periodic Report required by paragraph (e)(6)(i) of
this section shall be a statement that the affected source was in
compliance for the preceding 6-month period and no activities specified
in paragraphs (e)(6)(iii) through (e)(6)(ix) of this section occurred
during the preceding 6-month period.
(iii) For an owner or operator of an affected source complying with
the provisions of Secs. 63.1314 through 63.1330 for any emission point
or process section, Periodic Reports shall include:
(A) All information specified in Sec. 63.122 for storage vessels;
Secs. 63.117 and 63.118 and Sec. 63.1320 for continuous process vents,
as applicable; Sec. 63.1327 for batch process vents and aggregate batch
vent streams; Sec. 63.104 for heat exchange systems; and Sec. 63.146
for process wastewater;
(B) The daily average values or batch cycle daily average values of
monitored parameters for both excused excursions, as defined in
Sec. 63.1334(g), and unexcused excursions, as defined in
Sec. 63.1334(f). For excursions caused by lack of monitoring data, the
duration of periods when monitoring data were not collected shall be
specified;
(C) The periods when monitoring data were not collected shall be
specified;
(D) The information in paragraphs (e)(6)(iii)(D)(1) through
(e)(6)(iii)(D)(3) of this section, as applicable:
(1) Any supplements to the Emissions Averaging Plan, as required in
paragraph (e)(4)(iii) of this section;
(2) Notification if a process change is made such that the group
status of any emission point changes. The information submitted shall
include a compliance schedule, as specified in paragraphs
(e)(6)(iii)(D)(2)(i) and (e)(6)(iii)(D)(2)(ii) of this section, for
emission points that are added or that change from Group 2 to Group 1
as specified in Sec. 63.1310(i)(2)(ii); for continuous process vents
under the conditions listed in Sec. 63.1315(a)(12) or
Sec. 63.1320(b)(3), as applicable; or for batch process vents under the
conditions listed in Sec. 63.1327(b) or Sec. 63.1327(d). This
information may be submitted in a separate report, as specified in
Sec. 63.1315(a)(12), Sec. 63.1320(b)(3), Sec. 63.1327(b), or
Sec. 63.1327(d); and
(i) The owner or operator shall submit to the Administrator for
approval a compliance schedule and a justification for the schedule.
(ii) The Administrator shall approve the compliance schedule or
request changes within 120 operating days of receipt of the compliance
schedule and justification.
(3) Notification if one or more emission point(s) or one or more
TPPU is added to an affected source. The owner or operator shall submit
the information contained in paragraphs (e)(6)(iii)(D)(3)(i) through
(e)(6)(iii)(D)(3)(iii) of this section:
(i) A description of the addition to the affected source;
(ii) Notification of the group status of the additional emission
point or all emission points in the TPPU; and
(iii) A compliance schedule, as required under paragraph
(e)(6)(iii)(D)(2) of this section.
(E) The information in paragraph (b)(1)(ii) of this section for
reports of start-up, shutdown, and malfunction.
(iv) For each batch process vent with a batch cycle limitation,
every second Periodic Report shall include the type and number of batch
cycles accomplished during the preceding 12-month period and a
statement that the batch process vent is either in or out of compliance
with the batch cycle limitation.
(v) If any performance tests are reported in a Periodic Report, the
following information shall be included:
(A) One complete test report shall be submitted for each test
method used for a particular kind of emission point tested. A complete
test report shall contain the information specified in paragraph
(e)(5)(i)(B) of this section.
(B) For additional tests performed for the same kind of emission
point using the same method, results and any other information required
shall be submitted, but a complete test report is not required.
[[Page 48280]]
(vi) The Periodic Report shall include the results for each change
made to a primary product determination for a thermoplastic product
made under Sec. 63.1310(f)(6).
(vii) The Periodic Report shall include the results for each change
made to a predominant use determination for a storage vessel belonging
to an affected source subject to this subpart that is made under
Sec. 63.1310(g)(6).
(viii) The Periodic Report shall include the results for each
change made to a predominant use determination for recovery operation
equipment belonging to an affected source subject to this subpart that
is made under Sec. 63.1310(h)(6).
(ix) The Periodic Report required by Sec. 63.1331(a)(5) may be
submitted as part of the Periodic Report required by paragraph (e)(6)
of this section.
(x) The owner or operator of an affected source shall submit
quarterly reports for all emission points included in an emissions
average.
(A) The quarterly reports shall be submitted no later than 60
operating days after the end of each quarter. The first report shall be
submitted with the Notification of Compliance Status no later than 150
days after the compliance date.
(B) The quarterly reports shall include the information specified
in paragraphs (e)(6)(x)(B)(1) through (e)(6)(x)(B)(7) of this section
for all emission points included in an emissions average.
(1) The credits and debits calculated each month during the
quarter;
(2) A demonstration that debits calculated for the quarter are not
more than 1.30 times the credits calculated for the quarter, as
required under Sec. 63.1332(e)(4);
(3) The values of any inputs to the debit and credit equations in
Sec. 63.1332(g) and (h) that change from month to month during the
quarter or that have changed since the previous quarter;
(4) Results of any performance tests conducted during the reporting
period including one complete report for each test method used for a
particular kind of emission point as described in paragraph (e)(6)(v)
of this section;
(5) Reports of daily average (or batch cycle daily average) values
of monitored parameters for excursions as defined in Sec. 63.1334(f);
(6) For excursions caused by lack of monitoring data, the duration
of periods when monitoring data were not collected shall be specified;
and
(7) Any other information the affected source is required to report
under the operating permit or Emissions Averaging Plan for the affected
source.
(C) Sec. 63.1334 shall govern the use of monitoring data to
determine compliance for Group 1 and Group 2 emission points included
in emissions averages.
(D) Every fourth quarterly report shall include the following:
(1) A demonstration that annual credits are greater than or equal
to annual debits as required by Sec. 63.1332(e)(3); and
(2) A certification of compliance with all the emissions averaging
provisions in Sec. 63.1332.
(xi) The owner or operator of an affected source shall submit
quarterly reports for particular emission points and process sections
not included in an emissions average as specified in paragraphs
(e)(6)(xi)(A) through (e)(6)(xi)(E) of this section.
(A) If requested by the Administrator, the owner or operator of an
affected source shall submit quarterly reports for a period of 1 year
for an emission point or process section that is not included in an
emissions average if either condition in paragraph (e)(6)(xi)(A)(1) or
(e)(6)(xi)(A)(2) of this section is met.
(1) An emission point has any excursions, as defined in
Sec. 63.1334(f), for a semiannual reporting period.
(2) A process section subject to Sec. 63.1316 is out of compliance
with its applicable standard.
(B) The quarterly reports shall include all information specified
in paragraphs (e)(6)(iii) through (e)(6)(ix) of this section applicable
to the emission point or process section for which quarterly reporting
is required under paragraph (e)(6)(xi)(A) of this section. Information
applicable to other emission points within the affected source shall be
submitted in the semiannual reports required under paragraph (e)(6)(i)
of this section.
(C) Quarterly reports shall be submitted no later than 60 operating
days after the end of each quarter.
(D) After quarterly reports have been submitted for an emission
point for 1 year, the owner or operator may return to semiannual
reporting for the emission point or process section unless the
Administrator requests the owner or operator to continue to submit
quarterly reports.
(E) Sec. 63.1334 shall govern the use of monitoring data to
determine compliance for Group 1 emission points.
(7) Other reports. Other reports shall be submitted as specified in
paragraphs (e)(7)(i) through (e)(7)(ii) of this section.
(i) For storage vessels, the notifications of inspections required
by Sec. 63.1314 shall be submitted as specified in Sec. 63.122 (h)(1)
and (h)(2).
(ii) For owners or operators of affected sources required to
request approval for a nominal control efficiency for use in
calculating credits for an emissions average, the information specified
in Sec. 63.1332(i) shall be submitted.
(8) Operating permit. An owner or operator who submits an operating
permit application instead of an Emissions Averaging Plan or a
Precompliance Report shall submit the following information with the
operating permit application:
(i) The information specified in paragraph (e)(4) of this section
for points included in an emissions average;
(ii) The information specified in paragraph (e)(5) of this section,
Notification of Compliance Status, as applicable; and
(iii) The information specified in paragraph (e)(3) of this
section, Precompliance Report, as applicable.
(f) Alternative monitoring parameters. The owner or operator who
has been directed by any section of this subpart to set unique
monitoring parameters, or who requests approval to monitor a different
parameter than those specified in Sec. 63.1314 for storage vessels,
Sec. 63.1315 or 63.1317, as appropriate, for continuous process vents,
Sec. 63.1321 for batch process vents and aggregate batch vent streams,
or Sec. 63.1330 for wastewater shall submit the information specified
in paragraphs (f)(1) through (f)(3) of this section in the
Precompliance Report, as required by paragraph (e)(3) of this section.
The owner or operator shall retain for a period of 5 years each record
required by paragraphs (f)(1) through (f)(3) of this section.
(1) The required information shall include a description of the
parameter(s) to be monitored to ensure the recovery device, control
device, or pollution prevention measure is operated in conformance with
its design and achieves the specified emission limit, percent
reduction, or nominal efficiency, and an explanation of the criteria
used to select the parameter(s).
(2) The required information shall include a description of the
methods and procedures that will be used to demonstrate that the
parameter indicates proper operation, the schedule for this
demonstration, and a statement that the owner or operator will
establish a level for the monitored parameter as part of the
Notification of Compliance Status report required in paragraph (e)(5)
of this section, unless this information has already been included in
the operating permit application.
(3) The required information shall include a description of the
proposed
[[Page 48281]]
monitoring, recordkeeping, and reporting system, to include the
frequency and content of monitoring, recordkeeping, and reporting.
Further, the rationale for the proposed monitoring, recordkeeping, and
reporting system shall be included if either condition in paragraph
(f)(3)(i) or (f)(3)(ii) of this section is met:
(i) If monitoring and recordkeeping is not continuous; or
(ii) If reports of daily average values will not be included in
Periodic Reports when the monitored parameter value is above the
maximum level or below the minimum level as established in the
operating permit or the Notification of Compliance Status.
(g) Alternative continuous monitoring and recordkeeping. An owner
or operator choosing not to implement the provisions listed in
Sec. 63.1315 or 63.1317, as appropriate, for continuous process vents,
Sec. 63.1321 for batch process vents and aggregate batch vent streams,
Sec. 63.1314 for storage vessels, or Sec. 63.1330 for wastewater, may
instead request approval to use alternative continuous monitoring and
recordkeeping provisions according to the procedures specified in
paragraphs (g)(1) through (g)(4) of this section. Requests shall be
submitted in the Precompliance Report as specified in paragraph (e)(3)
of this section, if not already included in the operating permit
application, and shall contain the information specified in paragraphs
(g)(2)(ii) and (g)(3)(ii) of this section, as applicable.
(1) The provisions in Sec. 63.8(f)(5)(i) shall govern the review
and approval of requests.
(2) An owner or operator of an affected source that does not have
an automated monitoring and recording system capable of measuring
parameter values at least once every 15 minutes and that does not
generate continuous records may request approval to use a nonautomated
system with less frequent monitoring, in accordance with paragraphs
(g)(2)(i) and (g)(2)(ii) of this section.
(i) The requested system shall include manual reading and recording
of the value of the relevant operating parameter no less frequently
than once per hour. Daily average (or batch cycle daily average) values
shall be calculated from these hourly values and recorded.
(ii) The request shall contain:
(A) A description of the planned monitoring and recordkeeping
system;
(B) Documentation that the affected source does not have an
automated monitoring and recording system;
(C) Justification for requesting an alternative monitoring and
recordkeeping system; and
(D) Demonstration to the Administrator's satisfaction that the
proposed monitoring frequency is sufficient to represent control or
recovery device operating conditions, considering typical variability
of the specific process and control or recovery device operating
parameter being monitored.
(3) An owner or operator may request approval to use an automated
data compression recording system that does not record monitored
operating parameter values at a set frequency (for example, once every
15 minutes) but records all values that meet set criteria for variation
from previously recorded values, in accordance with paragraphs
(g)(3)(i) and (g)(3)(ii) of this section.
(i) The requested system shall be designed to:
(A) Measure the operating parameter value at least once every 15
minutes;
(B) Except for the monitoring of batch process vents, calculate
hourly average values each hour during periods of operation;
(C) Record the date and time when monitors are turned off or on;
(D) Recognize unchanging data that may indicate the monitor is not
functioning properly, alert the operator, and record the incident;
(E) Calculate daily average (or batch cycle daily average) values
of the monitored operating parameter based on all measured data; and
(F) If the daily average is not an excursion, as defined in
Sec. 63.1334(f), the data for that operating day may be converted to
hourly average values and the four or more individual records for each
hour in the operating day may be discarded.
(ii) The request shall contain:
(A) A description of the monitoring system and data compression
recording system, including the criteria used to determine which
monitored values are recorded and retained;
(B) The method for calculating daily averages and batch cycle daily
averages; and
(C) A demonstration that the system meets all criteria in paragraph
(g)(3)(i) of this section.
(4) An owner or operator may request approval to use other
alternative monitoring systems according to the procedures specified in
Sec. 63.8(f).
(h) Reduced recordkeeping program. For any parameter with respect
to any item of equipment, the owner or operator may implement the
recordkeeping requirements specified in paragraph (h)(1) or (h)(2) of
this section as alternatives to the provisions specified in
Sec. 63.1314 for storage vessels, Sec. 63.1315 or 63.1317, as
appropriate, for continuous process vents, Sec. 63.1321 for batch
process vents and aggregate batch vent streams, or Sec. 63.1330 for
wastewater. The owner or operator shall retain for a period of 5 years
each record required by paragraph (h)(1) or (h)(2) of this section.
(1) The owner or operator may retain only the daily average (or
batch cycle daily average) value, and is not required to retain more
frequent monitored operating parameter values, for a monitored
parameter with respect to an item of equipment, if the requirements of
paragraphs (h)(1)(i) through (h)(1)(vi) of this section are met. An
owner or operator electing to comply with the requirements of paragraph
(h)(1) of this section shall notify the Administrator in the
Notification of Compliance Status or, if the Notification of Compliance
Status has already been submitted, in the Periodic Report immediately
preceding implementation of the requirements of paragraph (h)(1) of
this section.
(i) The monitoring system is capable of detecting unrealistic or
impossible data during periods of operation other than start-ups,
shutdowns, or malfunctions (e.g., a temperature reading of -200 deg.C
on a boiler), and will alert the operator by alarm or other means. The
owner or operator shall record the occurrence. All instances of the
alarm or other alert in an operating day constitute a single
occurrence.
(ii) The monitoring system generates, updated at least hourly
throughout each operating day, a running average of the monitoring
values that have been obtained during that operating day, and the
capability to observe this running average is readily available to the
Administrator on-site during the operating day. The owner or operator
shall record the occurrence of any period meeting the criteria in
paragraphs (h)(1)(ii)(A) through (h)(1)(ii)(C) of this section. All
instances in an operating day constitute a single occurrence.
(A) The running average is above the maximum or below the minimum
established limits;
(B) The running average is based on at least six 1-hour periods;
and
(C) The running average reflects a period of operation other than a
start-up, shutdown, or malfunction.
(iii) The monitoring system is capable of detecting unchanging data
during periods of operation other than start-ups, shutdowns, or
malfunctions, except in circumstances where the presence of unchanging
data is the expected
[[Page 48282]]
operating condition based on past experience (e.g., pH in some
scrubbers), and will alert the operator by alarm or other means. The
owner or operator shall record the occurrence. All instances of the
alarm or other alert in an operating day constitute a single
occurrence.
(iv) The monitoring system will alert the owner or operator by an
alarm, if the running average parameter value calculated under
paragraph (h)(1)(ii) of this section reaches a set point that is
appropriately related to the established limit for the parameter that
is being monitored.
(v) The owner or operator shall verify the proper functio
FR Doc. 96-22781 National Emissions Standards for Hazardous Air Pollutant Emissions: Group IV Polymers and Resins
ning of
the monitoring system, including its ability to comply with the
requirements of paragraph (h)(1) of this section, at the times
specified in paragraphs (h)(1)(v)(A) through (h)(1)(v)(C). The owner or
operator shall document that the required verifications occurred.
(A) Upon initial installation.
(B) Annually after initial installation.
(C) After any change to the programming or equipment constituting
the monitoring system, which might reasonably be expected to alter the
monitoring system's ability to comply with the requirements of this
section.
(vi) The owner or operator shall retain the records identified in
paragraphs (h)(1)(vi)(A) through (h)(1)(vi)(C) of this section.
(A) Identification of each parameter, for each item of equipment,
for which the owner or operator has elected to comply with the
requirements of paragraph (h) of this section.
(B) A description of the applicable monitoring system(s), and of
how compliance will be achieved with each requirement of paragraphs
(h)(1)(i) through (h)(1)(v) of this section. The description shall
identify the location and format (e.g., on-line storage, log entries)
for each required record. If the description changes, the owner or
operator shall retain both the current and the most recent superseded
description.
(C) A description, and the date, of any change to the monitoring
system that would reasonably be expected to affect its ability to
comply with the requirements of paragraph (h)(1) of this section.
(2) If an owner or operator has elected to implement the
requirements of paragraph (h)(1) of this section for a monitored
parameter with respect to an item of equipment and a period of 6
consecutive months has passed without an excursion as defined in
paragraph (h)(2)(iv) of this section, the owner or operator is no
longer required to record the daily average (or batch cycle daily
average) value for any operating day when the daily average (or batch
cycle daily average) value is less than the maximum or greater than the
minimum established limit. With approval by the Administrator,
monitoring data generated prior to the compliance date of this subpart
shall be credited toward the period of 6 consecutive months, if the
parameter limit and the monitoring accomplished during the period prior
to the compliance date was required and/or approved by the
Administrator.
(i) If the owner or operator elects not to retain the daily average
(or batch cycle daily average) values, the owner or operator shall
notify the Administrator in the next Periodic Report. The notification
shall identify the parameter and unit of equipment.
(ii) If, on any operating day after the owner or operator has
ceased recording daily average (or batch cycle daily average) values as
provided in paragraph (h)(2) of this section, there is an excursion as
defined in paragraph (h)(2)(iv) of this section, the owner or operator
shall immediately resume retaining the daily average (or batch cycle
daily average) value for each operating day and shall notify the
Administrator in the next Periodic Report. The owner or operator shall
continue to retain each daily average (or batch cycle daily average)
value until another period of 6 consecutive months has passed without
an excursion as defined in paragraph (h)(2)(iv) of this section.
(iii) The owner or operator shall retain the records specified in
paragraphs (h)(1)(i), (h)(1)(ii), and (h)(1)(vi) of this section, for
the duration specified in paragraph (h) of this section. For any
calendar week, if compliance with paragraphs (h)(1)(i) through
(h)(1)(iv) of this section does not result in retention of a record of
at least one occurrence or measured parameter value, the owner or
operator shall record and retain at least one parameter value during a
period of operation other than a start-up, shutdown, or malfunction.
(iv) For purposes of paragraph (h) of this section, an excursion
means that the daily average (or batch cycle daily average) value of
monitoring data for a parameter is greater than the maximum, or less
than the minimum established value, except as provided in paragraphs
(h)(2)(iv)(A) and (h)(2)(iv)(B) of this section.
(A) The daily average (or batch cycle daily average) value during
any start-up, shutdown, or malfunction shall not be considered an
excursion for purposes of paragraph (h)(2) of this section, if the
owner or operator follows the applicable provisions of the start-up,
shutdown, and malfunction plan required by Sec. 63.6(e)(3).
(B) An excused excursion, as described in Sec. 63.1334(g), shall
not be considered an excursion for purposes of paragraph (h)(2) of this
section.
Tables to Subpart JJJ of Part 63
Table 1.--Applicability of General Provisions to Subpart JJJ Affected Sources
----------------------------------------------------------------------------------------------------------------
Reference Applies to subpart JJJ Comment
----------------------------------------------------------------------------------------------------------------
63.1(a)(1)........................................ Yes.......................... Sec. 63.1312 specifies
definitions in addition to
or that supersede
definitions in Sec. 63.2.
63.1(a)(2)-63.1(a)(3)............................. Yes.
63.1(a)(4)........................................ Yes.......................... Subpart JJJ (this table)
specifies the applicability
of each paragraph in subpart
A to subpart JJJ.
63.1(a)(5)........................................ No........................... Reserved.
63.1(a)(6)-63.1(a)(8)............................. Yes.
63.1(a)(9)........................................ No........................... Reserved.
63.1(a)(10)....................................... No........................... Subpart JJJ and other cross-
referenced subparts specify
calendar or operating day.
63.1(a)(11)....................................... Yes.
63.1(a)(12)-63.1(a)(14)........................... Yes.
63.1(b)(1)........................................ Yes.......................... Subpart JJJ (this table)
specifies the applicability
of each paragraph in subpart
A to subpart JJJ.
63.1(b)(2)........................................ Yes.
[[Page 48283]]
63.1(b)(3)........................................ No........................... Sec. 63.1310(b) provides
documentation requirements
for TPPUs not considered
affected sources.
63.1(c)(1)........................................ Yes.......................... Subpart JJJ (this table)
specifies the applicability
of each paragraph in subpart
A to subpart JJJ.
63.1(c)(2)........................................ No........................... Area sources are not subject
to subpart JJJ.
63.1(c)(3)........................................ No........................... Reserved.
63.1(c)(4)........................................ Yes.
63.1(c)(5)........................................ Yes.......................... Except that affected sources
are not required to submit
notifications overridden by
this table.
63.1(d)........................................... No........................... Reserved.
63.1(e)........................................... Yes.
63.2.............................................. Yes.......................... Sec. 63.1312 specifies those
subpart A definitions that
apply to subpart JJJ.
63.3.............................................. Yes.......................... Subpart JJJ specifies those
units of measure that apply
to subpart JJJ.
63.4(a)(1)-63.4(a)(3)............................. Yes.
63.4(a)(4)........................................ No........................... Reserved.
63.4(a)(5)........................................ Yes.
63.4(b)........................................... Yes.
63.4(c)........................................... Yes.
63.5(a)........................................... Yes.
63.5(b)(1)........................................ Yes.
63.5(b)(2)........................................ No........................... Reserved.
63.5(b)(3)........................................ Yes.
63.5(b)(4)........................................ No........................... Area sources are not subject
to subpart JJJ.
63.5(b)(5)........................................ Yes.
63.5(b)(6)........................................ No........................... Sec. 63.1310(i) specifies
requirements.
63.5(c)........................................... No........................... Reserved.
63.5(d)(1)(i)..................................... No.
63.5(d)(1)(ii).................................... Yes.......................... Except that for affected
sources subject to subpart
JJJ, emission estimates
specified in Sec.
63.5(d)(1)(ii)(H) are not
required.
63.5(d)(1)(iii)................................... Yes.......................... Except that Sec.
63.1335(e)(5) specifies
Notification of Compliance
Status requirements.
63.5(d)(2)........................................ No.
63.5(d)(3)........................................ Yes.......................... Except Sec. 63.5(d)(3)(ii)
does not apply.
63.5(d)(4)........................................ Yes.
63.5(e)........................................... Yes.
63.5(f)(1)........................................ Yes.
63.5(f)(2)........................................ Yes.......................... Except that where Sec.
63.5(d)(1) is referred to,
Sec. 63.5(d)(1)(i) does not
apply.
63.6(a)........................................... Yes.
63.6(b)(1)........................................ Yes.
63.6(b)(2)........................................ Yes.
63.6(b)(3)........................................ Yes.
63.6(b)(4)........................................ Yes.
63.6(b)(5)........................................ Yes.
63.6(b)(6)........................................ No........................... Reserved.
63.6(b)(7)........................................ Yes.
63.6(c)(1)........................................ Yes.......................... Sec. 63.1311 specifies the
compliance date.
63.6(c)(2)........................................ Yes.
63.6(c)(3)........................................ No........................... Reserved.
63.6(c)(4)........................................ No........................... Reserved.
63.6(c)(5)........................................ Yes.
63.6(d)........................................... No........................... Reserved.
63.6(e)........................................... Yes.......................... Except the plan, and any
records or reports of start-
up, shutdown and malfunction
do not apply to Group 2
emission points, unless they
are included in an emissions
average.
63.6(f)(1)........................................ Yes.
63.6(f)(2)........................................ Yes.......................... Except Sec. 63.7(c), as
referred to in Sec.
63.6(f)(2)(iii)(D), does not
apply.
63.6(f)(3)........................................ Yes.
63.6(g)........................................... Yes.
63.6(h)........................................... No........................... Subpart JJJ does not require
opacity and visible emission
standards.
63.6(i)........................................... Yes.......................... Except for Sec. 63.6(i)(15),
which is reserved.
63.6(j)........................................... Yes.
63.7(a)(1)........................................ Yes.
63.7(a)(2)........................................ No........................... Sec. 63.1335(e)(5) specifies
submittal dates.
63.7(a)(3)........................................ Yes.
63.7(b)........................................... No........................... Sec. 63.1333(a)(4) specifies
notification requirements.
63.7(c)........................................... No.
63.7(d)........................................... Yes.
63.7(e)........................................... Yes.......................... Except that performance tests
must be conducted at maximum
representative operating
conditions. In addition,
some of the testing
requirements specified in
subpart JJJ are not
consistent with Sec.
63.7(e)(3).
63.7(f)........................................... Yes.
63.7(g)........................................... Yes.......................... Except that references to the
Notification of Compliance
Status report in Sec.
63.9(h) are replaced with
the requirements in Sec.
63.1335(e)(5).
[[Page 48284]]
63.7(h)........................................... Yes.......................... Except Sec. 63.7(h)(4)(ii)
is not applicable, since the
site-specific test plans in
Sec. 63.7(c)(3) are not
required.
63.8(a)(1)........................................ Yes.
63.8(a)(2)........................................ No.
63.8(a)(3)........................................ No........................... Reserved.
63.8(a)(4)........................................ Yes.
63.8(b)(1)........................................ Yes.
63.8(b)(2)........................................ No........................... Subpart JJJ specifies
locations to conduct
monitoring.
63.8(b)(3).
63.8(c)(1)(i)..................................... Yes.
63.8(c)(1)(ii).................................... No.
63.8(c)(1)(iii)................................... Yes.
63.8(c)(2)........................................ Yes.
63.8(c)(3)........................................ Yes.
63.8(c)(4)........................................ No........................... Sec. 63.1334 specifies
monitoring frequency.
63.8(c)(5)-63.8(c)(8)............................. No.
63.8(d)........................................... No.
63.8(e)........................................... No.
63.8(f)(1)-63.8(f)(3)............................. Yes.
63.8(f)(4)(i)..................................... No........................... Timeframe for submitting
request is specified in Sec.
63.1335(e).
63.8(f)(4)(ii).................................... No.
63.8(f)(4)(iii)................................... No.
63.8(f)(5)(i)..................................... Yes.
63.8(f)(5)(ii).................................... No.
63.8(f)(5)(iii)................................... Yes.
63.8(f)(6)........................................ No........................... Subpart JJJ does not require
continuous emission
monitors.
63.8(g)........................................... No........................... Data reduction procedures
specified in Sec.
63.1335(d).
63.9(a)........................................... Yes.
63.9(b)........................................... No........................... Subpart JJJ does not require
an initial notification.
63.9(c)........................................... Yes.
63.9(d)........................................... Yes.
63.9(e)........................................... No.
63.9(f)........................................... No........................... Subpart JJJ does not require
opacity and visible emission
standards.
63.9(g)........................................... No.
63.9(h)........................................... No........................... Sec. 63.1335(e)(5) specifies
Notification of Compliance
Status requirements.
63.9(i)........................................... Yes.
63.9(j)........................................... No.
63.10(a).......................................... Yes.
63.10(b)(1)....................................... Yes.
63.10(b)(2)....................................... Yes.
63.10(b)(3)....................................... No........................... Sec. 63.1310(b) requires
documentation of sources
that are not affected
sources.
63.10(c).......................................... No........................... Sec. 63.1335 specifies
recordkeeping requirements.
63.10(d)(1)....................................... Yes.
63.10(d)(2)....................................... No.
63.10(d)(3)....................................... No........................... Subpart JJJ does not require
opacity and visible emission
standards.
63.10(d)(4)....................................... Yes.
63.10(d)(5)....................................... Yes.......................... Except that reports required
by Sec. 63.10(d)(5)(i) may
be submitted at the same
time as Periodic Reports
specified in Sec.
63.1335(e)(6). The start-up,
shutdown, and malfunction
plan, and any records or
reports of start-up,
shutdown, and malfunction do
not apply to Group 2
emission points unless they
are included in an emissions
average.
63.10(e).......................................... No.
63.10(f).......................................... Yes.
63.10(d)(4)....................................... Yes.
63.12............................................. Yes.
63.13............................................. Yes.
63.14............................................. Yes.
63.15............................................. Yes.
----------------------------------------------------------------------------------------------------------------
Table 2.--Group 1 Storage Vessels at Existing Affected Sources
------------------------------------------------------------------------
Vapor pressure
Vessel capacity (cubic meters) a
(kilopascals)
------------------------------------------------------------------------
75 capacity < 151........................... 13.
1
151 capacity................................ 5.2
------------------------------------------------------------------------
a Maximum true vapor pressure of total organic HAP at storage
temperature.
[[Page 48285]]
Table 3.--Group 1 Storage Vessels at Existing Affected Sources Producing the Listed Thermoplastics
----------------------------------------------------------------------------------------------------------------
Vapor
Thermoplastic Chemical a Vessel capacity (cubic meters) pressure b
(kilopascals)
----------------------------------------------------------------------------------------------------------------
ASA/AMSAN c........................ Styrene/acrylonitrile 3.78.......................... 0.47
mixture.
Acrylonitrile.............. 75.7.......................... 1.62
Polystyrene, continuous processes.. ........................... 38 and <75.7.................. 14.2
75.7.......................... 1.9
Nitrile c.......................... Acrylonitrile.............. 13.25........................ 1.8
----------------------------------------------------------------------------------------------------------------
a Vessel capacity and vapor pressure criteria are specific to the listed chemical. When chemical not listed
(i.e., --), vessel capacity and vapor pressure criteria apply to all chemicals regulated by this rule for a
given subcategory.
b Maximum true vapor pressure of total organic HAP at storage temperature.
c The applicability criteria in Table 2 of this subpart shall be used for chemicals not specifically listed in
this table (i.e., Table 3).
Table 4.--Group 1 Storage Vessels at New Affected Sources
------------------------------------------------------------------------
Vapor
Vessel capacity (cubic meters) pressure a
(kilopascals)
------------------------------------------------------------------------
38 capacity < 151........................... 13.
1
151 capacity................................ 0.7
------------------------------------------------------------------------
a Maximum true vapor pressure of total organic HAP at storage
temperature.
Table 5.--Group 1 Storage Vessels at New Affected Sources Producing the Listed Thermoplastics
----------------------------------------------------------------------------------------------------------------
Vessel capacity (cubic Vapor pressure b
Thermoplastic Chemical a meters) (kilopascals)
----------------------------------------------------------------------------------------------------------------
ASA/AMSAN c...................... Styrene/ 3.78............ 0.47.
acrylonitrile
mixture.
Acrylonitrile...... 75.7............ 1.62.
SAN, continuous.................. 2,271........... 0.5vp<0.7.
151............. 0.7vp
10.
30 and <151..... vp10.
151............. vp10.
Nitrile c........................ Acrylonitrile...... 13.25........... 1.8.
Polystyrene, continuous processes 19.6 and <45.4.. vp7.48.
45.4 and <109.8. vp0.61.
109.8........... vp0.53.
ABS, continuous mass............. Styrene............ 45.43........... 0.078.
38 and <45.43... vp13.1.
45.43........... vp0.53.
----------------------------------------------------------------------------------------------------------------
a Vessel capacity and vapor pressure criteria are specific to the listed chemical. When chemical not listed
(i.e., --), vessel capacity and vapor pressure criteria apply to all chemicals regulated by this rule for a
given subcategory.
b Maximum true vapor pressure of total organic HAP at storage temperature.
c The applicability criteria in Table 4 of this subpart shall be used for chemicals not specifically listed in
this table (i.e., Table 5).
Table 6.--Known Organic Hazardous Air Pollutants From Thermoplastic Products
--------------------------------------------------------------------------------------------------------------------------------------------------------
Organic HAP/chemical name (CAS No.)
--------------------------------------------------------------------------------------------------
Thermoplastic product/subcategory 1,3 Ethylene
Acetaldehyde Acrylonitrile Butadiene 1,4-Dioxane Glycol (107- Methanol (67- Styrene (100-
(75-07-0) (107-13-1) (106-99-0) (123-91-1) 21-1) 56-1) 42-5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ABS latex............................................ ............ ............ ............ ............
ABS using a batch emulsion process................... ............ ............ ............ ............
ABS using a batch suspension process................. ............ ............ ............ ............
ABS using a continuous emulsion process.............. ............ ............ ............ ............
ABS using a continuous mass process.................. ............ ............ ............ ............
ASA/AMSAN............................................ ............ ............ ............ ............
EPS.................................................. ............ ............. ............ ............ ............ ............
MABS................................................. ............ ............ ............ ............
MBS.................................................. ............ ............. ............ ............ ............
Nitrile resin........................................ ............ ............ ............ ............ ............ ............
PET using a batch dimethyl terephthalate process..... ............. ............ ............
PET using a batch terephthalic acid process.......... ............. ............ ............ ............
PET using a continuous dimethyl terephthalate process ............. ............ ............
PET using a continuous terephthalic acid process..... ............. ............ ............ ............
[[Page 48286]]
PET using a continuous terephthalic acid high
viscosity multiple end finisher process............. ............. ............ ............ ............
Polystyrene resin using a batch process.............. ............ ............. ............ ............ ............ ............
Polystyrene resin using a continuous process......... ............ ............. ............ ............ ............ ............
SAN using a batch process............................ ............ ............ ............ ............ ............
SAN using a continuous process....................... ............ ............ ............ ............ ............
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AACAS No.=Chemical Abstract Service Number.
AAABS=Acrylonitrile butadiene styrene resin.
AAASA/AMSAN=Acrylonitrile styrene resin/alpha methyl styrene acrylonitrile resin.
AAEPS=expandable polystyrene resin.
AAMABS=methyl methacrylate acrylonitrile butadiene styrene resin.
AAPET=poly(ethylene terephthalate) resin.
AAAAN=styrene acrylonitrile resin.
AAMBS=methyl methacrylate butadiene styrene resin.
Table 7.--Group 1 Batch Process Vents--Monitoring, Recordkeeping, and Reporting Requirements
----------------------------------------------------------------------------------------------------------------
Parameters to be Recordkeeping and reporting requirements for
Control device monitored monitored parameters
----------------------------------------------------------------------------------------------------------------
Thermal Incinerator.................. Firebox temperature a.. 1. Continuous records as specified in Sec.
63.1326(e)(1).b
2. Record and report the average firebox
temperature measured during the performance
test--NCS.c
3. Record the batch cycle daily average firebox
temperature as specified in Sec.
63.1326(e)(2).
4. Report all batch cycle daily average
temperatures that are below the minimum
operating temperature established in the NCS or
operating permit and all instances when
monitoring data are not collected--PR.d e
Catalytic Incinerator................ Temperature upstream 1. Continuous records as specified in Sec.
and downstream of the 63.1326(e)(1).b
catalyst bed. 2. Record and report the average upstream and
downstream temperatures and the average
temperature difference across the catalyst bed
measured during the performance test--NCS.c
3. Record the batch cycle daily average upstream
temperature and temperature difference across
catalyst bed as specified in Sec.
63.1326(e)(2).
4. Report all batch cycle daily average upstream
temperatures that are below the minimum
upstream temperature established in the NCS or
operating permit--PR.d e
5. Report all batch cycle daily average
temperature differences across the catalyst bed
that are below the minimum difference
established in the NCS or operating permit--
PR.d e
6. Report all instances when monitoring data are
not collected.e
Boiler or Process Heater with a Firebox temperature a.. 1. Continuous records as specified in Sec.
design heat input capacity less than 63.1326(e)(1).b
44 megawatts and where the batch 2. Record and report the average firebox
process vents or aggregate batch temperature measured during the performance
vent streams are not introduced with test--NCS.c
or used as the primary fuel. 3. Record the batch cycle daily average firebox
temperature as specified in Sec.
63.1326(e)(2).d
4. Report all batch cycle daily average
temperatures that are below the minimum
operating temperature established in the NCS or
operating permit and all instances when
monitoring data are not collected--PR.d e
Flare................................ Presence of a flame at 1. Hourly records of whether the monitor was
the pilot light. continuously operating during batch emission
episodes, or portions thereof, selected for
control and whether the pilot flame was
continuously present during said periods.
2. Record and report the presence of a flame at
the pilot light over the full period of the
compliance determination--NCS.c
3. Record the times and durations of all periods
during batch emission episodes, or portions
thereof, selected for control when a pilot
flame is absent or the monitor is not
operating.
4. Report the times and durations of all periods
during batch emission episodes, or portions
thereof, selected for control when all pilot
flames of a flare are absent--PR.d
[[Page 48287]]
Scrubber for halogenated batch pH of scrubber 1. Continuous records as specified in Sec.
process vents or aggregate batch effluent, and. 63.1326(e)(1).b
vent streams (Note: Controlled by a 2. Record and report the average pH of the
combustion device other than a scrubber effluent measured during the
flare). performance test--NCS.c
3. Record the batch cycle daily average pH of
the scrubber effluent as specified in Sec.
63.1326(e)(2).
4. Report all batch cycle daily average pH
values of the scrubber effluent that are below
the minimum operating pH established in the NCS
or operating permit and all instances when
monitoring data are not collected--PR.d e
Do............................... Scrubber liquid flow 1. Continuous records as specified in Sec.
rate. 63.1326(e)(1).b
2. Record and report the scrubber liquid flow
rate measured during the performance test--
NCS.c
3. Record the batch cycle daily average scrubber
liquid flow rate as specified in Sec.
63.1326(e)(2).
4. Report all batch cycle daily average scrubber
liquid flow rates that are below the minimum
flow rate established in the NCS or operating
permit and all instances when monitoring data
are not collected--PR.d e
Absorber f........................... Exit temperature of the 1. Continuous records as specified in Sec.
absorbing liquid, and. 63.1326(e)(1).b
2. Record and report the average exit
temperature of the absorbing liquid measured
during the performance test--NCS.c
3. Record the batch cycle daily average exit
temperature of the absorbing liquid as
specified in Sec. 63.1326(e)(2) for each batch
cycle.
4. Report all the batch cycle daily average exit
temperatures of the absorbing liquid that are
below the minimum operating temperature
established in the NCS or operating permit and
all instances when monitoring data are not
collected--PR.d e
Do............................... Exit specific gravity 1. Continuous records as specified in Sec.
for the absorbing 63.1326(e)(1).b
liquid. 2. Record and report the average exit specific
gravity measured during the performance test--
NCS.c
3. Record the batch cycle daily average exit
specific gravity as specified in Sec.
63.1326(e)(2).
4. Report all batch cycle daily average exit
specific gravity values that are below the
minimum operating temperature established in
the NCS or operating permit and all instances
when monitoring data are not collected--PR.d e
Condenser f.......................... Exit (product side) 1. Continuous records as specified in Sec.
temperature. 63.1326(e)(1).b
2. Record and report the average exit
temperature measured during the performance
test--NCS.c
3. Record the batch cycle daily average exit
temperature as specified in Sec.
63.1326(e)(2).
4. Report all batch cycle daily average exit
temperatures that are above the maximum
operating temperature established in the NCS or
operating permit and all instances when
monitoring data are not collected--PR.d e
Carbon Adsorber f.................... Total regeneration 1. Record the total regeneration stream mass
stream mass flow flow for each carbon bed regeneration cycle.
during carbon bed 2. Record and report the total regeneration
regeneration cycle(s), stream mass flow during each carbon bed
and. regeneration cycle measured during the
performance test--NCS.c
3. Report all carbon bed regeneration cycles
when the total regeneration stream mass flow is
above the maximum mass flow rate established in
the NCS or operating permit--PR.d e
Do............................... Temperature of the 1. Record the temperature of the carbon bed
carbon bed after after each regeneration and within 15 minutes
regeneration and of completing any cooling cycle(s).
within 15 minutes of 2. Record and report the temperature of the
completing any cooling carbon bed after each regeneration and within
cycle(s). 15 minutes of completing any cooling cycles(s)
measured during the performance test--NCS.c
3. Report all carbon bed regeneration cycles
when the temperature of the carbon bed after
regeneration, or within 15 minutes of
completing any cooling cycle(s), is above the
maximum temperature established in the NCS or
operating permit--PR.d e
All Control Devices.................. Presence of flow 1. Hourly records of whether the flow indicator
diverted to the was operating during batch emission episodes,
atmosphere from the or portions thereof, selected for control and
control device or. whether flow was detected at any time during
said periods as specified in Sec.
63.1326(e)(3).
2. Record and report the times and durations of
all periods during batch emission episodes, or
portions thereof, selected for control when
emissions are diverted through a bypass line or
the flow indicator is not operating--PR.d
Do............................... Monthly inspections of 1. Records that monthly inspections were
sealed valves. performed as specified in Sec.
63.1326(e)(4)(i).
2. Record and report all monthly inspections
that show the valves are not closed or the seal
has been changed--PR.d
[[Page 48288]]
Absorber, Condenser, and Carbon Concentration level or 1. Continuous records as specified in Sec.
Adsorber (as an alternative to the reading indicated by 63.1326(e)(1).b
requirements previously presented in an organic monitoring 2. Record and report the average concentration
this table). device at the outlet level or reading measured during the
of the control device. performance test--NCS.c
3. Record the batch cycle daily average
concentration level or reading as specified in
Sec. 63.1326(e)(2).
4. Report all batch cycle daily average
concentration levels or readings that are above
the maximum concentration or reading
established in the NCS or operating permit and
all instances when monitoring data are not
collected--PR.d e
----------------------------------------------------------------------------------------------------------------
a Monitor may be installed in the firebox or in the ductwork immediately downstream of the firebox before any
substantial heat exchange is encountered.
b ``Continuous records'' is defined in Sec. 63.111.
c NCS = Notification of Compliance Status described in Sec. 63.1335(e)(5).
d PR = Periodic Reports described in Sec. 63.1335(e)(6).
e The periodic reports shall include the duration of periods when monitoring data are not collected as specified
in Sec. 63.1335(e)(6)(iii)(C).
f Alternatively, these devices may comply with the organic monitoring device provisions listed at the end of
this table.
Table 8.--Operating Parameters for Which Levels Are Required to Be Established for Continuous and Batch Process
Vents and Aggregate Batch Vent Streams
----------------------------------------------------------------------------------------------------------------
Established operating
Device Parameters to be monitored parameter(s)
----------------------------------------------------------------------------------------------------------------
Thermal incinerator................... Firebox temperature..................... Minimum temperature.
Catalytic incinerator................. Temperature upstream and downstream of Minimum upstream temperature;
the catalyst bed. and minimum temperature
difference across the
catalyst bed.
Boiler or process heater.............. Firebox temperature..................... Minimum temperature.
Scrubber for halogenated vents........ pH of scrubber effluent; and scrubber Minimum pH; and minimum flow
liquid flow rate. rate.
Absorber.............................. Exit temperature of the absorbing Minimum temperature; and
liquid; and exit specific gravity of minimum specific gravity.
the absorbing liquid.
Condenser............................. Exit temperature........................ Maximum temperature.
Carbon absorber....................... Total regeneration stream mass flow Maximum mass flow; and maximum
during carbon bed regeneration cycle; temperature.
and temperature of the carbon bed after
regeneration (and within 15 minutes of
completing any cooling cycle(s)).
Other devices (or as an alternate to HAP concentration level or reading at Maximum HAP concentration or
the requirements previously presented outlet of device. reading.
in this table)a.
----------------------------------------------------------------------------------------------------------------
a Concentration is measured instead of an operating parameter.
[FR Doc. 96-22781 Filed 9-11-96; 8:45 am]
BILLING CODE 6560-50-P/M
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