issue-1996-08-14•Federal Register final rules — 1996-08-14
Federal Register final rules — 1996-08-14
issue-1996-08-14Federal Register final rules — 1996-08-14Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-20761 Establishment of Class E Airspace; Coolidge, AZ
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Page 42146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20761]
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DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 95-AWP-40]
Establishment of Class E Airspace; Coolidge, AZ
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
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SUMMARY: This action establishes a Class E airspace area at Coolidge,
AZ. The development of a Global Positioning System (GPS) Standard
Instrument Approach Procedure (SIAP) to Runway (RWY) 23 and a VHF
Ominidirectional Range/Distance Measuring Equipment (VOR/DME) approach
to RWY 05 has made this action necessary. The intended effect of this
action is to provide adequate controlled airspace for Instrument Flight
Rules (IFR) operations at Coolidge Municipal Airport, Coolidge, AZ.
EFFECTIVE DATE: 0901 UTC October 10, 1996.
FOR FURTHER INFORMATION CONTACT:
William Buck, Airspace Specialist, Operations Branch, AWP-530, Air
Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6556.
SUPPLEMENTARY INFORMATION:
History
On June 27, 1996, the FAA proposed to amend part 71 of the Federal
Aviation Regulations (14 CFR part 71) by establishing a Class E
airspace area at Coolidge, AZ (61 FR 33390). This action will provide
adequate controlled airspace to accommodate a GPS RWY 23 and a VOR/DME
RWY 05 SIAP at Collidge Municipal Airport, Coolidge, AZ.
Interested parties were invited to participate in this rulemaking
proceeding by submitting written comments on the proposals to the FAA.
No comments to the proposals were received. Class E airspace
designations are published in paragraph 6005 of FAA Order 7400.9C dated
August 17, 1995, and effective September 16, 1995, which is
incorporated by reference in 14 CFR 71.1. The E airspace designations
listed in this document will be published subsequently in this Order.
The Rule
This amendment to part 71 of the Federal Aviation Regulations (14
CFR part 71) establishes a Class E airspace area at Coolidge, AZ. The
development of a GPS SIAP to RWY 23 and a VOR/DME SIAP to RWY 05 has
made this action necessary. The effect of this action will provide
adequate airspace for aircraft executing the GPS RWY 23 and VOR/DME.
RWY 05 SIAP at Coolidge Municipal Airport, Coolidge, AZ.
The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulaton--(1) is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not a ``significant rule''
under DOT Regulatory Policies and Procedures (44 FR 10034; February 26,
1979); and (3) does not warrant preparation of a Regulatory Evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule will not have a significant economic impact on
a substantial number of small entities under the criteria of the
Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9C, Airspace Designations and
Reporting Points, dated August 17, 1995, and effective September 16,
1995, is amended as follows:
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.
* * * * *
AWP AZ E5 Coolidge, AZ [New]
Coolidge Municipal Airport, AZ
(Lat. 32 deg.56'00'' N, long. 111 deg.25'32'' W)
That airspace extending upward from 700 feet above the surface
bounded by a line beginning at lat. 32 deg.19'55'' N, long.
111 deg.24'00'' W; thence west to lat. 32 deg.17'20'', long.
111 deg.44'30'' N; thence north to lat. 32 deg.58'50'' N, long.
111 deg.46'00'' W; thence northeast to lat. 33 deg.08'10'' N, long.
111 deg.10'20'' W; thence southwest to lat. 32 deg.58'50'' N, long.
111 deg.04'15'' W, thence southwest to the point of beginning.
* * * * *
Issued in Los Angeles, California, on August 1, 1996.
Harvey R. Riebel,
Acting Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 96-20761 Filed 8-13-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-20756 Special Conditions: Cessna Model 550 (Serial Number 550-0801 and on); High-Intensity Radiated Fields
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42144-42146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20756]
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 25
[Docket No. NM-130; Special Conditions No. 25-ANM-120]
Special Conditions: Cessna Model 550 (Serial Number 550-0801 and
on); High-Intensity Radiated Fields
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final special conditions; request for comments.
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SUMMARY: These special conditions are issued for the Cessna Model 550
airplane, serial number 550-0801 and on. These airplanes utilize new
avionics/electronic systems, such as an Electronic Flight Instrument
Systems (EFIS), which perform critical functions. The applicable
regulations do not contain adequate or appropriate safety standards for
the protection of this system from the effects of high-intensity
radiated fields (HIRF). These special conditions contain the additional
safety standards that the Administrator considers necessary to
establish a level of safety equivalent to that established by the
existing airworthiness standards.
DATES: The effective date of these special conditions is August 6,
1996. Comments must be received on or before September 13, 1996.
ADDRESSES: Comments on these special conditions may be mailed in
duplicate to: Federal Aviation Administration, Office of the Assistant
Chief Counsel, Attn: Rules Docket (ANM-7), Docket No. NM-130, 1601 Lind
Avenue SW., Renton, Washington, 98055-4056; or delivered in duplicate
to the Office of the Assistant Chief Counsel at the above address.
Comments must be marked: Docket No. NM-130. Comments may be inspected
in the Rules Docket weekdays, except Federal holidays, between 7:30
a.m. and 4:00 p.m.
FOR FURTHER INFORMATION CONTACT:
Mark Quam, FAA, Standardization Branch, ANM-113, Transport Airplane
Directorate, Aircraft Certification Service, 1601 Lind Avenue SW.,
Renton, Washington, 98055-4056; telephone (206) 227-2145; facsimile
(206) 227-1149.
SUPPLEMENTARY INFORMATION:
Comments Invited
The FAA has determined that good cause exists for making these
special conditions effective upon issuance; however, interested persons
are invited to submit such written data, views, or arguments as they
may desire. Communications should identify the regulatory docket and
special condition number and be submitted in duplicate to the address
specified above. All communications received on or before the closing
date for comments will be considered by the Administrator. These
special conditions may be changed in light of the comments received.
All comments submitted will be available in the Rules Docket for
examination by interested persons, both before and after the closing
date for comments. A report summarizing each substantive public contact
with FAA personnel concerning this rulemaking will be filed in the
docket. Persons wishing the FAA to acknowledge receipt of their
comments submitted in response to this request must submit with those
comments a self-addressed, stamped postcard on which the following
statement is made: ``Comments to Docket No. NM-130.'' The postcard will
be date stamped and returned to the commenter.
Background
On June 30, 1994, Cessna Aircraft Company, One Cessna Boulevard,
Wichita, Kansas, applied for a type design change to the Model 550. The
Model 550 airplanes are pressurized, executive transport type
airplanes, powered by two fuselage-mounted turbofan engines and
approved under Type Certificate No A22CE. As changed, these airplanes
will differ from previously approved Model 550 airplanes, in part, by
the installation of Pratt & Whitney Canada PW530A engines with thrust
reversers; trailing link landing gear; an Electronic Flight Instrument
System (EFIS); digital anti-skid system; structural, electrical, and
hydraulic modifications to support the engine and landing gear change;
and a weight increase. The applicant intends to introduce the changes
in production beginning with serial number 550-0801.
Amended Type Certification Basis
Under the provisions of Sec. 21.101 of 14 CFR part 21, Cessna
Aircraft Company must show that the Model 550, as changed, continues to
meet the applicable provisions of the regulations incorporated by
reference in Type Certificate A22CE, or the applicable regulations in
effect on the date of application for the change. The regulations
incorporated by reference in the type certificate are commonly referred
to as the ``original type certification basis.'' The regulations,
including those referenced in A22CE, that apply to the Model 550,
serial number 550-0801 and on, are as follows:
(1) Part 25 of the Federal Aviation Regulations effective February
1, 1965, as amended by Amendments 25-1 through 25-17; with the
following exceptions: Section 25.305, as amended by Amendments 25-1
through 25-54. Section 25.1401, as amended by Amendments 25-1 through
25-27. Section 25.1387, as amended by Amendments 25-1 through 25-30.
Sections 25.1303(a)(2) and 25.1385(c), as amended by Amendments 25-1
through 25-38.
Sections 25.125, 25.251, 25.337, 25.493, 25.731, 25.733, 25.735,
25.867, 25.869, 25.901, 25.903, 25.933, 25.934, 25.939, 25.943, 25.951,
25.952, 25.1001, 25.1041, 25.1043, 25.1045, 25.1091, 25.1093, 25.1103,
25.1121, 25.1123, 25.1143, 25.1163, 25.1165, 25.1181, 25.1183, 25.1185,
25.1189, 25.1195, 25.1197, 25.1203, 25.1205 (revoked), 25.1207,
25.1305, 25.1316, 25.1322, 25.1326, 25.1337, 25.1351, 25.1438, 25.1521,
25.1549, and 25.1551, as amended by Amendments 25-1 through 25-82.
(2) Part 36 of the Federal Aviation Regulations effective December
1, 1969, plus any amendments in effect at the time of certification.
[[Page 42145]]
(3) Part 34 of the Federal Aviation Regulations effective September
10, 1990, plus any amendments in effect at the time of engine
manufacture.
(4) For Electronic Flight Instrument Systems only, compliance must
be demonstrated for the additional regulations: Sections 25.1301, and
25.1303(b), as amended by Amendments 25-1 through 25-38; 25.1309,
25.132 (a), (b), (d) and (e), 25.1331, 25.1333, and 25.1335, as amended
by Amendments 25-1 through 25-41.
These special conditions form an additional part of the type
certification basis.
If the Administrator finds that the applicable airworthiness
regulations (i.e., part 25, as amended) do not contain adequate or
appropriate safety standards for the Cessna Model 550, serial number
550-0801 and on, because of a novel or unusual design feature, special
conditions are prescribed under the provisions of Sec. 21.16 to
establish a level of safety equivalent to that established in the
regulations.
Special conditions, as appropriate, are issued in accordance with
14 CFR 11.49 after public notice, as required by Secs. 11.28 and
11.29(b), and become part of the type certification basis in accordance
with Sec. 21.101(b)(2).
Special conditions are initially applicable to the model for which
they are issued. Should the applicant apply for an amended type
certificate to include a new model or to modify any other model
included on the same type certificate to incorporate the same novel or
unusual design feature, these special conditions would also apply to
the other model under the provisions of Sec. 21.101(a)(1). Similarly,
these special conditions would also apply to Model 550 airplanes with
serial numbers earlier than 550-0801, if those airplanes are modified
to incorporate the same novel or unusual design feature.
Novel or Unusual Design Features
The Cessna Model 550, serial number 550-0801 and on, incorporates
new avionics/electronic systems, such as an electronic flight
instrument system (EFIS), that perform critical functions. These
systems may be vulnerable to high-intensity radiated fields (HIRF)
external to the airplane.
Discussion
There is no specific regulation that addresses protection
requirements for electrical and electronic systems from HIRF. Increased
power levels from ground-based radio transmitters and the growing use
of sensitive electrical and electronic systems to command and control
airplanes have made it necessary to provide adequate protection.
To ensure that a level of safety is achieved equivalent to that
intended by the regulations incorporated by reference, a special
condition is needed for the Cessna Model 550, serial number 550-0801
and on, as modified by Cessna Aircraft Company, which requires that new
electrical and electronic systems, such as the EFIS, that perform
critical functions be designed and installed to preclude component
damage and interruption of function due to both the direct and indirect
effects of HIRF.
High-Intensity Radiated Fields (HIRF)
With the trend toward increased power levels from ground-based
transmitters, plus the advent of space and satellite communications,
coupled with electronic command and control of the airplane, the
immunity of critical digital avionics systems, such as the EFIS, to
HIRF must be established.
It is not possible to precisely define the HIRF to which the
airplane will be exposed in service. There is also uncertainty
concerning the effectiveness of airframe shielding for HIRF.
Furthermore, coupling of electromagnetic energy to cockpit-installed
equipment through the cockpit window apertures is undefined. Based on
surveys and analysis of existing HIRF emitters, an adequate level of
protection exists when compliance with the HIRF protection special
condition is shown with either paragraphs 1 OR 2 below:
1. A minimum threat of 100 volts per meter peak electric field
strength from 10 KHz to 18 GHz.
a. The threat must be applied to the system elements and their
associated wiring harnesses without the benefit of airframe shielding.
b. Demonstration of this level of protection is established through
system tests and analysis.
2. A threat external to the airframe of the following field
strengths for the frequency ranges indicated.
------------------------------------------------------------------------
Peak (V/ (Average
Frequency M) (V/M)
------------------------------------------------------------------------
10 KHz-100 KHz...................................... 50 50
100 KHz-500 KHz..................................... 60 60
500 KHz-2 MHz....................................... 70 70
2 MHz-30 MHz........................................ 200 200
30 MHz-100 MHz...................................... 30 30
100 MHz-200 MHz..................................... 150 33
200 MHz-400 MHz..................................... 70 70
400 MHz-700 MHz..................................... 4,020 935
700 MHz-1 GHz....................................... 1,700 170
1 GHz-2GHz.......................................... 5,000 990
2 GHz-4 GHz......................................... 6,680 840
4 GHz-6 GHz......................................... 6,850 310
6 GHz-8 GHz......................................... 3,600 670
8 GHz-12 GHz........................................ 3,500 1,270
12 GHz-18 GHz....................................... 3,500 360
18 GHz-40 GHz....................................... 2,100 750
------------------------------------------------------------------------
As discussed above, these special conditions are applicable to
those Cessna Model 550 airplanes that utilize avionics/electronics
systems which perform critical functions. Should Cessna apply at a
later date for an amended type certificate to include a new model or to
modify any other model included on type Certificate No. A22CE to
incorporate the same novel or unusual design feature, these special
conditions would apply to that model as well, under the provisions of
Sec. 21.101(a)(1). Although the manufacturer intends to introduce these
changes in production beginning with serial number 550-0801, the
special conditions would be equally applicable to earlier airplanes if
those airplanes are modified to incorporate the same novel or unusual
design features.
Conclusion
This action affects only certain design features on Cessna Model
550 airplanes, serial number 550-0801 and on. It is not a rule of
general applicability and affects only the applicant who applied to the
FAA for approval of these features on the airplane.
The substance of the special conditions for this airplane has been
subject to the notice and comment procedure in several prior instances
and has been derived without substantive change from those previously
issued. It is unlikely that prior public comment would result in a
significant change from the substance contained herein. For this
reason, and because a delay would significantly affect the
certification of the airplane, which is imminent, the FAA has
determined that prior public notice and comment are unnecessary and
impracticable, and good cause exists for adopting these special
conditions immediately. Therefore, these special conditions are being
made effective upon issuance. The FAA is requesting comments to allow
interested persons to submit views that may not have been submitted in
response to the prior opportunities for comment described above.
List of Subjects in 14 CFR Part 25
Aircraft, Aviation safety, Reporting and recordkeeping
requirements.
The authority citation for this special condition is as follows:
Authority: 49 U.S.C. 106(g), 40113, 44701, 44702, 44704.
[[Page 42146]]
The Special Conditions
Accordingly, pursuant to the authority delegated to me by the
Administrator, the following special conditions are issued as part of
the type certification basis for the Cessna Model 550, when equipped
with avionics/electronics systems which perform critical functions.
1. Protection from Unwanted Effects of High-Intensity Radiated
Fields (HIRF). Each electrical and electronic system that performs
critical functions must be designed and installed to ensure that the
operation and operational capability of these systems to perform
critical functions are not adversely affected when the airplane is
exposed to high-intensity radiated fields.
2. For the purpose of this special condition, the following
definition applies: Critical functions. Functions whose failure would
contribute to or cause a failure condition that would prevent the
continued safe flight and landing of the airplane.
Issued in Renton, Washington, on August 6, 1996.
Darrell M. Pederson,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service, ANM-100.
[FR Doc. 96-20756 Filed 8-13-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-20720 Suspension of Community Eligibility
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42179-42181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20720]
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FEDERAL EMERGENCY MANAGEMENT AGENCY
44 CFR Part 64
[Docket No. FEMA-7646]
Suspension of Community Eligibility
AGENCY: Federal Emergency Management Agency, FEMA.
ACTION: Final rule.
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SUMMARY: This rule identifies communities, where the sale of flood
insurance has been authorized under the National Flood Insurance
Program (NFIP), that are suspended on the effective dates listed within
this rule because of noncompliance with the floodplain management
requirements of the program. If the Federal Emergency Management Agency
(FEMA) receives documentation that the community has adopted the
required floodplain management measures prior to the effective
suspension date given in this rule, the suspension will be withdrawn by
publication in the Federal Register.
EFFECTIVE DATE: The effective date of each community's suspension is
the third date (``Susp.'') listed in the third column of the following
tables.
ADDRESSES: If you wish to determine whether a particular community was
suspended on the suspension date, contact the appropriate FEMA Regional
Office or the NFIP servicing contractor.
FOR FURTHER INFORMATION CONTACT: Robert F. Shea, Jr., Division
Director, Program Implementation Division, Mitigation Directorate, 500
C Street, SW., Room 417, Washington, DC 20472, (202) 646-3619.
SUPPLEMENTARY INFORMATION: The NFIP enables property owners to purchase
flood insurance which is generally not otherwise available. In return,
communities agree to adopt and administer local floodplain management
aimed at protecting lives and new construction from future flooding.
Section 1315 of the National Flood Insurance Act of 1968, as amended,
42 U.S.C. 4022, prohibits flood insurance coverage as authorized under
the National Flood Insurance Program, 42 U.S.C. 4001 et seq., unless an
appropriate public body adopts adequate floodplain management measures
with effective enforcement measures. The communities listed in this
document no longer meet that statutory requirement for compliance with
program regulations, 44 CFR part 59 et seq. Accordingly, the
communities will be suspended on the effective date in the third
column. As of that date, flood insurance will no longer be available in
the community. However, some of these communities may adopt and submit
the required documentation of legally enforceable floodplain management
measures after this rule is published but prior to the actual
suspension date. These communities will not be suspended and will
continue their eligibility for the sale of insurance. A notice
withdrawing the suspension of the communities will be published in the
Federal Register.
In addition, the Federal Emergency Management Agency has identified
the special flood hazard areas in these communities by publishing a
Flood Insurance Rate Map (FIRM). The date of the FIRM if one has been
published, is indicated in the fourth column of the table. No direct
Federal financial assistance (except assistance pursuant to the Robert
T. Stafford Disaster Relief and Emergency Assistance Act not in
connection with a flood) may legally be provided for construction or
acquisition of buildings in the identified special
[[Page 42180]]
flood hazard area of communities not participating in the NFIP and
identified for more than a year, on the Federal Emergency Management
Agency's initial flood insurance map of the community as having flood-
prone areas (section 202(a) of the Flood Disaster Protection Act of
1973, 42 U.S.C. 4106(a), as amended). This prohibition against certain
types of Federal assistance becomes effective for the communities
listed on the date shown in the last column.
The Acting Associate Director finds that notice and public comment
under 5 U.S.C. 553(b) are impracticable and unnecessary because
communities listed in this final rule have been adequately notified.
Each community receives a 6-month, 90-day, and 30-day notification
addressed to the Chief Executive Officer that the community will be
suspended unless the required floodplain management measures are met
prior to the effective suspension date. Since these notifications have
been made, this final rule may take effect within less than 30 days.
National Environmental Policy Act
This rule is categorically excluded from the requirements of 44 CFR
Part 10, Environmental Considerations. No environmental impact
assessment has been prepared.
Regulatory Flexibility Act
The Acting Associate Director has determined that this rule is
exempt from the requirements of the Regulatory Flexibility Act because
the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022,
prohibits flood insurance coverage unless an appropriate public body
adopts adequate floodplain management measures with effective
enforcement measures. The communities listed no longer comply with the
statutory requirements, and after the effective date, flood insurance
will no longer be available in the communities unless they take
remedial action.
Regulatory Classification
This final rule is not a significant regulatory action under the
criteria of section 3(f) of Executive Order 12866 of September 30,
1993, Regulatory Planning and Review, 58 FR 51735.
Paperwork Reduction Act
This rule does not involve any collection of information for
purposes of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
Executive Order 12612, Federalism
This rule involves no policies that have federalism implications
under Executive Order 12612, Federalism, October 26, 1987, 3 CFR, 1987
Comp., p. 252.
Executive Order 12778, Civil Justice Reform
This rule meets the applicable standards of section 2(b)(2) of
Executive Order 12778, October 25, 1991, 56 FR 55195, 3 CFR, 1991
Comp., p. 309.
List of Subjects in 44 CFR Part 64
Flood insurance, Floodplains.
Accordingly, 44 CFR part 64 is amended as follows:
PART 64--[AMENDED]
1. The authority citation for Part 64 continues to read as follows:
Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of
1978, 3 CFR, 1978 Comp., p. 329; E.O. 12127, 44 FR 19367, 3 CFR,
1979 Comp., p. 376.
Sec. 64.6 [Amended]
2. The tables published under the authority of Sec. 64.6 are
amended as follows:
----------------------------------------------------------------------------------------------------------------
Date certain federal
Community Effective date of Current effective map assistance no longer
State/Location No. eligibility date available in special
flood hazard areas
----------------------------------------------------------------------------------------------------------------
Region II
New York:
Bolton, town of, Warren 360869 July 23, 1975, August 16, 1996....... August 16, 1996.
County. Emerg.; July 3,
1996, Reg.;
August 16, 1996,
Susp.
Lake George, town of, 360876 August 7, 1978, ......do.............. Do.
Warren County. Emerg.; April 30,
1986, Reg.;
August 16, 1996,
Susp.
Queensbury, town of, Warren 360879 September 8, 1975, ......do.............. Do.
County. Emerg.; July 16,
1984, Reg.;
August 16, 1996,
Susp.
Region V
Illinois: Central, city of , 170453 July 2, 1975, ......do.............. Do.
Marion and Clinton Counties. Emerg.; December
19, 1984, Reg.;
August 16, 1996,
Susp.
Indiana: Seymour, city of, 180099 April 3, 1975, ......do.............. Do.
Jackson County. Emerg.; November
2, 1983, August
16, 1996, Susp.
Michigan:
Coldwater, city of, Branch 260813 February 10, 1989, ......do.............. Do.
County. Emerg.; August
16, 1996, Reg.;
August 16, 1996,
Susp.
Coldwater, township of, 260826 September 26, ......do.............. Do.
Branch County. 1989, Emerg.;
August 16, 1996,
Reg.; August 16,
1996, Susp.
Wisconsin: Dunn County, 550118 March 26, 1971, ......do.............. Do.
unincorporated areas. Emerg.; October
15, 1981, Reg.;
August 16, 1996,
Susp.
Region VII
Missouri: Howard County, 290162 July 25, 1984, ......do.............. Do.
unincorporated areas. Emerg.; January
5, 1989, Reg.;
August 16, 1996,
Susp.
Region X
Washington:
Ferry County, unincorporated 530041 August 7, 1975, ......do.............. Do.
areas. Emerg.; April 17,
1985, Reg.;
August 16, 1996
Susp.
[[Page 42181]]
Stevens County, 530185 July 24, 1975, ......do.............. Do.
unincorporated areas. Emerg.; September
14, 1990, Reg.;
August 16, 1996
Susp.
----------------------------------------------------------------------------------------------------------------
Code for reading third column: Emerg.--Emergency; Reg.--Regular; Rein.--Reinstatement; Susp.--Suspension.
(Catalog of Federal Domestic Assistance No. 83.100, ``Flood
Insurance.'')
Issued: July 31, 1996.
Richard W. Krimm,
Acting Associate Director, Mitigation Directorate.
[FR Doc. 96-20720 Filed 8-13-96; 8:45 am]
BILLING CODE 6718-05-P
Complete official Federal Register PDF
FR Doc. 96-20705 Access to Telecommunications Equipment and Services by Persons With Disabilities (Hearing Aid Compatibility)
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42181-42189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20705]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 64 and 68
[CC Docket No. 87-124; FCC 96-285]
Access to Telecommunications Equipment and Services by Persons
With Disabilities (Hearing Aid Compatibility)
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: This action requires that all wireline telephones in the
workplace, confined settings (e.g., hospitals, nursing homes) and
hotels and motels eventually be hearing aid compatible and have volume
control. As of April 1, 1997, hearing aid compatible telephones
manufactured or imported for use in the United States must have the
letters ``HAC'' permanently affixed to them, and, as of November 1,
1998, have volume control. The intent of these requirements is to
increase access to telephone service by persons with impaired hearing.
EFFECTIVE DATE: October 23, 1996. The incorporation by reference of
certain publications listed in the regulations is approved by the
Director of the Federal Register October 23, 1996.
FOR FURTHER INFORMATION CONTACT: Greg Lipscomb, Attorney, 202/418-2340,
Fax 202/418-2345, TTY 202/418-0484, [email protected], Network Services
Division, Common Carrier Bureau.
SUPPLEMENTARY INFORMATION: This summarizes the Commission's Report and
Order (R&O) in the matter of Access to Telecommunications Equipment and
Services by Persons With Disabilities, (CC Docket 87-124, adopted June
27, 1996, and released July 3, 1996. The file is available for
inspection and copying during the weekday hours of 9 a.m. to 4:30 p.m.
in the Commission's Reference Center, Room 239, 1919 M Street, N.W., or
copies may be purchased from the Commission's duplicating contractor,
ITS, Inc., 2100 M Street, NW., Suite 240, Washington, DC 20037, phone
202/857-3800.
Paperwork Reduction Act
Public reporting burden for the collections of information is
estimated as follows:
------------------------------------------------------------------------
Hours
Rule sections per Annual Total
response responses burden
------------------------------------------------------------------------
68.112(b)(3)(E)....................... 2 805,000 1,610,000
68.224(a)............................. 11.36 1,100 12,500
68.300(c)............................. 11.36 1,100 12,500
Total Annual Burden: 1,635,000
------------------------------------------------------------------------
Frequency of Response: On occasion.
The foregoing estimates include the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collections of information. Send comments regarding this burden
estimate or any other aspect of the collections of information
including suggestions for reducing the burden to the Federal
Communications Commission, Records Management Branch, Paperwork
Reduction Project (3060-0687), Washington, DC 20554, and to the Office
of Management and Budget, Paperwork Reduction Project (3060-0687).
Washington, DC 20503.
Analysis of Proceeding: In 1992, the Commission adopted rules
implementing the Hearing Aid Compatibility Act of 1988, 47 U.S.C.
Sec. 610 (HAC Act). In 1993, the Commission suspended portions of the
1992 rules because petitions filed by establishments affected by the
regulations stated that the establishments were encountering serious
difficulties in their attempts to comply. (Order, 8 FCC Rcd 4958
(1993), 58 FR 26692 (May 5, 1993)). On March 27, 1995, the Commission
announced that an advisory committee, the Hearing Aid Compatibility
Negotiated Rulemaking Committee (Committee), would consider whether the
rule suspension should be lifted and whether new rules should be
proposed. (See 59 FR 60343 (Nov. 23, 1994); 58 FR 1539 (March 27,
1995); and 60 FR 27945 (May 26, 1995)). The Committee represented the
views and interests of all interested parties, including those of the
Commission, telephone equipment manufacturers, employers, hospitals,
nursing homes, hotels and motels, and persons with disabilities. The
Committee's recommendations, adopted by unanimous consent, were filed
with the Commission in the Committee's Final Report of August, 1995. On
November 28, 1995, the Commission adopted and released a Notice of
Proposed Rulemaking (Notice of Proposed Rulemaking, 11 FCC Rcd 4338
(1995) (NPRM)) that reflected the recommendations of the Committee (See
60 FR 63667 (December 12, 1995); 61 FR 1887 (January 24, 1996)). On
June 27, 1996, the Commission adopted a R&O (FCC 96-285), which was
released on July 3, 1996.
The R&O requires that wireline telephones in (1) the non-common
areas of the workplace; (2) the patient and residential rooms of
confined settings, such as hospitals and nursing homes; and (3) the
guest rooms of hotels and motels eventually be hearing aid
[[Page 42182]]
compatible, as defined at 47 CFR Section 68.316 (electro-magnetic coil
compatibility). The R&O also requires that, as of November 1, 1998, all
replacement telephones and all newly purchased telephones be equipped
with volume control, in addition to having electro-magnetic coil
hearing aid-compatibility. The R&O also requires that, as of November
1, 1998, all telephones manufactured or imported for use in the United
States have a volume control feature. The R&O includes a technical
specification for volume control. The R&O modifies our rules governing
telephone equipment labeling, and requires that, as of April 1, 1997,
all telephones manufactured or imported for use in the United States
that are hearing aid compatible have the letters ``HAC'' permanently
affixed to them. The R&O implements additional recommendations of the
Committee regarding consumer education. Finally, the R&O adopts other
amendments to existing hearing aid compatibility rules for the purpose
of clarification.
The new rules require no testing or retrofitting of existing
workplace telephones. Instead, the rules set deadlines that are beyond
the normal life-cycle times for the telephones to be replaced in these
establishments. The rules also require volume control for newly
acquired and replacement telephones in these establishments, but
replacement or retrofitting for volume control are not required, and
existing inventories of telephones are not be affected by the volume
control requirement. The new rules will increase access by persons with
hearing disabilities to telephones provided for emergency use and are
necessary to implement the Hearing Aid Compatibility Act of 1988.
Under the rules, most workplace telephones will be required to be
hearing aid compatible by January 1, 2000. In harmony with the
provisions of the Americans With Disabilities Act of 1990,
establishments with fewer than fifteen employees will be exempt from
these requirements. After the applicable date for having hearing aid
compatible telephones, employers can presume that their telephones are
hearing aid compatible. Any person legitimately on the premises can
challenge this presumption with a good faith request for a hearing aid
compatible telephone. Upon receipt of such a request, the employer will
have fifteen working days to replace any particular telephone that
turns out not to be hearing aid compatible.
For confined settings, the new rules require that establishments
with fifty or more beds make their telephones hearing aid compatible by
November 1, 1997, while those with fewer than fifty beds would have to
comply by November 1, 1998. Telephones in all confined setting
establishments would be exempt if alternate signalling devices were
available, monitored and working, or if a resident brought in and
maintained his or her own telephone equipment.
The rules require that hotels and motels with eighty or more guest
rooms to provide hearing aid compatible telephones by November 1, 1998,
while those with fewer than eighty guest rooms have until November 1,
1999 to do so. As of April 1, 1997, generally twenty percent of guest
rooms must have telephones that are hearing aid compatible.
The rules do not address wireless telephone hearing aid compatible
issues, because those are being addressed by the Commission's Wireless
Telecommunications Bureau.
Final Regulatory Flexibility Analysis
Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.
Section 601, et seq., the Commission's final analysis in this R&O is as
follows:
1. Final Regulatory Analysis: As required by Section 603 of the
Regulatory Flexibility Act, 5 U.S.C. Sec. 603 (RFA), an Initial
Regulatory Flexibility Analysis (IRFA) was incorporated in the NPRM.
The Commission sought written public comments on the proposals in the
NPRM, including on the IRFA. The Commission's Final Regulatory
Flexibility Analysis (FRFA) in this R&O is as follows:
a. Need for, and objectives of, this action. This R&O amends the
Commission's rules to require that eventually all wireline telephones
in workplaces, confined settings and hotels and motels be hearing aid
compatible and have volume control. The R&O also requires that as of
November 1, 1998 all wireline telephones manufactured or imported for
use in the United States must have volume control. These actions are
needed to provide greater access to the telephone network by persons
with hearing disabilities, pursuant to the requirements of the Hearing
Aid Compatibility Act of 1988 (HAC Act). The HAC Act directs the
Commission to take affirmative and specific steps to increase such
access. The objectives of these rules are to provide the needed greater
access, while at the same time balancing the needs of establishments
that must provide the hearing aid compatible and volume control
telephones.
b. Summary of significant issues raised by the public comments in
response to the initial regulatory flexibility analysis. There were no
comments submitted in direct response to the Regulatory Flexibility
Analysis in the NPRM. In general comments on the NPRM, however, a
number of commenters raised issues that might affect small entities.
Several commenters stated that the Commission's proposed rules would
duplicate the provisions of the Americans With Disabilities Act of 1990
(ADA), or exceed the Commission's authority under the HAC Act, thus
unnecessarily burdening establishments. A number of hotel and motel
owners said the costs to replace telephones would be burdensome. One
manufacturer said the volume control manufacturing requirement could
cost ``millions of dollars'' in start-up costs. An association of
manufacturers stated that the proposed one-year phase-in of the volume
control manufacturing requirement was too short. Several organizations
representing persons with hearing disabilities said that stamping the
letters ``HAC'' on a telephone would be more informative than stamping
the date of manufacture.
c. Description and estimate of number of small businesses to which
rules will apply. (1) The RFA generally defines the term ``small
business'' as having the same meaning as the term ``small business
concern'' under the Small Business Act, 15 U.S.C. Sec. 632. A small
business concern is one which (1) is independently owned and operated;
(2) is not dominant in its field of operation; and (3) satisfies any
additional criteria established by the Small Business Administration
(SBA). Id. The RFA Small Business Regulatory Enforcement Fairness Act
of 1996 (SBREFA) provisions also apply to nonprofit organizations and
to governmental organizations.
(2) The rules in this Report and Order apply to four industry
categories: (a) workplaces; (b) confined settings, such as hospitals
and nursing homes; (c) hotels and motels; and (d) importers and
manufacturers of telephones for use in the United States. There is
little overlap among these categories because the Commission's
workplace rules affect workplace noncommon areas, while the rules that
apply to confined settings and hotels and motels affect other than the
workplaces of those establishments. Telephone manufacturers would be
affected as workplaces, but separately affected by the requirement to
affix the letters ``HAC'' to telephones and by the volume control
manufacturing requirement. The determination of
[[Page 42183]]
whether or not an entity within these industry groups is small is made
by the Small Business Administration (SBA). These standards also apply
in determining whether an entity is a small business for purposes of
the RFA.
(3) Workplaces: Workplaces encompass establishments for profit and
nonprofit, plus local, state and federal governmental entities.
Establishments with fewer than fifteen employees generally would be
excluded, because they are exempt from the Commission's new rules,
except for the work station requirement. SBA guidelines to the SBREFA
state that about 99.7 percent of all firms are small and have fewer
than 500 employees and less than $25 million in sales or assets. There
are approximately 6.3 million establishments in the SBA database. We
estimate that our rules would affect fewer than 6.3 million
establishments, because our rules exclude establishments with fewer
than fifteen employees. However, we have not been able to determine
what portion of the 6.3 million establishments have fewer than fifteen
employees. The SBA data base does include nonprofit establishments, but
it does not include governmental entities. SBREFA requires us to
estimate the number of such entities with populations of less than
50,000 that would be affected by our new rules. There are 85,006
governmental entities in the nation. This number includes such entities
as states, counties, cities, utility districts and school districts.
There are no figures available on what portion of this number has
populations of fewer than 50,000. However, this number includes 38,978
counties, cities and towns, and of those, 37,566, or 96 percent, have
populations of fewer than 50,000. The Census Bureau estimates that this
ratio is approximately accurate for all governmental entities. Thus, of
the 85,006 governmental entities, we estimate that 96 percent, or
81,600, are small entities that would be affected by our rules.
(4) Confined Settings: According to the SBA's regulations, nursing
homes and hospitals must have annual gross receipts of $5 million or
less in order to qualify as a small business concern. 13 CFR
Sec. 121.201. There are approximately 11,471 nursing care firms in the
nation, of which 7,953 have annual gross receipts of $5 million or
less. There are approximately 3,856 hospital firms in the nation, of
which 294 have gross receipts of $5 million or less. Thus, the
approximate number of small confined setting entities to which the
Commission's new rules will apply is 8,247.
(5) Hotels and Motels: According to the SBA's regulations, hotels
and motels must have annual gross receipts of $5 million or less in
order to qualify as a small business concern. 13 CFR Sec. 121.201.
There are approximately 34,671 hotel and motel firms in the United
States. Of those, approximately 31,382 have gross receipts of $5
million or less.
(6) Telephone Manufacturers and Importers: According to the SBA's
regulations, telephone apparatus firms must have 1,000 or fewer
employees in order to qualify as a small business concern. 13 CFR
Sec. 121.201. There are approximately 456 telephone apparatus firms in
the nation. Figures are not available on how many of these firms have
1,000 or fewer employees, but 401 of the firms have 500 or fewer
employees. It is probable that the great bulk of the 456 firms have
1,000 or fewer employees, and would be classified as small entities. In
addition to telephone apparatus firms, there are approximately 12,654
wholesale electronic parts and equipment firms in the nation. Many of
these firms serve as importers of telephones. According to the SBA's
regulations, wholesale electronic parts and equipment firms must have
100 or fewer employees in order to qualify as a small business entity.
13 CFR Sec. 121.201. Of the 12,654 firms, 12,161 have fewer than 100
employees, and would be classified as small entities.
d. Description of projected reporting, recordkeeping and other
compliance requirements of the rules. (1) Reporting and Recordkeeping:
This R&O involves three reporting requirements. First, as of April 1,
1997, importers and manufacturers of telephones for use in the United
States must stamp their telephones with the letters ``HAC.'' The
potential respondents to this requirement are importers and
manufactures of telephones for use in the United States. Second, until
the rules for all workplace telephones go into effect, employers are
required to designate certain hearing aid compatible telephones for
emergency use. The potential respondents to this requirement are owners
of workplaces with fifteen or more employees. Third, a Commission rule
regarding packaging is amended to clarify that the type of hearing aid
compatibility referred to is electro-magnetic coil compatibility. The
potential respondents to this requirement are importers and
manufacturers of telephones for use in the United States.
(2) Other Compliance Requirements:
(a) The rules adopted in this R&O require that as of certain dates,
owners of workplaces, confined settings and hotels and motels provide
telephones that have electro-magnetic coil hearing aid compatibility
and volume control. These requirements will affect owners of
workplaces, confined settings, and hotels and motels.
(b) The rules also require importers and manufacturers of
telephones for use in the United States to provide telephones with
volume control, beginning November 1, 1998. These rules would affect
small as well as large domestic manufacturers of telephones.
e. Commission efforts to learn of, and respond to, the views of
small business. In 1992 the Commission adopted rules requiring hearing
aid compatible telephones in workplaces, confined settings and hotels
and motels. As the time to implement the rules approached, businesses,
including small businesses, stated that they were having difficulty
implementing the rules. In response, the Commission suspended the rules
in 1993. Subsequently, the Commission formed the nineteen-member
Hearing Aid Compatibility Negotiated Rulemaking Committee. Among the
Committee's membership were representatives of small business. Both the
hotel and motel representatives (American Hotel and Motel Association)
and the confined setting representatives (American Health Care
Association) have many small members. In addition, the Tele-
Communications Association (now known as The Information Technology and
Telecommunications Association, or ITTA), a broadly based end-users
group, was a member. ITTA has approximately 1,000 members, including
small entities as members.
f. Commission efforts to minimize burdens on small business. (1) In
applying the new rules, the Commission has sought to minimize any
disproportionate burden on small entities. The workplace requirements,
for example, generally exempt workplaces of fewer than fifteen
employees. The Commission provided this exemption because small
employers have smaller budgets, which can make installation of new
telephones disproportionately more burdensome for those employers. This
is the same coverage cutoff standard used in the ADA. In calculating
the number of ``employees'' for purposes of compliance, the total
employment force of an establishment, not the number of employees an
employer may have at a particular site, is the determining factor. This
distinction emphasizes that it is the overall size of the entity, not
the circumstance of the deployment of its employees, that determines
the impact of the Commission's requirements.
[[Page 42184]]
(2) The Commission also took into account the needs of small
entities in setting the compliance deadlines for workplaces. The
Committee determined that the average useful life of a workplace
telephone is seven years. Almost all telephones manufactured or
imported for use in the United States since August 16, 1989 have had to
be hearing aid compatible. Thus, at the present time, any workplace
telephone is most likely to be hearing aid compatible. As a margin of
flexibility, however, the Commission set the workplace compliance
deadline for November 1, 2005 for telephones purchased between January
1, 1985 through December 31, 1989, and November 1, 2000 for all other
telephones. Even after those dates, small entities are allowed to
exercise the rebuttable presumption, so that they do not have to test
and replace their telephones. Before those dates, workplaces may use
existing stored telephone inventories as replacements, subject to a
rebuttable presumption. Thus, the stored inventories of small entities
are not rendered obsolete.
(3) The requirements for confined settings and hotels and motels
also make distinctions in the size of establishment. Smaller
establishments are given more time to comply. Confined setting
establishments with fewer than fifty beds are given an extra year,
until November 1, 1998, to comply, and hotels and motels with fewer
than eighty rooms also are given an extra year, until November 1, 1999,
to comply.
(4) The Commission also took into account the needs of small
entities in the terms of the volume control manufacturing requirement.
The Commission had proposed, in the NPRM, a one-year deadline for this
requirement, but after receiving comment from organizations
representing large and small manufacturers, the Commission extended the
period to two-years, until November 1, 1998, before compliance with the
volume control rule is required. Similarly, the requirement that
manufacturers affix the letters ``HAC'' to new telephones does not go
into effect upon the effective date of the new rules, but six months
later, on April 1, 1997. Current small manufacturer telephone
inventories are not affected by this requirement.
(5) Under Section 610(e) of the HAC Act, the Commission must
consider the costs, as well as the benefits, of the proposed rules to
all telephone users, including persons with and without hearing
disabilities. In the NPRM, the Commission solicited comment on the
costs to establishments of providing volume control and hearing aid
compatible telephones. After reviewing the comments, the Commission
concluded that the new rules will not impose significant additional
costs on telephone users, manufacturers or establishments, and that any
costs are significantly outweighed by the benefits to be achieved.
g. Commission efforts to maximize benefits. Small entities will be
among the beneficiaries of the Commission's new rules. Under the new
rules, telephones in workplaces, confined settings and hotels and
motels will be more accessible to persons with hearing disabilities.
These changes may lead to new business for hotels and motels and
confined settings, and workplaces may be able to hire better employees,
since the pool of potential employees will be widened to include
persons with hearing disabilities. In addition, the level of public
safety will increase in all three settings, thereby benefitting both
the business setting and the public at large. Telephones also will be
easier to identify by installers, many of whom will be small entities,
as hearing aid compatible, once they are stamped ``HAC.'' Finally, the
volume control requirement probably will increase the consumer demand
for volume control telephones, benefitting large and small
manufacturers alike.
h. Significant alternatives minimizing impact on small entities
that were rejected. (1) The Commission considered not including within
the purview of ``telephones provided for emergency use'' telephones in
workplace non-common areas, telephones in confined settings and
telephones in hotels and motels. However, the Commission concluded that
given the nature of such settings, and the needs of persons in such
settings, telephones in workplace noncommon areas, confined settings
and hotels and motels should be considered telephones provided for
emergency use. The Commission noted that persons with hearing
disabilities are particularly vulnerable in confined settings and
hotels and motels because the persons may be unfamiliar with the
settings and isolated in the event of an emergency.
(2) Similarly, the Commission considered not adding a requirement
for volume control, but concluded that volume control should be
required. The HAC Act defines telephone hearing aid compatibility as
``an internal means for effective use with hearing aids,'' and the
legislative history cites amplification, or volume control, as one such
type of internal means. The Commission is obliged under the HAC Act to
encourage the use of currently available technology in fulfilling the
act's mandates. Through the conclusions of its advisory committee, the
Hearing Aid Compatibility Negotiated Rulemaking Committee, the
Commission determined that volume control is a currently available
technology that would help give many persons with hearing disabilities
increased access to the telephone network.
i. Summary of paperwork, recordkeeping, and other compliance
requirements for wireline telephones. (a) Paperwork requirements: As of
April 1, 1997, importers and manufacturers of telephones for use in the
United States must stamp their telephones with the letters ``HAC.''
Until the rules for all workplace telephones go into effect, employers
are required to designate certain hearing aid compatible telephones for
emergency use. A Commission rule regarding packaging is amended to
clarify that the type of hearing aid compatibility referred to is
electro-magnetic coil compatibility.
(b) Recordkeeping requirements: NONE.
(c) Other compliance requirements: As of the effective date of this
order, telephones, including headsets, made available to an employee
with a hearing disability for use by that employee in his or her
employment duty shall be hearing aid compatible;
As of the effective date of this order, newly purchased or
replacement telephones in workplaces, confined settings and hotels and
motels must be hearing aid compatible. In workplaces, if the
replacement telephone is from inventory existing before the effective
date of this order, any person may make a bona fide request that such
telephone be hearing aid compatible, and, after November 1, 1998, have
volume control.
As of the effective date of this order, if a hotel or motel room is
renovated or newly constructed, or the telephone in a hotel or motel
room is replaced or substantially, internally repaired, the telephone
must be hearing aid compatible.
As of the effective date of this order, and until the applicable
workplace dates of January 1, 2000 or 2005, workplaces of fifteen or
more employees must provide and designate telephones for emergency use
by employees with hearing disabilities by providing a hearing aid
compatible telephone within a reasonable and accessible distance for an
individual searching for a telephone from any point in the workplace,
or by providing hearing aid compatible wireless telephones.
[[Page 42185]]
As of April 1, 1997, the telephones in at least twenty percent of
hotel and motel guest rooms must be hearing aid compatible.
As of November 1, 1997 telephones (except telephones purchased and
maintained by a resident for use in that resident's room, and except
where a confined establishment has an alternate means of signalling
life-threatening or emergency situations that is available, working and
monitored) in confined settings with fifty or more beds must be hearing
aid compatible;
As of November 1, 1998, telephones (except telephones purchased and
maintained by a resident for use in that resident's room, and except
where a confined establishment has an alternate means of signalling
life-threatening or emergency situations that is available, working and
monitored) in confined settings with fewer than fifty beds must be
hearing aid compatible;
As of November 1, 1998, the telephones in hotels and motels with
eighty or more guest rooms must be hearing aid compatible;
As of November 1, 1998 telephones for use in the United States
provided by importers and manufacturers must have volume control, and
newly purchased and replacement telephones in workplaces, confined
settings and hotels and motels must have volume control. In addition,
in hotels and motels, where a hotel or motel room is renovated or newly
constructed, or the telephone is replaced or substantially, internally
repaired, the telephone in that room must have volume control.
As of November 1, 1999, the telephones in hotels and motels with
fewer than eighty guest rooms must be hearing aid compatible.
As of November 1, 1999, where a hotel or motel uses telephones
purchased during the period January 1, 1985 through December 31, 1989,
the telephones in at least twenty-five percent of hotel and motel guest
rooms must be hearing aid compatible.
As of January 1, 2000, non-common area telephones (except headsets,
and except for telephones purchased between January 1, 1985 and
December 31, 1989, and except for telephones made available to an
employee with a hearing disability under Section 68.112(b)(3)(A)) in
workplace establishments of fifteen or more employees must be hearing
aid compatible. There shall be a rebuttable presumption that, as of
January 1, 2000, all such telephones located in the workplace are
hearing aid compatible.
As of January 1, 2001, where a hotel or motel uses telephones
purchased during the period January 1, 1985 through December 31, 1989,
the telephones in one hundred percent of hotel and motel guest rooms
must be hearing aid compatible, if the hotel or motel has eighty or
more guest rooms.
As of January 1, 2004, where a hotel or motel uses telephones
purchased during the period January 1, 1985 through December 31, 1989,
the telephones in one hundred percent of hotel and motel guest rooms
must be hearing aid compatible, if the hotel or motel has fewer than
eighty guest rooms.
As of January 1, 2005, non-common area telephones (except headsets,
and except for telephones made available to an employee with a hearing
disability under Section 68.112(b)(3)(A)) purchased between January 1,
1985 and January 1, 1989 in workplace establishments of fifteen or more
employees must be hearing aid compatible. There shall be a rebuttable
presumption that, as of January 1, 2005, all such telephones located in
the workplace are hearing aid compatible.
j. Report to Congress. The Secretary shall send a copy of this
Final Regulatory Flexibility Analysis along with this R&O in a report
to Congress pursuant to Section 251 of the Small Business Regulatory
Enforcement Fairness Act of 1996, codified at 5 U.S.C. Section
801(a)(1)(A). A copy of this RFA will also be published in the Federal
Register.
Ordering Clauses
1. Accordingly, it is ordered that, pursuant to Sections 1, 4, 201-
205, 218, 220 and 610 of the Communications Act of 1934, as amended, 47
U.S.C. Secs. 151, 154, 201-205, 218, 220, and 610, and 5 U.S.C.
Secs. 552 and 553, this Report and Order is adopted, and Parts 64 and
68 of the Commission's Rules are amended as set forth below.
2. It is further ordered that the rule amendments set forth below
shall be effective October 23, 1996.
3. It is further ordered that the Emergency Request to Reinstate
Enforcement of the Hearing Aid Compatibility Rules, dated May 12, 1993,
by Alexander Graham Bell Association for the Deaf, et al, is dismissed.
4. It is further ordered that, pursuant to Section 5(c)(1) of the
Communications Act of 1934, as amended, 47 U.S.C. Sec. 155(c)(1),
authority is delegated to the Chief, Common Carrier Bureau, to make
minor changes, pursuant to the Administrative Procedure Act procedures,
in the technical standards specified in Sections 68.316 and 68.317 of
the rules, in order to incorporate minor changes made in the relevant
industry standards.
List of Subjects
47 CFR Part 64
Communications common carriers, Federal Communications Commission,
Hearing aid compatibility, Individuals with disabilities, Telephone.
47 CFR Part 68
Administrative practice and procedure, Communications common
carriers, Communications equipment, Federal Communications Commission,
Hearing aid compatibility, Incorporation by reference, Reporting and
recordkeeping requirements, Telephone, Volume control.
Federal Communications Commission
Shirley Suggs,
Chief, Publications Branch.
Rule Changes
Parts 64 and 68 of Title 47 of the Code of Federal Regulations are
amended as follows:
PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS
1. The authority citation for Part 64 continues to read as follows:
Authority: Sec. 4, 48 Stat. 1066, as amended; 47 U.S.C. 154,
unless otherwise noted. Interpret or apply secs. 201, 218, 226, 228,
48 Stat. 1070, as amended, 1077; 47 U.S.C. Secs. 201, 218, 226, 228,
610 unless otherwise noted.
2. Section 64.607 is revised to read as follows:
Sec. 64.607 Provision of hearing aid compatible telephones by exchange
carriers.
In the absence of alternative suppliers in an exchange area, an
exchange carrier must provide a hearing aid compatible telephone, as
defined in Sec. 68.316 of this chapter, and provide related
installation and maintenance services for such telephones on a
detariffed basis to any customer with a hearing disability who requests
such equipment or services.
PART 68--CONNECTION OF TERMINAL EQUIPMENT TO THE TELEPHONE NETWORK
1. The authority citation for Part 68 continues to read as follows:
Authority: Secs. 1, 4, 5, 201-5, 208, 215, 218, 226, 227, 303,
313, 314, 403, 404, 410, 602 of the Communications Act of 1934, as
amended, 47 U.S.C. Secs. 151, 154, 155, 201-5, 208, 215, 218, 226,
227, 303, 313, 314, 403, 404, 410, 602, 610.
2. Section 68.3 is amended by adding the following definition in
alphabetical order to read as follows:
[[Page 42186]]
Sec. 68.3 Definitions.
* * * * *
Hearing aid compatible: Except as used at Secs. 68.4(a)(3) and
68.414, the terms hearing aid compatible or hearing aid compatibility
are used as defined in Sec. 68.316, unless it is specifically stated
that hearing aid compatibility volume control, as defined in
Sec. 68.317, is intended or is included in the definition.
* * * * *
3. Section 68.4 is amended by revising paragraphs (a)(1) and (a)(2)
to read as follows:
Sec. 68.4 Hearing aid compatible telephones.
(a)(1) Except for telephones used with public mobile services,
telephones used with private radio services, and cordless and secure
telephones, every telephone manufactured in the United States (other
than for export) or imported for use in the United States after August
16, 1989, must be hearing aid compatible, as defined in Sec. 68.316.
Every cordless telephone manufactured in the United States (other than
for export) or imported into the United States after August 16, 1991,
must be hearing aid compatible, as defined in Sec. 68.316.
(2) Unless otherwise stated and except for telephones used with
public mobile services, telephones used with private radio services and
secure telephones, every telephone listed in Sec. 68.112 must be
hearing aid compatible, as defined in Sec. 68.316.
* * * * *
4. A new Section 68.6 is added to read as follows:
Sec. 68.6 Telephones with volume control.
As of November 1, 1998, all telephones, including cordless
telephones, as defined in Sec. 15.3(j) of this chapter, manufactured in
the United States (other than for export) or imported for use in the
United States, must have volume control in accordance with Sec. 68.317.
Secure telephones, as defined by Sec. 68.3, are exempt from this
section, as are telephones used with public mobile services or private
radio services.
5. Section 68.112 is amended by revising paragraphs (b)(1), (b)(3),
(b)(4), (b)(5) and (c), and adding paragraph (b)(6), as follows:
Sec. 68.112 Hearing aid compatibility.
* * * * *
(b) * * *
(1) Telephones, except headsets, in places where a person with a
hearing disability might be isolated in an emergency, including, but
not limited to, elevators, highways, and tunnels for automobile,
railway or subway, and workplace common areas.
Note to paragraph (b)(1): Examples of workplace common areas
include libraries, reception areas and similar locations where
employees are reasonably expected to congregate.
* * * * *
(3) Telephones, except headsets, in workplace non-common areas.
Note: Examples of workplace non-common areas include private enclosed
offices, open area individual work stations and mail rooms. Such non-
common area telephones are required to be hearing aid compatible, as
defined in Sec. 68.316, by January 1, 2000, except for those telephones
located in establishments with fewer than fifteen employees; and those
telephones purchased between January 1, 1985 through December 31, 1989,
which are not required to be hearing aid compatible, as defined in
Sec. 68.316, until January 1, 2005.
(i) Telephones, including headsets, made available to an employee
with a hearing disability for use by that employee in his or her
employment duty, shall, however, be hearing aid compatible, as defined
in Sec. 68.316.
(ii) As of January 1, 2000 or January 1, 2005, whichever date is
applicable, there shall be a rebuttable presumption that all telephones
located in the workplace are hearing aid compatible, as defined in
Sec. 68.316. Any person who identifies a telephone as non-hearing aid-
compatible, as defined in Sec. 68.316, may rebut this presumption. Such
telephone must be replaced within fifteen working days with a hearing
aid compatible telephone, as defined in Sec. 68.316, including, as of
November 1, 1998, with volume control, as defined in Sec. 68.317.
(iii) Telephones, not including headsets, except those headsets
furnished under paragraph (b)(3)(i) of this section, that are
purchased, or replaced with newly acquired telephones, must be:
(A) Hearing aid compatible, as defined in Sec. 68.316, after
October 23, 1996; and
(B) Including, as of November 1, 1998, with volume control, as
defined in Sec. 68.317.
(iv) When a telephone under paragraph (b)(3)(iii) of this section
is replaced with a telephone from inventory existing before October 23,
1996, any person may make a bona fide request that such telephone be
hearing aid compatible, as defined in Sec. 68.316. If the replacement
occurs as of November 1, 1998, the telephone must have volume control,
as defined in Sec. 68.317. The telephone shall be provided within
fifteen working days.
(v) During the period from October 23, 1996, until the applicable
date of January 1, 2000 or January 1, 2005, workplaces of fifteen or
more employees also must provide and designate telephones for emergency
use by employees with hearing disabilities through one or more of the
following means:
(A) By having at least one coin-operated telephone, one common area
telephone or one other designated hearing aid compatible telephone
within a reasonable and accessible distance for an individual searching
for a telephone from any point in the workplace; or
(B) By providing wireless telephones that meet the definition for
hearing aid compatible for wireline telephones, as defined in
Sec. 68.316, for use by employees in their employment duty outside
common areas and outside the offices of employees with hearing
disabilities.
(4) All credit card operated telephones, whether located on public
property or in a semipublic location (e.g. drugstore, gas station,
private club), unless a hearing aid compatible (as defined in
Sec. 68.316) coin-operated telephone providing similar services is
nearby and readily available. However, regardless of coin-operated
telephone availability, all credit card operated telephones must be
made hearing aid-compatible, as defined in Sec. 68.316, when replaced,
or by May 1, 1991, which ever comes sooner.
(5) Telephones needed to signal life threatening or emergency
situations in confined settings, including but not limited to, rooms in
hospitals, residential health care facilities for senior citizens, and
convalescent homes:
(i) A telephone that is hearing aid compatible, as defined in
Sec. 68.316, is not required until:
(A) November 1, 1997, for establishments with fifty or more beds,
unless replaced before that time; and
(B) November 1, 1998, for all other establishments with fewer than
fifty beds, unless replaced before that time.
(ii) Telephones that are purchased, or replaced with newly acquired
telephones, must be:
(A) Hearing aid compatible, as defined in Sec. 68.116, after
October 23, 1996;
(B) Including, as of November 1, 1998, with volume control, as
defined in Sec. 68.317.
(iii) Unless a telephone in a confined setting is replaced pursuant
to paragraph (b)(5)(ii) of this section, a hearing aid compatible
telephone shall not be required if:
[[Page 42187]]
(A) A telephone is both purchased and maintained by a resident for
use in that resident's room in the establishment; or
(B) The confined setting has an alternative means of signalling
life-threatening or emergency situations that is available, working and
monitored.
(6) Telephones in hotel and motel guest rooms, and in any other
establishment open to the general public for the purpose of overnight
accommodation for a fee. Such telephones are required to be hearing aid
compatible, as defined in Sec. 68.316, except that, for establishments
with eighty or more guest rooms, the telephones are not required to be
hearing aid compatible, as defined in Sec. 68.316, until November 1,
1998; and for establishments with fewer than eighty guest rooms, the
telephones are not required to be hearing aid compatible, as defined in
Sec. 68.316, until November 1, 1999.
(i) Anytime after October 23, 1996, if a hotel or motel room is
renovated or newly constructed, or the telephone in a hotel or motel
room is replaced or substantially, internally repaired, the telephone
in that room must be:
(A) Hearing aid compatible, as defined in Sec. 68.316, after
October 23, 1996;
(B) Including, as of November 1, 1998, with volume control, as
defined in Sec. 68.317.
(ii) The telephones in at least twenty percent of the guest rooms
in a hotel or motel must be hearing aid compatible, as defined in
Sec. 68.316, as of April 1, 1997.
(iii) Notwithstanding the requirements of paragraph (b)(6) of this
section, hotels and motels which use telephones purchased during the
period January 1, 1985 through December 31, 1989 may provide telephones
that are hearing aid compatible, as defined in Sec. 68.316, in guest
rooms according to the following schedule:
(A) The telephones in at least twenty percent of the guest rooms in
a hotel or motel must be hearing aid compatible, as defined in
Sec. 68.316, as of April 1, 1997;
(B) The telephones in at least twenty-five percent of the guest
rooms in a hotel or motel must be hearing aid compatible, as defined in
Sec. 68.316, by November 1, 1999; and
(C) The telephones in one-hundred percent of the guest rooms in a
hotel or motel must be hearing aid compatible, as defined in
Sec. 68.316, by January 1, 2001 for establishments with eighty or more
guest rooms, and by January 1, 2004 for establishments with fewer than
eighty guest rooms.
(c) Telephones frequently needed by the hearing impaired. Closed
circuit telephones, i.e., telephones which cannot directly access the
public switched network, such as telephones located in lobbies of
hotels or apartment buildings; telephones in stores which are used by
patrons to order merchandise; telephones in public transportation
terminals which are used to call taxis or to reserve rental
automobiles, need not be hearing aid compatible, as defined in
Sec. 68.316, until replaced.
6. Section 68.224 is amended by revising paragraph (a) to read as
follows:
Sec. 68.224 Notice of non-hearing aid compatibility.
* * * * *
(a) Contain in a conspicuous location on the surface of its
packaging a statement that the telephone is not hearing aid compatible,
as is defined in Secs. 68.4(a)(3) and 68.316, or if offered for sale
without a surrounding package, shall be affixed with a written
statement that the telephone is not hearing aid-compatible, as defined
in Secs. 68.4(a)(3) and 68.316; and
* * * * *
7. Section 68.300 is amended by adding a new paragraph (c) to read
as follows:
Sec. 68.300 Labelling requirements.
* * * * *
(c) As of April 1, 1997, all registered telephones, including
cordless telephones, as defined in Sec. 15.3(j) of this chapter,
manufactured in the United States (other than for export) or imported
for use in the United States, that are hearing aid compatible, as
defined in Sec. 68.316, shall have the letters ``HAC'' permanently
affixed thereto. ``Permanently affixed'' shall be defined as in
Sec. 68.300(b)(5). Telephones used with public mobile services or
private radio services, and secure telephones, as defined by Sec. 68.3,
are exempt from this requirement.
8. Section 68.316 is amended by revising the section heading and
the introductory paragraph to read as follows:
Sec. 68.316 Hearing aid compatibility magnetic field intensity
requirements: technical standards.
A telephone handset is hearing aid compatible for the purposes of
this section if it complies with the following standard, published by
the Telecommunications Industry Association, copyright 1983, and
reproduced by permission of the Telecommunications Industry
Association:
* * * * *
9. A new Section 68.317 is added to read as follows:
Sec. 68.317 Hearing aid compatibility volume control: technical
standards.
(a) An analog telephone complies with the Commission's volume
control requirements if the telephone is equipped with a receive volume
control that provides, through the receiver in the handset or headset
of the telephone, 12 dB of gain minimum and up to 18 dB of gain
maximum, when measured in terms of Receive Objective Loudness Rating
(ROLR), as defined in paragraph 4.1.2 of ANSI/EIA-470-A-1987 (Telephone
Instruments With Loop Signaling) . The 12 dB of gain minimum must be
achieved without significant clipping of the test signal. The telephone
also shall comply with the upper and lower limits for ROLR given in
Table 4.4 of ANSI/EIA-470-A-1987 when the receive volume control is set
to its normal unamplified level.
Note to paragraph (a): Paragraph 4.1.2 of ANSI/EIA-470-A-1987
identifies several characteristics related to the receive response
of a telephone. It is only the normal unamplified ROLR level and the
change in ROLR as a function of the volume control setting that are
relevant to the specification of volume control as required by this
section.
(b) The ROLR of an analog telephone shall be determined over the
frequency range from 300 to 3300 HZ for short, average, and long loop
conditions represented by 0, 2.7, and 4.6 km of 26 AWG nonloaded cable,
respectively. The specified length of cable will be simulated by a
complex impedance. (See Figure A.) The input level to the cable
simulator shall be -10 dB with respect to 1 V open circuit from a 900
ohm source.
(c) A digital telephone complies with the Commission's volume
control requirements if the telephone is equipped with a receive volume
control that provides, through the receiver of the handset or headset
of the telephone, 12 dB of gain minimum and up to 18 dB of gain
maximum, when measured in terms of Receive Objective Loudness Rating
(ROLR), as defined in paragraph 4.3.2 of ANSI/EIA/TIA-579-1991
(Acoustic-To-Digital and Digital-To-Acoustic Transmission Requirements
for ISDN Terminals). The 12 dB of gain minimum must be achieved without
significant clipping of the test signal. The telephone also shall
comply with the limits on the range for ROLR given in paragraph 4.3.2.2
of ANSI/EIA/TIA-579-1991 when the receive volume
[[Page 42188]]
control is set to its normal unamplified level.
(d) The ROLR of a digital telephone shall be determined over the
frequency range from 300 to 3300 Hz using the method described in
paragraph 4.3.2.1 of ANSI/EIA/TIA-579-1991. No variation in loop
conditions is required for this measurement since the receive level of
a digital telephone is independent of loop length.
(e) The ROLR for either an analog or digital telephone shall first
be determined with the receive volume control at its normal unamplified
level. The minimum volume control setting shall be used for this
measurement unless the manufacturer identifies a different setting for
the nominal volume level. The ROLR shall then be determined with the
receive volume control at its maximum volume setting. Since ROLR is a
loudness rating value expressed in dB of loss, more positive values of
ROLR represent lower receive levels. Therefore, the ROLR value
determined for the maximum volume control setting should be subtracted
from that determined for the nominal volume control setting to
determine compliance with the gain requirement.
(f) The 18 dB of receive gain may be exceeded provided that the
amplified receive capability automatically resets to nominal gain when
the telephone is caused to pass through a proper on-hook transition in
order to minimize the likelihood of damage to individuals with normal
hearing.
(g) These incorporations by reference of paragraph 4.1.2 (including
Table 4.4) of American National Standards Institute (ANSI) Standard
ANSI/EIA-470-A-1987 and paragraph 4.3.2 of ANSI/EIA/TIA-579-1991 were
approved by the Director of the Federal Register in accordance with 5
U.S.C. 552(a) and 1 CFR Part 51. Copies of these publications may be
purchased from the American National Standards Institute (ANSI), Sales
Department, 11 West 42nd Street, 13th Floor, New York, NY 10036, (212)
642-4900. Copies also may be inspected during normal business hours at
the following locations: Federal Communications Commission, 2000 M
Street, N.W., Public Reference Room, Room 220, Washington, D.C. 20554;
and Office of the Federal Register, 800 N. Capitol Street, N.W., suite
700, Washington, D.C.
BILLING CODE 6712-01-P
[[Page 42189]]
[GRAPHIC] [TIFF OMITTED] TR14AU96.000
[FR Doc. 96-20705 Filed 8-13-96; 8:45 am]
BILLING CODE 6712-01-C
Complete official Federal Register PDF
FR Doc. 96-20691 Interpretation Regarding Use of Electronic Media by Commodity Pool Operators and Commodity Trading Advisors
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42146-42165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20691]
=======================================================================
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
Interpretation Regarding Use of Electronic Media by Commodity
Pool Operators and Commodity Trading Advisors
AGENCY: Commodity Futures Trading Commission.
ACTION: Interpretation; Solicitation of comment.
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SUMMARY: The Commodity Futures Trading Commission (the ``Commission''
or ``CFTC'') is publishing its views with respect to the use of
electronic media for transmission and delivery of Disclosure Documents,
[[Page 42147]]
reports and other information by commodity pool operators (``CPOs''),
commodity trading advisors (``CTAs''), and associated persons (``APs'')
thereof, under the Commodity Exchange Act and the Commission's rules
promulgated thereunder. This interpretative guidance is intended to
assist CPOs, CTAs and their respective APs in using electronic media to
comply with their disclosure and reporting obligations, and to
encourage continued research, development and use of electronic media
for such purposes. The Commission also is announcing a pilot program
for the electronic filing of CPO and CTA Disclosure Documents with the
Commission. The Commission seeks comment on the issues discussed in
this release and any related issues, including other areas as to which
the Commission could provide guidance concerning use of electronic
media for filing with the Commission or delivery to customers of
required reports.
DATES: This interpretation is effective on October 15, 1996. Comments
should be received on or before October 15, 1996.
ADDRESSES: Comments should be submitted to Jean A. Webb, Secretary of
the Commission, Commodity Futures Trading Commission, 1155 21st Street,
N.W., Washington, D.C. 20581. In addition, comments may be sent by
facsimile transmission to facsimile number (202) 418-5521, or by
electronic mail to [email protected].
FOR FURTHER INFORMATION CONTACT: Susan C. Ervin, Deputy Director/Chief
Counsel, Gary L. Goldsholle, Attorney/Advisor, Christopher W. Cummings,
Attorney/Advisor, or Tina Paraskevas Shea, Attorney/Advisor, Division
of Trading and Markets, Commodity Futures Trading Commission, 1155 21st
Street, N.W., Washington D.C. 20581. Telephone number: (202) 418-5450.
Facsimile number: (202) 418-5536. Electronic mail: [email protected]
SUPPLEMENTARY INFORMATION:
I. Background
By this release, the Commission is publishing its views with
respect to the use of electronic 1 media by CPOs, CTAs and their
respective APs,2 for transmission and delivery of Disclosure
Documents, reports and other information in a manner consistent with
the Commodity Exchange Act (the ``CEA'' or ``Act'') 3 and the
Commission's regulations promulgated thereunder.4
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\1\ For purposes of this release, the term ``electronic'' media
refers to media such as audiotapes, videotapes, facsimiles, CD-ROM,
electronic mail, bulletin boards, Internet World Wide Web sites and
computer networks (e.g., local area networks and commercial on-line
services) used to provide documents and information required by or
otherwise affected by the Commodity Exchange Act and the regulations
promulgated thereunder.
\2\ The Commission is not addressing the use of electronic media
by other Commission registrants, such as futures commission
merchants (``FCMs'') and introducing brokers (``IBs'') at this time
but has such issues under review.
\3\ 7 U.S.C. 1 et seq. (1994).
\4\ Commission rules are found at 17 CFR Ch. I (1996). The rules
governing the obligations of CPOs and CTAs, including rules relating
to disclosure and reporting, recordkeeping and advertising, are
found at 17 CFR Part 4 (1996).
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The Expanding Electronic Marketplace. In recent years, personal
computers have gained widespread entry into the mass market.5
Advances in personal computers and related electronic media technology
have enabled large sectors of the general population to use computers
to access the Internet, proprietary on-line services, and multi-media
applications such as those stored on CD-ROMs. The use of personal
computers to access the Internet and proprietary on-line services has
been growing at a spectacular rate.6 This trend appears likely to
continue or even accelerate.7
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\5\ Current estimates are that between thirty-five and thirty-
nine percent of households in the United States possess a computer.
G. Christian Hill, ``Tally of Homes With PCs Increased 16% Last
Year,'' Wall Street Journal, May 21, 1996, at B10; ``Too Good to
Last,'' Economist, March 23, 1996, at 62.
\6\ The actual number of Internet users in the United States
above age 16 is the focus of debate and has been estimated between
16.4 and 22.0 million, as of August 1995. Peter H. Lewis, ``New
Estimates in Old Debate on Internet Use,'' New York Times, April 17,
1996, at D1.
\7\ Daniel Akst, ``Postcard from Cyberspace: Proof of
Skyrocketing Net Growth,'' Los Angeles Times, February 28, 1996, at
D4. The trend towards Internet usage appears to be so strong that
certain participants in the computer industry are developing
``network computers,'' low cost computers whose primary purpose will
be to connect to the Internet. Don Clark, ``Oracle Chief to Unveil:
`Info Appliances,' But Will Consumers Want to Buy Them?'' Wall
Street Journal, May 16, 1996, at B1.
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The growing use of electronic media is significantly affecting the
financial services industry. Specifically, it has caused many changes
in the way industry participants gather, store, and communicate
information. Electronic media enable private investors as well as
market professionals to enjoy ready access to ``real-time'' trade data
and financial news. Similarly, industry professionals and private
investors can now quickly perform complex analyses of trade and market
data. Both private investors and market professionals use electronic
mail and message boards to communicate and disseminate information.
Within the financial services industry, a wide range of businesses,
both large and small, have established a presence on the World Wide Web
and on the Internet. For instance, many securities brokerage houses now
allow customers to place trades and to review account information over
the Internet.8 Many mutual fund companies have established sites
on the World Wide Web or on proprietary on-line services. These sites
allow potential investors to download prospectuses, transfer
investments among multiple mutual funds, and complete subscription
applications without having to wait for such materials to arrive by
postal mail.9
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\8\ Estimates of the number of on-line brokerage accounts
indicate rapid growth. According to one source, there were 412,000
on-line accounts in 1994, and the number is expected to surpass 1.3
million by 1998. Greg Miller and Tom Petruno, ``For Investors, the
Internet has Promise, Perils,'' Los Angeles Times, June 4, 1996, at
A1, A6.
\9\ ``Mutual Funds in Cyberspace,'' The Investment Lawyer, Vol.
2, No. 10, November 1995.
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The futures industry has similarly been affected by developments in
electronic media. Many CTAs (including publishers of market
newsletters), CPOs, FCMs and IBs have established a presence on the
Internet, generally by operating or otherwise being listed on the World
Wide Web. Use of the World Wide Web and the Internet appears to be an
increasingly important component of the business strategies of futures
professionals. For the most part, these registrants currently are using
electronic media to supplement their traditional paper-based
activities. However, many registrants have expressed strong interest in
using electronic media to comply with various requirements of the Act
and Commission regulations. In particular, registrants have indicated
that they are interested in electronically providing Disclosure
Documents, obtaining acknowledgments of receipt of Disclosure
Documents, compiling indices of CTA and CPO performance and Disclosure
Documents, and filing Disclosure Documents and other materials with the
Commission. The rapid technological advances in computers and growth of
electronic media have brought the regulatory issues raised by these
developments to the forefront of the Commission's agenda.10
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\10\ As Acting Chairman John E. Tull noted in March 14, 1996, in
testimony before the Subcommittee on Agriculture, Rural Development,
Food and Drug Administration and Related Agencies of the House
Committee on Appropriations:
The Commission is actively working to address market
participants' interest in using new technologies to increase their
efficiency and competitiveness. These efforts include: consulting
with industry representatives concerning current and prospective
uses of the Internet for communicating with the public and with
other futures professionals; creating a program for monitoring
solicitation activity on the Internet; and developing mechanisms for
electronic filing of reports and other ways to facilitate innovative
uses of computer technology in a manner consistent with customer
protection.
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[[Page 42148]]
Electronic media, most dramatically the Internet and the World Wide
Web, present regulators with a complex of issues that differ
significantly from those presented by traditional paper-based or
telephonic activities. The Internet allows users to reach millions of
people at very low cost, permitting real-time, simultaneous
communication by large numbers of persons, with varying degrees of
anonymity. Communications over the Internet can combine text, audio and
video. Another unique characteristic of the Internet is that
information posted thereon can be updated or changed instantaneously,
and Internet sites can be created and eliminated virtually at will. The
Internet also is geographically unconstrained; a party using the
Internet can be located anywhere, even internationally.11 As the
Internet's popularity has grown, so too has the volume of information
that can be readily accessed via so-called ``search engines.'' Finally,
Internet sites can be connected to other sites through hyperlinks,
which enable users to move readily from place to place within a website
or to a new website.
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\11\ The Commission recognizes that the worldwide availability
of material placed on the Internet presents important issues
concerning the scope of the regulatory and enforcement jurisdiction
of individual nations. For example, solicitation materials posted on
the Internet by CPOs and CTAs registered with the Commission and
acting in compliance with Commission rules may be accessed by
persons in foreign jurisdictions under whose laws such a
solicitation may not be lawful. The International Organization of
Securities Commissions (``IOSCO''), an international association of
securities and futures regulatory and self-regulatory organizations,
has several initiatives underway to address these issues. In
particular, IOSCO is examining a number of issues, including the
enforcement and other regulatory challenges for securities and
futures regulators presented by the increasing use of public
computer networks. The Commission invites comment from interested
persons as to how the issues created by application of multiple
jurisdictions' laws to an international mode of communication such
as the Internet should be resolved.
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A number of federal agencies, including the Securities and Exchange
Commission (``SEC''), have begun to formally address regulatory issues
presented by activities involving the Internet. In October 1995, the
SEC issued an interpretative release addressing electronic delivery of
documents such as prospectuses, annual reports to shareholders, and
proxy solicitation materials by issuers, third parties (such as persons
making tender offers or soliciting proxies) and persons acting on their
behalf. In that release, the SEC set forth its views on the
requirements and standards to be met by securities issuers and mutual
funds using electronic media to deliver such documents to persons who
consent to such delivery.12 In a subsequent release dated May 15,
1996, the SEC extended its guidance with respect to electronic media to
broker-dealers, transfer agents, investment advisers and persons acting
on their behalf.13 In these releases, the SEC articulated its view
that in most instances, ``the use of electronic media should be at
least an equal alternative to the use of paper-based media.'' 14
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\12\ 60 FR 53458 (October 13, 1995). In a companion release, the
SEC proposed technical revisions to certain of its rules in light of
the interpretations proffered in the interpretative release. 60 FR
53468 (October 13, 1995). Much of the guidance provided in the SEC
interpretative release took the form of fifty-one examples of
particular uses of electronic media by securities professionals.
\13\ 61 FR 24644 (May 15, 1996).
\14\ 60 FR at 53459. On January 7, 1996, the North American
Securities Administrators Association, Inc. adopted a resolution
concerning offerings of securities over the Internet. In general,
this resolution encouraged states to exempt certain offerings over
the Internet from registration provisions and to take appropriate
steps to allow such offers and sales to occur subject to specified
conditions.
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In addition, the SEC has indicated that, subject to certain
conditions, Spring Street Brewing Co. (``Spring Street'') may operate
Wit-Trade, an on-line bulletin board-based trading system on the World
Wide Web that allows individuals to buy and sell shares of Spring
Street stock over the Internet. Spring Street had voluntarily suspended
trading on Wit-Trade on March 20, 1996, apparently due to concern that
the system, as then structured, did not satisfy SEC
requirements.15 However, in a March 22, 1996, letter to Spring
Street, the SEC's Divisions of Corporation Finance and Market
Regulation expressed support for securities market innovations such as
Wit-Trade, which they described as ``an innovative mechanism that has
the potential to provide [Spring Street] shareholders with greater
liquidity in their investments.'' 16 However, to ensure protection
of public investors, the SEC also imposed several conditions upon Wit-
Trade's resumption of trading. In order to continue its on-line trading
system, Wit-Trade, which is not a registered broker-dealer, was
required to use an independent agent to handle investor funds, to
supplement the information provided about Spring Street on the World
Wide Web in order to highlight the risks inherent in investing in
illiquid and speculative securities and to provide on the website a
transaction history, including price and volume data, to facilitate
informed investment decisions. Finally, the SEC stated that Spring
Street was required to maintain and deliver an offering circular in
accordance with Regulation A.17
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\15\ See Rob Wells, ``SEC Allows Brewer to Trade Stock on
Internet,'' Washington Times, March 26, 1996, at 5B. The developer
of Spring Street Brewing Co. has created Wit Capital Corporation to
act as agent in the public offering of securities through the
Internet and to create an electronic marketplace for the shares of
such companies. ``Brewer That Began IPOs on Web Plans On-Line
Exchange,'' The Washington Post, April 3, 1996, at G1.
\16\ Spring Street Brewing Co., SEC No-Action Letter, [Current
Transfer Binder] Fed. Sec. L. Rep. (CCH) para. 77,201 (April 17,
1996).
\17\ 17 CFR 230.251 et seq. (1996). Regulation A is an exemption
from registration available to issuers that are neither Securities
Exchange Act of 1934 reporting companies or investment companies and
permits interstate offerings of up to $5 million during any twelve
month period, including up to $1.5 million in non-issuer resales. An
offering pursuant to Regulation A requires that the issuer file an
``offering circular'' with the SEC.
The SEC also noted that its regulatory authority over Wit-Trade
extends to some categories of Wit-Trade's users. Specifically, the
SEC cautioned that Spring Street should inform users of the system
that if they post quotations simultaneously on both the Buyer and
Seller Bulletin Boards, they may be considered a ``dealer'' and
required to register as such and comply with the requirements
applicable to broker-dealers under the federal securities laws. The
SEC also stated that any transactions facilitated through Wit-Trade
would be subject to the antifraud provisions of the federal
securities laws.
Further, by letter dated June 21, 1996, the SEC's Divisions of
Market Regulation, Investment Management and Corporation Finance
granted approval to Real Goods Trading Corp. (``RGTC''), permitting
it to operate a bulletin board system on the World Wide Web whereby
persons may post notices regarding purchases or sales of RGTC stock
in light of representations that, inter alia, RGTC will not receive
any compensation for creating or maintaining the system and that it
will not receive, transfer or hold any funds or securities in
connection with its operation of the system. Real Goods Trading
Corp., 1996 SEC No-Act. Lexis 566 (June 24, 1996); Jeffrey Taylor,
``SEC to Allow Firm to Run Market For Its Own Shares on the
Internet,'' Wall Street Journal, June 27, 1996, at B12.
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Regulatory programs to address new commercial uses of the Internet
and World Wide Web have been accompanied by law enforcement actions to
address apparent abuses involving the use of such media. The Federal
Trade Commission (``FTC'') has brought several enforcement actions
involving fraud on the Internet. On May 29, 1996, the FTC announced
that it had obtained a federal court order against Fortuna Alliance,
L.L.C., temporarily halting an alleged pyramid scheme advertised over
the Internet that had taken in over $6 million.18 On June 12,
1996, the FTC obtained a preliminary injunction, keeping in effect the
identical provisions of the temporary restraining order. The FTC has
also established an electronic forum
[[Page 42149]]
intended to develop a set of voluntary principles applicable to the use
of consumer information in electronic media generally.19 This
electronic forum is presently soliciting comment from all sources,
including consumers, industry representatives, and privacy advocates.
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\18\ FTC v. Fortuna Alliance, L.L.C., Civ. Docket 96-CV-799,
W.D. Wa. 1996.
\19\ See FTC's website at http://www.ftc.gov/ftc/privacy.htm.
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NASD Regulation, Inc. (``NASDR''), the self-regulatory organization
responsible for oversight of securities firms and professionals and
over-the-counter securities trading, recently issued a Notice to
Members addressing supervisory and other obligations related to the use
of electronic media.20 In that notice, NASDR explained that
electronic communications are subject to the same approval,
recordkeeping, and filing requirements as communications by other means
and emphasized that all communications by its members with the public
remain subject to the antifraud provisions of the federal securities
laws. Further, it explained that members must comply with the NASD's
suitability rule, disclose material adverse facts to customers, and
implement appropriate supervisory procedures to ensure that their
associated persons do not misuse electronic communications or engage in
misconduct while on-line. NASDR also solicited comment from members
concerning their use of electronic media and whether there is a need
for ``prophylactic regulatory measures.'' 21
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\20\ NASD Notice to Members 96-50, July 1996. In a previous
notice, NASDR provided guidance to its members concerning the
regulatory implications of certain conduct occurring over various
electronic media, including the World Wide Web, ``bulletin boards,''
electronic mail, ``chat rooms,'' and hyperlinked sites. ``Ask the
Analyst About Electronic Communications,'' NASD Regulatory &
Compliance Alert, April 1996.
\21\ NASD Notice to Members 96-50, July 1996.
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Regulatory Implications of New Electronic Media. Like its sister
agencies, the CFTC has been alert to the potential regulatory and law
enforcement implications of the Internet and electronic media
generally. For example, like businesses and other government agencies,
the Commission is using electronic media to increase public awareness
of and access to its services. The Commission initiated its website on
the World Wide Web on October 10, 1995. The Commission now regularly
provides information on its website concerning a broad range of topics,
including enforcement actions, opinions and orders, commitments of
traders reports, interpretative letters, press releases, sanctions in
effect and reparations proceedings (including the necessary forms to
institute reparations claims).22
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\22\ The address of the site is http://www.cftc.gov. It is
visited by thousands of users each month.
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In addition to its World Wide Web site, the Commission has
undertaken a variety of initiatives relating to the application of
technology and electronic media to regulated futures activities. The
Commission recently concluded five market automation briefings,
soliciting input from four exchanges and from the brokerage community,
through representatives of the Futures Industry Association.23 In
these briefings, the exchanges described the current status and planned
improvements to clearing, order-routing, trade tracking, surveillance
and automation systems. The brokerage representatives identified
technological enhancements, including electronic transaction
confirmations and recordkeeping capacity, relevant to the continuing
efficiency and competitiveness of United States futures markets.
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\23\ Advisory No. 25-96 (May 13, 1996); ``Market Automation
Examined,'' [Current Transfer Binder] Comm. Fut. L. Rep. (CCH)
Report Letter No. 528 at 5 (June 7, 1996).
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To date, the Commission has facilitated the use of electronic media
by providing relief from or interpretations of regulatory requirements
in a variety of contexts. Recently, the Division of Trading and Markets
issued a ``no-action'' letter and a related advisory allowing FCMs to
use facsimile transmissions to send daily confirmation statements to
certain institutional customers in fulfillment of their obligations
under Commission Rule 1.33(b).24 The Division of Trading and
Markets also has issued an advisory concerning the attestation of
financial reports filed electronically with a self-regulatory
organization.25 Pursuant to Advisory 28-96, FCMs and IBs who file
financial reports electronically with a self-regulatory organization
that operates a program for electronic filing approved by the
Commission, such as the Chicago Board of Trade (``CBT'') or the Chicago
Mercantile Exchange (``CME''), may use a personal identification number
(``PIN'') in lieu of a signature, which will be deemed to be the
equivalent of a manual signature for purposes of attestation under
Commission Rule 1.10(d)(4).26 The PIN, therefore, will constitute
a representation by the user that the information contained in the
financial report is true, correct and complete. The Division of Trading
and Markets also is encouraging the CME and the CBT to license the
electronic filing system developed jointly by these exchanges, and
currently used by their members to file financial reports
electronically, at reasonable cost to other markets and is evaluating
whether to require electronic filing for all but certified financial
statements. The Division of Trading and Markets also has encouraged the
use of electronic media to achieve greater efficiency by allowing firms
to directly enter certain registration filings in connection with the
National Futures Association (``NFA'') direct entry program.27
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\24\ Advisory No. 22-96, [Current Transfer Binder] Comm. Fut. L.
Rep. (CCH) para. 26,679 (May 2, 1996). Throughout this
Interpretation the Commission refers to various staff interpretative
letters and advisories. These letters and advisories represent
interpretations by the Commission's staff and do not necessarily
represent interpretations by the Commission. The Commission intends
to issue a separate Federal Register release addressing electronic
communications and disclosures by FCMs and IBs. Prior to the
issuance of such a release, the Commission's Division of Trading and
Markets will continue to resolve issues in this area on a case-by-
case basis.
\25\ Advisory No. 28-96, [Current Transfer Binder] Comm. Fut. L.
Rep. (CCH) para. 26,711 (May 28, 1996).
\26\ The Commission approved rules of the CME and CBT permitting
electronic filing of financial reports prior to issuing this
advisory. See CME Rule 970 (approved by the Commission on September
27, 1993); CBT Capital Rule 311, Appendix 4B (approved by the
Commission on September 21, 1993). The Commission expects to propose
its own rules on this subject in the near future.
\27\ 57 FR 60799 (December 22, 1992).
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The Commission's Division of Enforcement (``DOE'') is actively
monitoring activity on the Internet and proprietary on-line services.
The DOE investigates and prosecutes violations of the CEA by persons
who use electronic media, as well as any other media, to accomplish
such violations. For instance, the Commission recently brought an
action in the United States District Court for the Southern District of
Florida against certain persons alleging fraud in connection with the
solicitation and receipt of funds for the purchase and use of computer-
generated trading systems.28 The complaint alleges that the
defendants in that case marketed the systems in national newspapers and
on the Prodigy on-line service Money Talk Bulletin Board. On October
16, 1995, the District Court issued an ex parte order freezing
defendants' assets. On October 25, 1995, the defendants, without
admitting or denying the allegations, consented to the entry of an
Order of Preliminary Injunction which, among other things, prohibited
them from acting as CTAs without benefit of registration.
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\28\ CFTC v. Maseri, et al., Case No. 95-6970-Civ-Davis (S.D.
Fla. 1995).
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In addition, the DOE will shortly introduce a section of the
Commission's website through which members of the public can provide it
with information regarding possible violations of the CEA
[[Page 42150]]
occurring on the Internet or elsewhere. This section will be an
important part of the DOE's and the Commission's surveillance and
information gathering activities over the Internet.
The Commission's Office of Information Resources Management
(``OIRM'') performs ongoing assessments of the opportunities offered by
the use of new technology to streamline or otherwise improve the
effectiveness of the Commission's programs. For example, in addition to
implementing and maintaining the Commission's website, OIRM has
recently provided a firewall-protected connection between the
Commission's internal network and the Internet. This connection
provides all Commission staff with Internet electronic mail addresses,
thereby enabling them to receive industry inquiries electronically and
to respond to such inquiries more rapidly. It also provides select
Commission staff with full web-browsing capabilities to facilitate
surveillance and other information gathering activities.
In sum, the Commission supports the use of new technologies to
enhance efficiency and competitiveness and believes that electronic
media can provide an effective alternative to traditional paper-based
media. The Commission encourages industry participants to consult with
the Commission as they develop and refine electronic media applications
in order to assure that transitions to electronic media occur
efficiently and without loss of regulatory protections.
The Commission is issuing this release to provide guidance
concerning a range of issues presented by existing and contemplated
uses of electronic media by the managed futures industry. The release
addresses: the applicability of the CEA and Commission regulations to
the use of electronic media, including registration duties and other
regulatory requirements applicable to persons who use electronic media
to provide commodity trading advice or to solicit managed futures
accounts or pool participations; the criteria and requirements
applicable to CPOs and CTAs seeking to use electronic media for the
delivery of Disclosure Documents, reports and other information; and a
mechanism whereby CPOs and CTAs may use electronic media to file
Disclosure Documents with the Commission. The Commission invites
comment on each of these topics, and any related issues of interest to
futures professionals or other market users.
II. Applicability of the Commodity Exchange Act and Regulations
Thereunder to Use of Electronic Media: Registration and Other
Requirements for Commodity Trading Advisors and Commodity Pool
Operators
The advent of electronic media, such as the Internet, as common
modes of commercial communication has given rise to numerous questions
concerning the applicability of existing regulatory structures to these
media. Although this release is principally directed toward the use of
electronic media by managed futures professionals, the Commission also
wishes to emphasize that, as a general matter, the nature and effect of
a person's conduct, not the medium of communication chosen, determine
the applicability of the Commission's regulatory framework.
Consequently, persons using electronic media are subject to the same
statutory and regulatory requirements under the Commission's regulatory
framework as persons employing other modes of communication.
This conclusion follows from the breadth of the mandates codified
in the CEA, as well as their express terms. The definition of CPO, for
example, includes ``any person engaged in a business that is of the
nature of an investment trust, syndicate, or similar form of
enterprise, and who, in connection therewith, solicits, accepts or
receives from others funds, securities or property, either directly or
through capital contributions, the sale of stock or other forms of
securities, or otherwise, for the purpose of trading in any commodity
for future delivery on or subject to the rules of any contract market *
* *.'' 29 Similarly, the CTA definition includes ``any person who
* * * for compensation or profit, engages in the business of advising
others, either directly or through publications, writings or electronic
media, as to the value of or the advisability of trading in any
contract of sale of a commodity for future delivery made or to be made
on or subject to the rules of a contract market * * *.'' 30
Section 4l of the Act confirms the national public interest in the
activities of CTAs and CPOs whose advice to and arrangements with
clients ``take place and are negotiated and performed by the use of the
mails and other means and instrumentalities of interstate commerce.''
31 More generally, Section 18 of the Act directs the Commission to
establish and maintain, ``as part of its ongoing operations,'' research
and information programs to determine, inter alia, ``the feasibility of
trading by computer, and the expanded use of modern information system
technology, electronic data processing, and modern communication
systems by commodity exchanges, boards of trade, and by the Commission
itself for purposes of improving, strengthening, facilitating, or
regulating futures trading operations.'' 32
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\29\ 7 U.S.C. 1a(4) (emphasis added).
\30\ 7 U.S.C. 1a(5)(A) (emphasis added). The definition of the
term ``commodity trading advisor'' was amended by the Futures
Trading Act of 1982, Pub. L. No. 97-444, 96 Stat. 2204 in order to
refer expressly to ``electronic media.'' Similarly, the exclusions
from the CTA definition for newspaper reporters and publishers were
amended to add ``electronic media'' to the exclusion for print
media.
\31\ 7 U.S.C. 6l (emphasis added).
\32\ 7 U.S.C. 22 (emphasis added).
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However, although Congress's intent that the Act should encompass
and accommodate new technologies is clear, market participants may
nevertheless benefit from guidance as to the manner in which the Act
and Commission rules apply in specific contexts. This release is
intended to facilitate the use of electronic information and
communications systems by Commission registrants in conducting their
businesses and in making required filings with the Commission. In
particular, this release is intended to facilitate the use of
electronic communication systems by clarifying the manner in which
Commission rules, generally written to address either oral or hardcopy
written communications, may be translated into the context of
electronic media.
As a threshold matter, the Commission wishes to emphasize the
registration duties of persons using electronic media to engage in
activity subject to the Act and Commission regulations. The Act's
registration requirements for commodity professionals are a cornerstone
of the regulatory framework enacted by Congress. Determinations as to
whether a person must register, and in what capacity, require an
evaluation of all of the ``circumstances surrounding such person's
commodity-related activities.'' 33 Section 4m(1) of the Act makes
it unlawful for any CTA or CPO, unless excluded or exempted from
registration, ``to make use of the mails or any instrumentality of
interstate commerce in connection with his business as such commodity
trading advisor or commodity pool operator'' 34 without being
registered under the Act. Thus, the Act requires the registration of
persons who use any instrumentality of interstate commerce, including
[[Page 42151]]
electronic media, in connection with their business as a CTA or CPO.
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\33\ 48 FR 35248, 35253 n.27 (August 3, 1983).
\34\ 7 U.S.C. 6m(1).
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A. Commodity Trading Advisory Activities
1. Trading Advice Communicated Electronically
The Act defines the term ``commodity trading advisor'' to include,
subject to specified exclusions, any person who: ``(i) for compensation
or profit, engages in the business of advising others, either directly
or through publications, writings, or electronic media, as to the value
of or the advisability of trading in'' futures contracts, commodity
options, or leverage transactions; or ``(ii) for compensation or
profit, and as part of a regular business, issues or promulgates
analyses or reports concerning any of the activities referred to in
clause (i).'' 35 Thus, subject to certain statutory exclusions,
any persons who for compensation or profit engage in the business of
advising others concerning trading in futures or commodity options or
of issuing analyses or reports concerning such trading, are deemed CTAs
under the Act.
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\35\ 7 U.S.C. 1a(5)(A).
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A threshold requirement of the CTA definition is that the trading
advisory activity be undertaken for ``compensation or profit.'' This
does not, however, require that ``the `compensation or profit' flow
directly from the person or persons advised * * * [i]t is sufficient
that the compensation or profit is to result wholly or in part from the
furnishing of the services specified in section [1a(5)].'' 36
Accordingly, this requirement has been interpreted by Commission staff
to include direct or indirect forms of compensation or profit received
by a CTA, including the attraction of new customers or maintenance of a
customer base.37
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\36\ CFTC Interpretative Letter No. 75-11, [1975-1977 Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 20,098, at 20,763 n.6 (Office
of the General Counsel, Trading and Markets, September 15, 1975).
\37\ CFTC Interpretative Letter No. 76-10, [1975-1977 Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 20,157 (Office of the General
Counsel, April 22, 1976); CFTC Interpretative Letter No. 75-6,
[1975-1977 Transfer Binder] Comm. Fut. L. Rep. (CCH) para. 20,093
(Office of the General Counsel, Trading and Markets, August 13,
1975). For example, Commission staff have found the ``compensation
or profit'' requirement of the CTA definition satisfied where a
CTA's customers receive commission rebates from an FCM that are then
credited toward payment of the CTA's commodity information service
subscription fees. Division of Trading and Markets Interpretative
Letter No. 95-51, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH)
para. 26,420 (May 1, 1995).
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The term ``commodity trading advice'' has been interpreted
expansively and includes particularized trading advice that recommends
specific transactions or trading methodologies as well as advice
concerning the ``value of or advisability'' of trading in futures or
commodity options. Consequently, one who advises others concerning the
value of using futures generally, without providing specific trading
recommendations, nonetheless is providing commodity trading advice.
Further, persons may provide commodity trading advice even though they
``are neither directly or indirectly involved in the solicitation of
funds or trades or the trading of accounts.'' 38 For example,
Commission staff have found that a publication that includes general
information on trading in commodity interests, detailed information on
price forecasting and specific advice on market conditions that signal
when persons should trade in the futures markets provides trading
advice.39 Commodity trading advice may include information already
contained in the public domain 40 and is not limited to trading
``recommendations.'' 41
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\38\ Division of Trading and Markets Interpretative Letter No.
96-56, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
________ (July 8, 1996).
\39\ Id.
\40\ Unpublished letter from Andrea M. Corcoran, Director,
Division of Trading and Markets, dated March 14, 1990 (``even
assuming that information contained in the [publication] is
available elsewhere in the public domain, it is our opinion that the
CTA definition includes an enterprise which is devoted to compiling
advice, reports or analyses of others with respect to futures
markets and to publishing such data in a book such as the
[publication] on a regular basis'').
\41\ Unpublished letter from Susan C. Ervin, Deputy Director/
Chief Counsel, Division of Trading and Markets, dated March 14, 1989
(noting that the absence of interpretative or analytical information
does not exclude a person from the definition of a CTA). ``The plain
terms of the statute indicate * * * that Congress intended to cover
all types of analyses and reports * * *, not just those that advise,
interpret or make recommendations.'' CFTC Interpretative Letter No.
76-25, [1975-1977 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
20,239 (Office of the General Counsel, December 6, 1976). Thus, a
person may provide commodity trading advice despite neither
analyzing nor making any predictions or representations about the
information provided.
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In applying the CTA definition, the Commission has recognized that
commodity trading advice may be provided through all forms of
communication, including electronic media. This conclusion is compelled
by the Act's express terms; as noted by Commission staff, ``[i]n
distinguishing between trading advice offered directly or through
publications, writings or electronic media, [the statutory CTA
definition] is clearly intended to reach `impersonal,' indirect forms
of trading advice and explicitly recognizes that commodity trading
advice may be given in forms other than personalized trading advice.''
42
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\42\ Division of Trading and Markets Interpretative Letter No.
95-101, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
26,565 (November 21, 1995). The Commission has recently filed
complaints addressing certain forms of alleged CTA activity
conducted by means of electronic media. For example, the Commission
and the Attorney General for the State of Florida jointly filed a
complaint, which was later amended to include a new defendant, in
CFTC v. JDI Limited Inc. d/b/a Future Vision, Case No. 95-6221-Civ-
Gonzalez (S.D. Fla.), charging defendants with, inter alia, acting
as unregistered CTAs and violating the antifraud provisions of the
Act in the marketing, sale and support of a computerized trading
program. Similarly, the Commission's complaint in In the Matter of
R&W Technical Services, Ltd., CFTC Docket No. 96-3, alleged that the
respondents had marketed and sold a computerized futures trading
system generating trading signals for transactions in various
financial futures contracts without being registered as CTAs. The
complaint also charged the parties with violations of antifraud
provisions of the Act by falsely advertising money-back guarantees
and hypothetical profits in magazines, telephone solicitations and
written promotional materials. The Commission expresses no opinion
on the merits or ultimate outcome of these cases.
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Commission staff have applied the CTA definition to ``persons who
make commodity interest trading advice available to the public through
mass media, such as newsletters, telephone hotlines or electronic
devices including computer software, rather than through direct
communication with individual persons.'' 43 Staff letters have
applied the CTA definition to, for example, designers and distributors
of computer software programs that generated commodity trading
recommendations or strategies; 44 a professor who received
compensation for applying research and periodically updating a computer
model used for trading commodity interests; 45 the distributor of
software that analyzed a United States dollar index; 46 and the
licensor of a computer software program who had developed and licensed
to more than fifty licensees various computerized trading systems that
allowed the licensees to input data setting the parameters of futures
transactions.\47\ These staff positions are consistent with
applications of the CTA definition to other impersonal or indirect
forms of communication, such
[[Page 42152]]
as newsletters and other print media 48 and telephone
hotlines.49
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\43\ Division of Trading and Markets Interpretative Letter No.
95-68, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
26,498 (August 10, 1995).
\44\ Id.
\45\ Division of Trading and Markets Interpretative Letter No.
94-51, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
26,115 (May 10, 1994).
\46\ Division of Trading and Markets Interpretative Letter No.
93-27, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
25,704 (April 2, 1993).
\47\ Division of Trading and Markets Interpretative Letter No.
84-9, [1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
22,092 (March 1 and April 6, 1984).
\48\ Division of Trading and Markets Interpretative Letter No.
93-18, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
25,694 (February 23, 1993) (publications issued on a monthly or
bimonthly basis which contained analyses and advice concerning
trading commodity interests, including gold, silver and platinum
contracts required registration as a CTA); CFTC Interpretative
Letter No. 75-3, [1975-1977 Transfer Binder] Comm. Fut. L. Rep.
(CCH) para. 20,090 (Office of the General Counsel, Trading and
Markets, July 31, 1975) (publisher of newsletter focusing on cash
commodity markets and that occasionally prints advice concerning the
use of agricultural futures for hedging purposes is a CTA); Division
of Trading and Markets Interpretative Letter No. 94-29, [1992-1994
Transfer Binder] Comm. Fut. L. Rep. (CCH) para. 26,020 (March 15,
1994) (responding to general questions regarding newsletter
publications and CTA registration and concluding that publisher of
newsletter offering market advice is not a CTA only if advice is
solely incidental to the publisher's business).
\49\ Division of Trading and Markets Interpretative Letter No.
93-43, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
25,734 (May 19, 1993) (requiring CTA registration of IB using a
``900 line'' that provided prerecorded trade recommendations as well
as research, market and trade ideas); see also CFTC v. Ehrenberg,
[1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) para. 21,640,
at 26,429 (E.D. Ill. 1982) (party who advertised services as pork
belly trading specialist in commodities magazine and gave commodity
trading advice over telephone for a fee was required to register as
CTA).
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The Commission wishes to make clear that the nature and scope of
regulation of trading advisory activity under the CEA depends upon the
type of activity in which the advisor engages. For example, persons who
provide commodity trading advice but do so in a manner that is solely
incidental to the conduct of certain businesses or professions, such as
banking, news publishing or news reporting, are wholly excluded from
the definition of a CTA. Persons who provide commodity trading advice
but do not qualify for a statutory exclusion from the CTA definition
due to the fact that their trading advice is not incidental to the
conduct of their business or profession as, e.g., a publisher, are
required to register as CTAs and maintain specified records; however,
unless they are managing customer accounts, they are not subject to the
requirement to deliver a Disclosure Document. Finally, persons who
manage customer accounts, i.e., direct or guide accounts,50 are
required to register with the CFTC, deliver a Disclosure Document to
each prospective customer at or before the time at which he solicits
such customer, obtain a signed acknowledgment of receipt of the
Disclosure Document from the customer and maintain specified books and
records. Persons who solicit managed accounts for a CTA must be
registered as an AP of the CTA and provide the required Disclosure
Document at the time of or prior to solicitation of the customer. The
Commission provides guidance on a case-by-case basis concerning the
application of these requirements to particular business activities or
arrangements.
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\50\ Commission staff have stated that it is not necessary for a
person to have a power of attorney in order to be ``directing'' or
``guiding'' accounts. See, e.g., Division of Trading and Markets
Interpretative Letter No. 86-15, [1986-1987 Transfer Binder] Comm.
Fut. L. Rep. (CCH) para. 23,165 (July 22, 1986) (``[i]t should be
noted that, although the CTA has no power of attorney over the
account, he does have the power to control the client's trades'').
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a. Exclusions From the CTA Definition
The CEA provides an exclusion from the CTA definition for banks and
trust companies (and their employees), news reporters, columnists and
editors, lawyers, accountants and teachers, floor brokers or FCMs,
publishers or producers of print or electronic data of general and
regular dissemination (and their employees), contract markets, and
``such other persons not within the intent of this paragraph as the
Commission may specify by rule, regulation, or order.'' 51 These
exclusions apply only if the furnishing of such services by the
specified persons ``is solely incidental to the conduct of their
business or profession.'' 52
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\51\ 7 U.S.C. 1a(5)(B). For instance, Commission Rule 4.14
exempts from CTA registration various categories of persons,
including certain dealers, processors, brokers or sellers in the
cash market for commodities; a registered AP who provides trading
advice solely in connection with his employment as an AP; registered
CPOs who provide trading advice solely to pools for which they are
registered; persons who are exempt from CPO registration who provide
trading advice solely to pools for which they are exempt from
registration; and certain persons who are registered as investment
advisers under the Investment Advisers Act of 1940 or are excluded
from the definition of the term ``investment adviser.'' 17 CFR 4.14.
\52\ 7 U.S.C. 1a(5)(C). Pursuant to statutory amendments adopted
in 1982, the Act also provides that the Commission may, ``by rule or
regulation, include within the term [CTA] any person advising as to
the value of commodities or issuing reports or analyses concerning
commodities if the Commission determines that the rule or regulation
will effectuate the purposes of this paragraph.'' 7 U.S.C. 1a(5)(D).
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(1) Publisher or Producer of Electronic Data of General and Regular
Dissemination
The CEA's express exclusion from the CTA definition for publishers
and producers of print or electronic media applies only if two criteria
are met.53 First, a person must be ``the publisher or producer of
any print or electronic data of general and regular dissemination.''
(emphasis added). Second, ``the furnishing of such services * * * [must
be] solely incidental to the conduct of their business or profession.''
As construed by CFTC staff, the phrase ``general and regular
dissemination'' applies to publications whose ``primary purpose [is] to
disseminate news and other items appealing to the interest of all
segments of the business and financial community.'' 54 In
contrast, ``if a publication concentrates on disseminating analyses,
reports or recommendations bearing on a narrow area of interest, such
as * * * commodity futures trading,'' the staff has construed the
publication not to be ``a bona fide business or financial publication
of general and regular circulation'' for purposes of the statutory
exclusion from the CTA definition.55
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\53\ 7 U.S.C. 1a(5) provides in pertinent part:
(B) Subject to subparagraph (C), the term ``commodity trading
advisor'' does not include--
* * * * *
(iv) the publisher or producer of any print or electronic data
of general and regular dissemination, including its employees;
* * * * *
(C) INCIDENTAL SERVICES--Subparagraph (B) shall apply only if
the furnishing of such services by persons referred to in
subparagraph (B) is solely incidental to the conduct of their
business or profession.
\54\ Division of Trading and Markets Interpretative Letter No.
76-1, [1975-1977 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
20,135 (February 26, 1976) (emphasis added).
\55\ Id.
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(2) Solely Incidental
In defining ``solely incidental,'' the Commission does not rely on
a specific numerical standard or percentage of revenues or business
but, rather, considers the nature of the overall business and the
factual context in which the advisory services are rendered.56
Thus, ``a planned or periodic expression of views as to the
advisability of trading in commodity futures made by an FCM may be
solely incidental to its business[,] while the same advice rendered by
a publisher or bank may not.'' 57 Generally, if a publication has
a specialized focus upon futures transactions or is largely devoted to
futures trading, the commodity trading advice furnished therein will
not be considered to be solely incidental to the conduct of the
[[Page 42153]]
publisher's business.58 Conversely, if a publication covers a
broad range of topics and futures are not its predominant focus, the
commodity trading advice provided therein may be ``solely incidental''
to the conduct of the publisher's business. For example, Commission
staff have found that ``reprinting'' by an electronic information
service of, among other things, specific trading recommendations was
solely incidental to its broader business as an electronic information
and communications service, a general computer library whose files
included a ``broad range of many different types of information.''
59 However, advice furnished in a financial publication (and
related telephone newsline service) that was substantially focused on
metals futures, was not solely incidental to that entity's publishing
business, but in the words of the Commission, was ``the very point of
that business.'' 60 Similarly, where a newsletter devoted a
substantial number of issues to analyses of the futures markets and
specific trading recommendations, Commission staff found such advice to
be ``fundamental,'' rather than solely incidental, to the company's
business.61
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\56\ In the Matter of Armstrong, [1992-1994 Transfer Binder]
Comm. Fut. L. Rep. (CCH) para. 25,657 (February 8, 1993), rev'd on
other grounds sub nom., Armstrong v. Commodity Futures Trading
Commission, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH)
para. 25,914 (December 21, 1993) [hereinafter Armstrong]; see also
52 FR 41975, 41978 (November 2, 1987) (discussing ``solely
incidental'' as used in Commission Rule 4.6).
\57\ Division of Trading and Markets Interpretative Letter No.
76-1, [1975-1977 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
20,135 (February 26, 1976).
\58\ Armstrong; CFTC Interpretative Letter No 75-4, [1975-1977
Transfer Binder] Comm. Fut. L. Rep. (CCH) para. 20,091 (Office of
the General Counsel, Trading and Markets, August 11, 1975).
\59\ Division of Trading and Markets Interpretative Letter No.
83-3, [1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
21,842, at 27,538 (May 25, 1983) (describing the computer
information and communications service as ``computer library and
information distribution business'').
\60\ Armstrong, at 40,149.
\61\ CFTC Interpretative Letter No. 75-4, [1975-1977 Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 20,091, (Office of the
General Counsel, Trading and Markets, August 11, 1975). The United
States Supreme Court's interpretation of the term ``investment
adviser'' in SEC v. Lowe, 472 U.S. 181 (1985), as used in the
Investment Advisers Act of 1940 (``IAA''), does not mandate a
different result. In Lowe, after reviewing the language and
legislative history of the IAA, the Court held that Congress had
excluded publishers of generalized securities advice from the
definition of investment adviser. Although a ``facial parallel''
exists between the Section 1a(5)(B)(iv) of the CEA and Section
203(c) of the IAA (the exclusion for ``the publisher of a bona fide
newspaper, magazine or business of financial publication of general
and regular circulation''), unlike the investment adviser definition
of the IAA, the CTA definition in Section 1a(5)(C) of the CEA limits
the exclusions in Section 1a(5)(B), including the publishers'
exclusion of Section 1a(5)(B)(iv), to cases where ``the furnishing
of such services by the foregoing persons is solely incidental to
the conduct of their business or profession.'' Armstrong, at 40,149.
Consequently, as the Commission noted in Armstrong, ``[g]iven this
clear distinction between Congress' exclusionary language in [the
IAA and the CEA, the Commission is] not persuaded that the holding
in Lowe mandates a broad construction of the exclusion from the
definition of CTA for certain publishers.'' Id.
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b. Exemption From Registration for Persons Who Furnish Trading Advice
to Fifteen or Fewer Persons and Who Do Not Hold Themselves Out as CTAs
Section 4m(1) of the CEA provides an exemption from registration
for CTAs who during the preceding twelve months have not furnished
trading advice to more than fifteen persons and who do not ``hold
[themselves] out generally to the public as a commodity trading
advisor.'' 62 A CTA who identifies himself as a CTA or otherwise
refers to his advisory services or history on a public electronic forum
such as portions of the Internet or a proprietary on-line service may
not avail himself of the exemption under Section 4m(1). Such conduct
constitutes ``holding out'' to the public as a CTA.63 This view is
consistent with the SEC's views concerning the ineligibility of
offerings posted on the Internet for the Regulation D safe harbor from
registration. As stated by the SEC, ``[t]he placing of the offering
materials on the Internet would not be consistent with the prohibition
against general solicitation or advertising in Rule 502(c) of
Regulation D.'' 64
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\62\ 7 U.S.C. 6m(1).
\63\ See examples infra, at the conclusion of this section.
Likewise, a CPO who advertises a pool on the Internet, e.g., by
identifying himself as a CPO of a pool, may not obtain an exemption
from registration relief under Commission Rule 4.13(a)(1), inasmuch
as such advertising plainly negates one of the required elements of
the exemption. Commission Rule 4.13(a)(1) provides an exemption from
registration for a CPO if, among other things, ``it does not receive
any compensation, directly or indirectly, for operating the pool,
except reimbursement for ordinary administrative expenses of
operating the pool;'' ``[i]t operates only one pool at a time;'' and
``[n]either the person nor any other person involved with the pool
does any advertising in connection with the pool * * *.'' 17 CFR
4.13(a)(1) (emphasis added).
\64\ 60 FR at 53464. SEC Rule 502(c) prohibits ``any form of
general solicitation or general advertising'' and applies to
Regulation D offerings pursuant to SEC Rules 505 and 506. 17 CFR
230.502(c). Thus, CPOs who use electronic media in a manner
inconsistent with Regulation D may not obtain relief pursuant to
Commission Rule 4.8, which is available only with respect to
offerings pursuant to SEC Rules 505 and 506. 17 CFR 4.8.
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2. Directories and Compilations
In addition to using electronic media to communicate specific
commodity trading advice, market participants may engage in activities
that implicate registration duties and other CFTC requirements by
operating sites on the World Wide Web that compile information about
other registrants or futures-related subjects. For example, many
locations on the Internet provide central repositories for, directories
of, or mechanisms to access information compiled from multiple sources.
Persons who compile and reprint information, whether electronically or
on paper media, may be subject to the Commission's registration
requirements notwithstanding the fact that they did not originally
prepare the information disseminated. The terms ``advising'' and
``issues or promulgates'' are not limited to the author of such
materials but include the ``dissemination of another's views to third
persons.'' 65
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\65\ CFTC Interpretative Letter No. 76-24, [1975-1977 Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 20,234 (Office of the General
Counsel, August 17, 1976).
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Compilations of information may range from listings of performance
data for all publicly offered commodity pools, comparable to newspaper
listings of mutual fund returns, to narrowly focused descriptions of
the trading strategies and history of a single CTA. In determining
whether such compilations constitute either advice as to ``the value of
or the advisability of trading'' futures or commodity options or
``analyses or reports'' concerning such trading, as well as the
applicability of various statutory exclusions, the Commission considers
all of the relevant facts and circumstances. However, to facilitate use
of the Internet by commodity professionals, the Commission wishes to
clarify the status of certain types of publications of futures-related
data.
Publications that compile trading results for commodity pools
selected on an objective, neutral basis, e.g., all commodity pools of a
certain size or geographic location, could be viewed as providing
``reports or analyses'' concerning futures transactions and thus as
within the CTA definition. To the extent that such compilations are
presented by a publisher of print or electronic media of ``general and
regular dissemination'' in a manner solely incidental to that business,
the publisher would qualify for the statutory exclusion from the CTA
definition. The publisher of a newspaper of general circulation could
therefore publish, in a manner incidental to that business, the
performance results for all commodity pools or for all publicly traded
commodity pools without registration as a CTA or compliance with the
statutory and regulatory requirements applicable thereto.
If a compilation of performance data for publicly offered pools
were published by a firm that does not qualify as a publisher of data
of general and regular dissemination, e.g., a business devoted
exclusively or primarily to operating Internet sites
[[Page 42154]]
providing data concerning CTAs and CPOs, the statutory ``publisher''
exclusion would not apply. However, the Commission believes that
provided such data are developed using objective, neutral criteria,
such as size or geographical location, and presented as such by a bona
fide news organization for the purpose of providing current market
data, registration as a CTA should not be required.66 Similarly,
an unbiased compilation of all registered CTAs in a given location,
clearly described as such and without any express or implied evaluation
or suggestions as to the quality of the services such persons provide,
may be viewed as equivalent to the telephone ``yellow pages''
directory, and would not implicate the Commission's registration
requirements. However, compilations of selected CTAs, or of CTAs who
pay a fee for inclusion in a list, may not be neutrally developed
compilations and may, in effect, promote the services of selected CTAs.
If the provider of this information is compensated for or receives
profit from such activities, absent the applicability of a specific
exclusion, that person is required to register as a CTA.67
Moreover, even absent such compensation, the presenter of such data may
be soliciting discretionary accounts on behalf of one or more CTAs and
thus required to register as an AP of such CTA, or as a CTA.
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\66\ The Commission stresses, however, that providing even
objective market or performance history data in the context of a
publication that has the purpose or effect of providing or marketing
trading advisory services would require CTA registration. Thus, a
newsletter published to communicate the trading advice of a
particular CTA or to promote a CTA ``hotline'' service and also
including performance data for commodity pools would implicate the
CTA definition, notwithstanding that such performance data are
objectively developed, because the publication is predominantly one
designed to provide trading advice. Thus, whether a particular
presentation constitutes trading advice depends upon the facts and
circumstances in which the presentation is made and the
representations, express or implied, made concerning the content of
the presentation.
\67\ As noted above, compensation in this context does not
require that payment be received for the communication in question.
Rather, if the provider of such data profits from presenting it,
even indirectly, such as by promoting its own services, the
statutory ``compensation or profit'' standard is satisfied.
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Compilations presented on electronic media may contain actual
descriptive data or simply a collection of hyperlinks. Hyperlinks, a
prominent feature of the World Wide Web, enable a user to connect from
one location or document to another, a facility without apparent
analogy in paper-based media. Hyperlinks consist of an address or
phrase which, when activated by a click of the mouse, connects the user
to another location on the Internet. The Commission's website, for
example, has hyperlinks to a number of World Wide Web sites, including
each of the United States contract markets. Internet directories such
as Yahoo and Magellan are basically organized collections of
hyperlinks. Hyperlinks, although fundamentally a connective mechanism
between websites, nonetheless can be used in such a manner as to
communicate advice about the value of or advisability of trading in
commodity interests, e.g., by labeling, describing, or otherwise
introducing the hyperlinked sites. This would be the case, for example,
where the operator of a website provides editorial comment about the
hyperlinks or provides a list of hyperlinks that represent a pre-
selected, defined category of persons or services, whose attributes or
qualifications are thereby highlighted.68 In such a case, the
person providing the hyperlinks would be required to register as a CTA.
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\68\ In this case, the hyperlink communicates the views of the
website operator as to the quality of the services addressed or
referred to at the hyperlinked site.
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However, hyperlinks can also be used in a manner that would not
require a person to register as a CTA. For example, the Commission
believes that merely providing a list of hyperlinks that is the
equivalent of a telephone directory or other broad-based source of
``locational'' data, without more, would not make one a CTA because
hyperlinks in this context do not necessarily speak ``as to the value
of or the advisability of trading in'' commodity interests. Similarly,
a website that contains a search or query function that allows visitors
to construct searches to obtain data responsive to certain criteria
they select would not be considered to be providing trading advice,
provided that the website merely provides the ``data library'' and the
search vehicle for the viewer's use.69
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\69\ This analysis would apply without regard to the criteria
selected by the viewer, which could, for example, call for all pools
with rates of return above a specified threshold or for presentation
of pools in order of rates of return (e.g., high-to-low). However, a
website that contained this search feature, but also contained
evaluative or mathematical services (e.g., for the calculation of
relative rates of return or volatility of returns) would, however,
indicate a different result.
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3. Applicability of Antifraud Provisions
Persons using electronic media are subject to the same statutory
and regulatory requirements under the CEA, including the statutory and
regulatory antifraud prohibitions and related rules pertaining to CTAs
and CPOs, as those using other media. These include the antifraud
provisions of the CEA, including Section 4o,70 as well as the
provisions of Commission Rule 4.41. Rule 4.41 prohibits CPOs, CTAs, or
any principals thereof from advertising in a manner which employs any
fraudulent device or involves any transaction or course of business
which operates as a fraud or deceit upon any pool participant or client
or prospective participant or client. Rule 4.41 also bars the
presentation of any hypothetical or simulated performance data unless
it is ``prominently'' accompanied by a prescribed cautionary
statement.71 Both the statutory antifraud provisions and Rule 4.41
apply to CTAs, CPOs, and their principals, regardless of whether they
are exempt from registration under the CEA.72 Rule 4.41 expressly
applies to ``any publication, distribution or broadcast of any report,
letter, circular, memorandum, publication, writing, advertisement or
other literature or advice, including the texts of standardized oral
presentations and of radio, television, seminar or similar mass media
presentations.'' 73 The requirements of Rule 4.41 thus apply fully
to electronic media such as the Internet.
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\70\ 7 U.S.C. 6o provides that no CPO, CTA, or any associated
persons thereof, may use ``any means or instrumentality of
interstate commerce, directly or indirectly--(A) to employ any
device, scheme or artifice to defraud any participant or client or
prospective client; or (B) to engage in any transaction, practice or
course of business which operates as a fraud or deceit upon any
participant or prospective client or participant.''
\71\ 17 CFR 4.41(b); In re Armstrong, [Current Transfer Binder]
Comm. Fut. L. Rep (CCH) para. 26,332 (CFTC March 10, 1995), aff'd
sub nom. Armstrong v. CFTC, No. 95-3161 (3d Cir. January 19, 1996),
cert. denied, 64 U.S.L.W. 3821 (June 10, 1996). Commission Rule
4.41(b) requires that hypothetical or simulated performance data be
accompanied either by the statement specified in Rule 4.41(b)(1) or
a comparable statement promulgated by a registered futures
association. The NFA's cautionary statement can be found in NFA Rule
2-29.
\72\ See 7 U.S.C. 6o; 17 CFR 4.41(c)(2).
\73\ 17 CFR 4.41(c)(1).
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The Commission also notes that capabilities peculiar to the
Internet, such as anonymity and the ability to operate through aliases
(e.g., electronic mail addresses, user names), that obscure a person's
true identity or business affiliation may be exploited in a manner that
operates as a fraud. For example, the use of ``testimonials''
purportedly from third parties but actually created by the CTA or CPO
that is the subject of the ``testimonial'' would constitute a
fraudulent practice under statutory antifraud provisions and Rule 4.41.
[[Page 42155]]
The following examples are illustrative of the requirements
discussed above.
(1) (General Internet Directory Not a CTA) Company XYZ operates
a website that provides a directory of hyperlinks to the World Wide
Web. XYZ has broad listings under such topics as Arts, Business and
Economy, Computer and Internet, Education, Entertainment,
Government, Health, News, Recreation and Sports, Reference,
Regional, Science, Social Science and Society and Culture. Within
the Business and Economy section is a subsection covering Futures
and O
FR Doc. 96-20691 Interpretation Regarding Use of Electronic Media by Commodity Pool Operators and Commodity Trading Advisors
ptions. Among the hyperlinks in the Futures and Options
sections are those of a number of CTAs. XYZ does not charge CTAs for
listings in its directory; XYZ's revenues are derived solely from
advertising on its homepage. XYZ does not exercise any discretion as
to the inclusion of any CTA on its directory, and any CTA requesting
inclusion will be included; these facts are prominently disclosed.
XYZ provides no information about the content of the CTA sites to
which hyperlinks are provided. XYZ qualifies for the exclusion from
the definition of a CTA for a producer or publisher of information
of general and regular dissemination since its homepage provides
information across all subject matters and the information provided
by such links is solely incidental to its business, which is to
provide an index of the World Wide Web.
(2) (Recommending or Evaluating CTAs) Company XYZ operates a
website that contains a list of hyperlinks to CTAs described as the
``Ten Best CTAs for 1996.'' Each of the ten CTAs featured on XYZ's
homepage is required to pay XYZ a fixed fee. In this scenario, XYZ
is a CTA and is required to register as such. By making evaluative
representations about the featured CTAs, XYZ is providing advice
about the value of or advisability of trading in commodity
interests. Since XYZ receives a fee from each of the ten featured
CTAs, the compensation element of the CTA definition is satisfied.
Absent the availability of an exclusion from the CTA definition, XYZ
must register as a CTA.
(3) In the same factual scenario as in Example (2), XYZ does not
receive a fee from each of the listed CTAs, but instead receives
revenues from various advertisers on its website. In this case too,
XYZ is required to register as a CTA. The profit or compensation
element of the CTA definition includes fees received from
advertisers and need not flow directly from the person or persons
advised or from the featured CTAs.
(4) (Disclaimers) Same facts as Example (2) above, except that
XYZ also provides a disclaimer on its website that states ``All
materials and information provided with respect to the CTAs
contained herein are not intended as commodity trading advice and we
make no specific recommendations with respect to which CTA best
suits your investment needs. The information is intended to enhance
your futures investment decisions, not make them for you.'' Again,
XYZ would be required to register as a CTA. XYZ has provided trading
advice and cannot by disclaimer alter the reasonably anticipatable
effects of the information provided or the consequent registration
requirements under the Act.
(5) (Providing Leads) WXY is in the business of generating leads
and mailing lists for third party vendors who are engaged in various
businesses. For a monthly fee, WXY's lead generating services are
open to all businesses who wish to obtain mailing lists to solicit
customers. WXY's website on the World Wide Web allows site visitors
to ``sign up'' to receive information on products and services that
are of particular interest to the site visitors by allowing the site
visitors to click on various listed categories (e.g., ``Click here
if you would like to receive information on computers; Click here if
you would like to receive information on insurance products''). One
of the categories allows site visitors to click on a particular
location if they are interested in receiving commodity trading and
investment information. Site visitors are asked to register in a
guest book which requests their name, electronic mail address,
street address, income and other information.
WXY forwards to various CTAs the names of and other information
concerning the persons who requested information on commodity
trading and investments. By engaging in such activities, WXY would
be operating as a ``finder'' since its purpose would be to seek
clients on behalf of Commission registrants. WXY must therefore
register as an AP of the CTAs to whom it furnishes customer names,
or as a CTA.
(6) (Electronic Mail to Specific Address May Not Defeat 4m(1)
Exemption) John Doe, a school teacher who studies the stock and
futures markets for his own financial benefit and trades futures
contracts for his own account, discusses his trades with his college
roommate and friend, George, and two other friends whom he has known
for twenty years. The three friends ask John to furnish commodity
trading advice to them and John agrees to act as their CTA. John is
not registered with the Commission in any capacity, has not
previously furnished commodity trading advice to any other persons,
and has not held himself out generally to the public as a CTA. John
and his three friends all have computers and electronic mail
addresses and all four persons use electronic mail on a regular
basis to communicate with one another. John's three friends agree
that John may provide them with commodity trading advice and other
information relating to their commodity accounts through electronic
mail to their electronic mail addresses to which only they have
access. John's use of an individual electronic mail address for
purposes of communicating commodity-related information to his three
friends would not in this case defeat a potential Section 4m(1)
exemption from CTA registration because the electronic mail
communication in this instance is personal and direct and is limited
to electronic correspondence with those three individuals.
(7) (Placing Performance Data on a Generally Accessible Internet
Site Would Be Inconsistent With 4m(1) Exemption) Same facts as above
except John also operates a website and he posts the performance
data of his friends' trading accounts on his website. By placing the
performance data on a public electronic forum that can be readily
accessed by others, John would be holding himself out as a CTA and
thus would not satisfy one of the criteria of the Section 4m(1)
exemption from CTA registration.
(8) (Providing Telephone Directory for CTAs Does Not Require
Registration as CTA) XYZ operates a website that contains a
directory which it represents to be a list of each registered CTA,
containing the name, address, and telephone number for each CTA.
Although XYZ may receive compensation from advertisers on its
website, XYZ is not required to register as a CTA. In this case, the
limited information provided on each CTA does not constitute
commodity trading advice. Further, by providing a complete directory
of all registered CTAs, and representing it as such, XYZ is making
clear that it is not promoting or recommending any particular CTA
but, rather, is providing a directory which interested persons can
use to contact CTAs of their choice. Further, as XYZ provides an
equivalent level of data for each registered CTA, it does not
implicitly recommend or favor one CTA over another.
(9) (Providing Biographical and Descriptive Information on
Selected CTAs in a Manner That Implies Evaluation or Recommendation
Requires Registration as CTA) XYZ operates a website that contains a
directory listing each registered CTA, containing the name, address,
and telephone number for each CTA. Additionally, for certain CTAs,
XYZ provides information concerning the types of trading programs
they utilize and certain performance data. XYZ does not charge
visitors to its website for access to this information but is
compensated by CTAs for displaying advertisements at the top of
certain web pages. Under these circumstances, XYZ must register as a
CTA. Presentation of a compilation of biographical and descriptive
data on certain CTAs has the effect, whether intended or otherwise,
of promoting, recommending, or marketing the services provided by
such CTAs. This conclusion is not affected by the fact that XYZ
provides very basic biographical data on all CTAs, since XYZ has
plainly distinguished among CTAs and highlighted certain CTAs for
specialized attention. Moreover, XYZ is compensated for providing
this information. As a result, absent the applicability of a
specific exclusion, XYZ is required to register as a CTA.
(10) (Compensation or Profit Includes Offer of Free Services for
a Limited Time) RST has created a new daily ``e-zine'' on the World
Wide Web that is principally devoted to commodity trading advice
provided by RST and promotion of RST's advisory services. To promote
this new e-zine, RST is offering free trial subscriptions for a
limited time, e.g., ninety days. After this initial trial period,
users must pay RST's rate of $20 per week. RST is required to
register as a CTA. Even though RST is offering free subscriptions to
all persons during its start-up period, it is nonetheless operating
the ``e-zine'' and providing commodity trading advice for
compensation or profit. As discussed above, the ``compensation or
profit'' element of the
[[Page 42156]]
CTA definition includes the attraction of new customers.
(11) (Gratuitous Leads, Discussions in Chat Rooms) Sally Smith,
an accountant, frequently interacts with other persons via a
financial investment ``chat room'' on a major on-line service.
During the course of these interactions, she advises other persons
in the chat room concerning a recent investment she made in a
commodity pool. She informs others in the chat room that she is
exceptionally pleased with the returns on her investment and that
she believes that the CPO is an excellent investment manager. In
support of her remarks, she also provides the pool's performance
data. Neither the CPO, its principals or anyone involved in the
pool's operation is affiliated with Sally Smith or her employer. She
does not receive any compensation or other consideration for her
participation in the chat room, from the CPO, others in the chat
room, the site provider, or otherwise, whether directly or
indirectly. Sally Smith would not be required to register with the
Commission as her chat room activity and the information that she is
providing is strictly gratuitous.
(12) (Compensated Leads, Discussions in Chat Rooms) If in the
same factual scenario as above in Example (11), Sally Smith is
compensated by the CPO for soliciting members from the chat room,
then Sally Smith would be required to register as an AP of the CPO.
(13) (Use of Aliases, if Undisclosed, May Be Fraudulent) In the
same factual scenario as Example (11), Dave Doe, the CPO for the
``Futures Pool,'' is also in the chat room. Unlike Sally Smith, Dave
Doe does not use his real name when communicating with others in
chat rooms; he uses the alias ``HonestMan.'' Under this alias, Dave
Doe tells others in the chat room that he has heard that the
``Futures Pool'' is an ideal pool for first time investors because
it offers excellent performance and low fees. In response to an
inquiry from someone in the chat room, ``HonestMan'' also states
that ``he has never heard of anyone losing money who invested in the
Futures Pool,'' which he knows to be untrue. Dave Doe is in
violation of the antifraud provisions of Section 4o of the CEA and
Commission Rule 4.41. Additionally, Dave Doe has violated Commission
Rule 4.21(a) because he has solicited prospective pool participants
for the ``Futures Pool'' but has not delivered its Disclosure
Document.
(14) (Hypothetical Performance Must Be Accompanied by Cautionary
Statement of Rule 4.41(b)) LMN is a registered CTA who operates a
website. LMN's website contains a table of contents. One of the
items listed is a hyperlink to ``Hypothetical Performance.'' On the
Hypothetical Performance section of its website, which can be
accessed only after a person has received a copy of LMN's Disclosure
Document, LMN demonstrates that based upon hypothetical performance
results, its trading program yields an annualized return of in
excess of 60 percent. LMN does not provide any statements about the
significance of hypothetical performance. LMN only states, in bold
faced type, that ``Past Performance is No Guarantee of Futures
Results'' and ``Futures Trading Entails Substantial Risk and May Not
be for Everyone.'' LMN is in violation of Commission Rule 4.41(b),
which requires that hypothetical or simulated performance be
accompanied by the legend set forth in Rule 4.41(b)(i) or prescribed
by the NFA pursuant to 4.41(b)(ii). In order to comply with Rule
4.41(b), LMN is required to post either the CFTC's or NFA's legend
regarding hypothetical performance on the same webpage as, and
presented so as to ``prominently'' accompany, the presentation of
the hypothetical performance. LMN also may be in violation of the
antifraud provisions of Section 4o the CEA.
(15) (Editing Unfavorable Comments From Guestbook May Violate
Rule 4.41) ABC is a CTA who maintains as part of its website an
interactive guestbook on which individuals post comments or
questions concerning ABC's trading system. ABC, which operates the
website, has the ability to edit the comments received. ABC's
website description of the guestbook implies that any person can
post comments on the guestbook, both favorable or unfavorable. If
ABC then edits any unfavorable comments he receives without
indicating this fact to visitors, ABC may violate Rule 4.41. ABC
also may be in violation of the antifraud provisions of Section 4o
of the CEA.
B. Solicitation Activity
1. Registration
Other types of communication by means of electronic media may
constitute solicitation activity, which gives rise to both registration
and disclosure duties. Section 4k(3) of the Act requires registration
as an AP of a CTA of any person associated with a CTA ``as a partner,
officer, employee, consultant, or agent (or any person occupying a
similar status or performing similar functions), in any capacity which
involves (i) the solicitation of a client's or prospective client's
discretionary account or (ii) the supervision of any person or persons
so engaged.'' \74\ Similarly, Section 4k(2) requires the registration
as APs of persons associated with a commodity pool operator ``as a
partner, officer, employee, consultant, or agent (or any person
occupying a similar status or performing similar functions), in any
capacity that involves (i) the solicitation of funds, securities, or
property for a participation in a commodity pool or (ii) the
supervision of any person or persons so engaged.'' \75\
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\74\ 7 U.S.C. 6k(3).
\75\ 7 U.S.C. 6k(2).
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``Solicitation'' activity has been construed by Commission staff to
include conduct that ``influences even indirectly the investment of
customer funds.'' \76\ For example, Commission staff have found that
initiating telephone contacts to identify persons interested in
receiving information about futures trading \77\ and introduction of
potential investors to a CPO for compensation,\78\ may constitute
solicitation activity requiring registration. The breadth of the media
encompassed by the definition of ``solicitation'' is comparable to that
of the underlying CTA and CPO definitions, which are written broadly to
reach all modes of communication and conduct. For instance, the CPO
definition uses several alternative formulations of the transfer of
consideration to the CPO, i.e., ``solicit,'' ``accept'' and ``receive''
funds, securities, or property for the purpose of trading in futures
contracts. As stated by CFTC staff, these formulations indicate that
Congress ``intended to achieve the broadest possible effect--namely, to
cover all of the means by which a person can obtain control over pool
participants funds.'' \79\ Similarly, as
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\76\ Division of Trading and Markets Interpretative Letter No.
90-11, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
24,872 (June 12, 1990). In Congressional discussions occurring prior
to the establishment of the Commission as an independent regulatory
authority, the Subcommittee on Special Business Problems of the
Permanent Committee on Small Business noted that:
In order to adequately protect the investing public, the
subcommittee feels that registration requirements and fitness checks
should be imposed on commodity solicitors, advisors, and all other
individuals who are involved either directly or indirectly in
influencing or advising the investment of customers' funds in
commodities. This would include any individuals or organizations
identified as influencing or actually investing funds in the
commodities markets.
Subcommittee on Special Business Problems of the House Permanent
Select Committee on Small Business, H.R. Rep. No. 93-963, 93d Cong.,
2d Sess. at 36-37 (1974) (emphasis added).
\77\ See Division of Trading and Markets Interpretative Letter
No. 90-11, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH)
para. 24,872 (June 12, 1990); Division of Trading and Markets
Interpretative Letter 90-8, [1990-1992 Transfer Binder] Comm. Fut.
L. Rep. (CCH) para. 24,831 (May 7, 1990). The Commission's Office of
the General Counsel (``OGC'') has stated that employees of a
registered FCM are required to register as APs if they initiate
customer contact by telephoning prospective customers even if their
responsibilities are limited to determining customer interest in
speaking with a registered representative or receiving promotional
literature and referring interested customers to a registered AP.
OGC concluded that the initiation of telephone contact constituted a
solicitation requiring registration as an AP. CFTC Interpretative
Letter No. 77-8, [1977-1980 Transfer Binder] Comm. Fut. L. Rep.
(CCH) para. 20,430 (Office of the General Counsel, May 16, 1977).
\78\ See, e.g., Division of Trading and Markets Interpretative
Letter No. 90-4, [1987-1990 Transfer Binder] Comm. Fut. L. Rep.
(CCH) para. 24,588 (January 31, 1990)(a person who introduces a
potential investor to a CPO and who is compensated as a ``finder''
would be soliciting on behalf of the CPO and thus required to
register as an AP thereof).
\79\ CFTC Interpretative Letter No. 75-17, [1975-1977 Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 20,112 (Office of the General
Counsel, Trading and Markets, November 4, 1975).
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[[Page 42157]]
noted above, the CTA definition refers to multiple types of media,
including electronic media, as vehicles for providing trading advice.
The Internet provides a medium for a potentially broad range of
solicitation and promotional activity, as well as for conveying trading
advice. Plainly, CTAs and CPOs who use electronic media to inform
members of the public of their futures activities are engaged in the
solicitation of prospective customers. Thus, most websites of CTAs and
CPOs on the World Wide Web are forms of solicitation. This is true even
if the website is limited to biographical or descriptive information,
for such data announces the CTA's or CPO's business to prospective
clientele and can reasonably be assumed to elicit the interest of
potential customers.
Similarly, a website that is not operated by a CTA or CPO, but
which identifies potential customers for one or more CTAs or CPOs or
evokes potential customer interest in such CTAs or CPOs generally would
constitute a solicitation. For example, a website marketing the trading
programs of selected CTAs would constitute a solicitation on behalf of
such CTAs. Likewise, the operator of a website that accepts and
forwards to a CTA or CPO the names and addresses of potential
customers, and receives compensation for such referrals from the CTA or
CPO, would be soliciting on behalf of the CTA or CPO. Consequently, the
operators of such sites may be required to register as APs of the CTA
on whose behalf the solicitation was undertaken,80 and as an AP of
the CPO on whose behalf the solicitation occurs.
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\80\ If such persons are already registered as CTAs or CPOs,
registration as an AP of that registration category is not required.
Further, the definition of an AP of a CTA includes only persons who
are involved in ``(i) the solicitation of a client's or prospective
client's discretionary account or (ii) the supervision of any person
or persons so engaged.'' 7 U.S.C. 6k(3). Thus, the appropriate
registration category for persons who solicit on behalf of CTAs who
do not manage accounts is that of CTA, as they are providing trading
advice by advising concerning or marketing the services of certain
CTAs.
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2. Required Delivery of Disclosure Document
Commission regulations require that at or before the time a CTA
solicits or enters into an agreement to direct or guide a customer's
account,81 or a CPO directly or indirectly solic its, accepts or
receives funds from a pool participant,82 such CTA or CPO must
``deliver or cause to be delivered'' to the prospective client or pool
participant a Disclosure Document that conforms to the applicable
rules.83 The requirement to deliver a Disclosure Document attaches
irrespective of the medium through which solicitation occurs.
Consequently, a CTA or CPO soliciting prospective customers or pool
participants by means of electronic media must ``delive[r] or caus[e]
to be delivered'' a required Disclosure Document prior to such
solicitation by prominently providing a copy of that document at, or
through hyperlinks with, the same site at which the solicitation occurs
or by delivering a hardcopy Disclosure Document to a prospective
customer prior to providing access to any electronic
solicitation.84 Application of the delivery requirement in the
context of electronic media is discussed below in the following
section.
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\81\ Rule 4.31(a) provides:
No commodity trading advisor registered or required to be
registered under the Act may solicit a prospective client, or enter
into an agreement with a prospective client to direct the client's
commodity interest account or to guide the client's commodity
interest trading by means of a systematic program that recommends
specific transactions, unless the commodity trading advisor, at or
before the time it engages in the solicitation or enters into the
agreement (whichever is earlier), delivers or causes to be delivered
to the prospective client a Disclosure Document for the trading
program pursuant to which the trading advisor seeks to direct the
client's account or to guide the client's trading, containing the
information set forth in Secs. 4.34 and 4.35.
17 CFR 4.31(a).
\82\ Rule 4.21(a) provides:
No commodity pool operator registered or required to be
registered under the Act may, directly or indirectly, solicit,
accept or receive funds, securities or other property from a
prospective participant in a pool that it operates or that it
intends to operate unless, on or before the date it engages in that
activity, the commodity pool operator delivers or causes to be
delivered to the prospective participant a Disclosure Document for
the pool containing the information set forth in Sec. 4.24; * * *.
17 CFR 4.21(a).
\83\ The Disclosure Document required to be furnished by a CTA
must contain the information set forth in Rules 4.34 and 4.35. The
Disclosure Document required to be furnished by a CPO must contain
the information set forth in Rules 4.24 and 4.25.
\84\ As discussed below, CTAs and CPOs may provide an outline or
table of contents of the website prior to the reader receiving a
Disclosure Document.
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With respect to CTAs, the requirement to deliver a Disclosure
Document applies only where the CTA solicits a prospective client to
``direct'' or ``guide'' his account.85 The term ``direct'' as used
in Rule 4.31 refers ``to agreements whereby a person is authorized to
cause transactions to be effected for a client's commodity interest
account without the client's specific authorization.'' 86 Although
the term ``guide'' is not defined in Part 4, the Commission referred to
the term ``guide'' in implementing regulations requiring the delivery
of a Disclosure Document by CTAs.87 In that release, the
Commission stated that Rule 4.31 ``established disclosure requirements
for CTAs that seek to control clients' accounts (e.g., through managed
accounts) or influence clients' commodity interest trading by means of
a systematic advisory program (e.g., through guided accounts).''
88 Thus, CTAs who solicit actual or prospective clients through
electronic media for purposes of directing or guiding customer accounts
must provide each such customer with a Disclosure Document at or before
the time of solicitation. CTAs who do not direct or guide customer
accounts, e.g., those who provide trading advice in a newsletter, would
not be required to provide prospective clients with a Disclosure
Document.
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\85\ See discussion of managing customer accounts, supra note
50.
\86\ 17 CFR 4.10(f).
\87\ 44 FR 1918, 1923 (January 8, 1979).
\88\ Id.
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The following examples are illustrative of the requirements
discussed above.
(16) (Posting Promotional Materials is a Solicitation Requiring
Disclosure Document Delivery) XYZ is a CTA who operates a site on
the World Wide Web. On its website, XYZ provides a description of
its principals and a brief summary of its trading strategy and the
types of accounts it manages. XYZ also provides its phone number and
electronic mail address for interested persons to contact it. XYZ
does not provide a copy of its Disclosure Document. In this case,
XYZ is violating Rule 4.31(a) because it is soliciting prospective
clients without delivering a Disclosure Document.89
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\89\ Guidance regarding the manner by which CTAs and CPOs may
deliver Disclosure Documents by means of a website is provided in
the following section.
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(17) (Posting Descriptive Performance Information or Performance
Data is a Solicitation Requiring Disclosure Document Delivery). JKL,
a registered CPO, operates a site on the World Wide Web. The website
provides biographical information about the principals of the CPO
and investment opportunities that the CPO offers, including various
commodity pools with differing risk parameters and performance
histories. JKL's website also posts summary performance information
for the various commodity pools. The posting of biographical and
investment information operates as a solicitation, as does posting
of summary performance data. Thus, JKL would be required to provide
the Disclosure Documents for its various pools to the website
visitors at or before the time it engages in the solicitation. JKL
must provide its Disclosure Documents either directly on its website
or by means of prominently highlighted hyperlinks from its website
and ensure that visitors receive the Disclosure Documents at the
same time as or before their viewing of other website materials,
i.e., the time at which the solicitation occurs. The
[[Page 42158]]
reader must review the Disclosure Document before being permitted
access to the biographical and other information. JKL also must
inform visitors that, in addition to reviewing the various
Disclosure Documents on-line, they may obtain printed copies of the
Disclosure Documents upon request.
(18) Same facts as above, except JKL's website does not provide
a copy of JKL's Disclosure Documents or hyperlink to them. Rather,
following the performance data, the website provides a telephone
number that persons can call to request the delivery of specific
commodity pool Disclosure Documents. The placement of performance
information on a website followed by a telephone number that
visitors can call to request a Disclosure Document would be
insufficient to satisfy the requirements of Rule 4.21(a) as delivery
of the Disclosure Document would not accompany or precede the
solicitation.
(19) (Delivering a Disclosure Document Necessary for
Solicitation of Prospective Pool Participants) ABC is a registered
CPO who operates a website on the World Wide Web. On its website,
ABC provides a brief description of the various commodity pools it
offers. ABC also provides copies of each of its Disclosure
Documents, in an acceptable format, which visitors to its website
must access from a menu of options at the beginning of its homepage,
before proceeding to any further information concerning one of the
offered commodity pools. By providing access to each of its
Disclosure Documents and assuring that the prospective participant
accessed the relevant Document before receiving any information
other than a brief description of the pool, ABC has complied with
Rule 4.21(a), which requires that at or before the time a CPO
solicits a prospective participant, the CPO deliver to the
prospective client a Disclosure Document for such commodity pool.
(20) (Term Sheet Cannot Replace Disclosure Document) In the same
example as above, instead of providing the Disclosure Documents for
each of the pools, ABC provides a notice of intended offering and
statement of the terms of the intended offering (``term sheet'').
ABC's pools do not accept investors who are not ``accredited
investors,'' as defined in 17 CFR 230.501(a). Nevertheless, ABC has
not satisfied the criteria of Rule 4.21(a). Since ABC's term sheet
can be accessed by persons who are not ``accredited investors,'' ABC
is soliciting such persons without having provided a copy of its
Disclosure Document.
(21) (Distribution of Promotional Materials Through Personal
Electronic Mail is a Solicitation Requiring Disclosure Document
Delivery) ABC is a CTA who operates a site on the World Wide Web.
Visitors to ABC's website, who may not have reviewed ABC's
Disclosure Document, are invited to give their electronic mail
address so that ABC can put them on its electronic mailing list.
Periodically, ABC sends to those persons who have provided
electronic mail addresses information concerning ABC's monthly
performance results. Use of electronic mail in this manner operates
as a form of solicitation. Accordingly, ABC may not send performance
data or comparable information to prospective clients by means of
electronic mail unless it has previously delivered its Disclosure
Document to them. Failure to deliver a Disclosure Document to
persons whom it solicits by electronic mail would constitute a
violation of Rule 4.31.
ABC may periodically send electronic mail to prospective clients
after they have received a copy of its Disclosure Document for as
long as that Disclosure Document remains valid. If, however, ABC
revises its Disclosure Document to reflect changes in its trading
program, or the Document becomes out of date, ABC would be required
to cease sending electronic mail to prospective clients until after
it has delivered to each such client a copy of its new Disclosure
Document.
III. Electronic Delivery of Disclosure Documents
The Commission is cognizant of the potential benefits of electronic
communication of information among participants in the futures markets
generally and in the managed futures marketplace in particular.
Electronic technology may enhance information access by market users
and facilitate communication by brokers and other commodity
professionals. A number of CTAs and CPOs have expressed interest in
using electronic media to provide existing and prospective clients or
pool participants with Disclosure Documents and other required
disclosures. A central goal of this release is to provide guidance as
to the circumstances in which electronic media may be used for these
purposes.
The Commission believes that, as a general matter, the requirements
that CTAs and CPOs deliver Disclosure Documents to prospective clients
and pool participants, respectively, may be satisfied by the use of
electronic media, provided appropriate measures are taken to assure
that the purposes of the delivery requirement are achieved. By this
release, the Commission is giving notice that CTAs and CPOs may use
electronic media in accordance with the criteria discussed below
90 to satisfy the Disclosure Document delivery requirement as to
consenting prospective customers and pool participants and to provide
certain related documents, as specified below. The Commission invites
comment on these criteria and any additional criteria that commenters
believe to be relevant in this context.
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\90\ Some of these criteria have been noted by the SEC in its
releases on electronic media. See 61 FR 24644; 60 FR 53458.
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A. Criteria
Consistency. The Commission believes that it is important to
maintain consistency in the application of regulatory requirements as
between electronic and non-electronic media. Information conveyed
electronically must achieve the same objectives as paper-based
communications. Further, the rules applicable to such communications
should not favor one form of communication over another; to the extent
possible, they should be ``form neutral.'' The medium for providing
required information should be selected based upon the relative merits
of the two methods of communication, not the application of the
Commission's regulations.
Choice/Consent. Although the Commission supports the use of
electronic media to enhance the speed and efficiency of communications
by futures professionals with market participants, it recognizes that
even among those persons who have access to electronic delivery, many
may prefer to receive information in paper form. Accordingly, a CTA or
CPO may use electronic delivery in lieu of traditional paper-based
delivery of a Disclosure Document only where the intended recipient
provides informed consent to receipt of the document by means of
electronic delivery. Similarly, informed consent also must be obtained
from a pool participant if a CPO plans to use electronic media to
deliver monthly or quarterly account statements required under Rule
4.22.91
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\91\ The requirement of a manual signature on such statements
pursuant to Rule 4.22(h) may be satisfied if the CPO keeps a
manually signed copy at its place of business in accordance with
Rule 4.23. See Division of Trading and Markets Interpretative Letter
No. 93-61, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH)
para. 25,780 (June 24, 1993) (CPO may use facsimile signature
pursuant to Rule 4.22(h) provided CPO retains the Account Statement
from which facsimile is made in accordance with Rule 4.23); cf.
Advisory No. 28-96 [Current Transfer Binder] Comm. Fut. L. Rep.
(CCH) para. 26,711 (May 28, 1996) (use of personal identification
number may be deemed equivalent of manual signature for purposes of
attestation under Commission Rule 1.10(d)(4)), supra note 25.
Commission regulations do not currently permit CPOs to deliver
Annual Reports by electronic means. However, the Commission invites
comment from CPOs, accounting professionals, and other interested
persons regarding the advisability of amending Rule 1.16 to allow
for certification of Annual Reports by independent public
accountants by means of electronic media.
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CTAs and CPOs who intend to make electronic delivery must inform
potential recipients concerning: (1) the requirement that prospective
managed account customers and commodity pool participants receive a
Disclosure Document for the relevant trading program or commodity pool
at or prior to the time of solicitation and such other documents as the
CTA or CPO seeks consent to deliver by electronic media; (2) their
right to elect to receive the Disclosure Document (and other
[[Page 42159]]
specified documents to the extent consent is sought for electronic
delivery of other communications) in hardcopy form or by electronic
means; (3) the specific medium and method by which electronic delivery
will be made (for example, whether delivery will be limited to users of
a particular proprietary on-line system, will be made available on the
World Wide Web, or will be made as an attachment to electronic mail);
(4) the potential costs associated with receiving or accessing
electronically delivered documents, such as costs relating to on-line
access charges, the requirement to maintain an electronic mail account,
or the need to possess certain proprietary software packages (such as a
particular word processing program or operating system); (5) the types
of documents that will be delivered electronically, i.e., documents in
addition to the Disclosure Document, such as supplements to Disclosure
Documents and pool account statements, and the form in which they will
be delivered; and (6) the prospective customers' right to revoke their
consent to electronic delivery at any time and the period of time
during which the consent to electronic delivery will be effective,
absent revocation. Notification concerning at least each of these
factors is necessary to the receipt of informed consent from the
intended recipient. As informed consent must be revocable at any time,
if a person initially agrees to receive certain required disclosures
electronically, he must be permitted to revoke such consent at any
time, and the CTA or CPO must then provide him with disclosures in
hardcopy form. Potential recipients of electronic communication may
provide their informed consent either in writing or by electronic
means.
Delivery and Access. As noted previously, Commission rules require
that at or before the time at which a CTA or CPO solicits a prospective
client or pool participant, respectively, he must deliver, or cause to
be delivered, the applicable Disclosure Document.92 When a person
delivers a document by means of postal mail or provides the document
personally, the recipient simultaneously has notice of the delivery of
the document and receives the actual document. By contrast, when a
person distributes a document by means of electronic media, the
document (a) will be available only to persons who possess the
necessary computer equipment and software to receive it, (b) must be
brought to the intended recipient's attention and (c) will be
accessible only to recipients who take certain actions in order to
access and review the document.
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\92\ As noted by example above, a CPO may not satisfy the
requirements of Rule 4.21(a) by electronically posting a ``term
sheet.'' Rule 4.21(a) provides that ``where the prospective
participant is an accredited investor, as defined in 17 CFR
230.501(a), a notice of intended offering and statement of the terms
of the intended offering may be provided prior to delivery of a
Disclosure Document * * *.'' In posting a term sheet on a public
electronic forum, a CPO is soliciting all persons who are able to
access such term sheet, many of whom may not be ``accredited
investors.'' Consequently, unless a CPO restricts access to its term
sheet to ``accredited investors'' only, a CPO must also provide a
copy of its Disclosure Document in accordance with the criteria set
forth herein in order to comply with the requirements of Rule
4.21(a). In any event, to the extent that the CPO intends the
offering to be an exempt private offering under SEC Regulation D,
such CPO must comply with the solicitation and advertising
restrictions in SEC Rule 502(c). See 60 FR at 53463-64 (in which
example (20) of SEC's release indicates that placing offering
materials on Internet would not be consistent with prohibition
against general solicitation or advertising in Rule 502(c) of
Regulation D).
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The prospective client or pool participant must be provided the
relevant Disclosure Document prior to or at the time of solicitation.
In general, the breadth of the term ``solicitation,'' combined with the
requirement to deliver a Disclosure Document at the time of or prior to
solicitation, significantly restricts the information that CTAs or CPOs
may present about their services prior to delivering a Disclosure
Document. As discussed above, even preliminary contacts or
communication of basic information may constitute a solicitation.
Indeed, a website operated by a CTA who simply identifies himself as
such may operate as a solicitation, even without other content.
Consequently, if for example, a CTA's Disclosure Document is presented
at the end of the CTA's website, or made available only at the option
of the reader, delivery of the Disclosure Document may occur only after
the solicitation has occurred, if at all. In such instances, the CTA
operating the website would be in violation of Commission rules with
respect to delivery of Disclosure Documents prior to or at the time of
solicitation. To facilitate the operation of websites by CTAs and CPOs
in a manner consistent with Commission rules and without unduly
burdening the use of this medium, the Commission provides the following
guidance.
First, a website must provide access to the Disclosure Document
prior to any content other than de minimis introductory material. For
example, a visitor may be given a general description of the contents
of a website before reviewing the Disclosure Document. This may be
accomplished through presentation of an outline or table of contents
for the website, with the Disclosure Document listed as the first item
in the outline or table of contents. The outline or table of contents
may include topic headings that are neutrally stated, such as
``Disclosure Document'', ``Background of CTAs'' and ``How to Contact
Us.'' Icons or images also may accompany such topic headings, but both
the topic headings and any icons or images must be presented neutrally.
The website must be constructed so that the reader may not proceed
to subsequent sections of the site until he has first accessed and
proceeded through the Disclosure Document. Thus, if an outline or table
of contents is used, the only active hyperlink should be to the
Disclosure Document. For example, if a visitor attempts to view another
portion of the website, the website should inform the visitor that he
must first access the Disclosure Document before he will be allowed
elsewhere in the website. Only after a visitor has been delivered a
Disclosure Document and affirmed that he has reviewed it may hyperlinks
to other sections of the website be activated.
Delivery of a Disclosure Document for purposes of solicitation,
i.e., Commission Rules 4.21(a) and 4.31(a), will be complete when the
recipient scrolls down to the end of the Disclosure Document and
confirms that he has received the Document. Many website operators
currently employ similar designs, for example, in requiring persons to
agree to a set of terms and conditions before proceeding in a website
or to acknowledge that they are of a certain age. This confirmation of
delivery is for the purpose of complying with the requirement that the
Disclosure Document be provided at or before the time of solicitation.
This confirmation, which is required in the context of electronic
presentations of solicitation material, is distinct from the receipt of
acknowledgment that is required before a prospective pool participant
or client may open an account pursuant to Rules 4.21(b) and 4.31(b).
The requirements for obtaining a receipt of acknowledgment under Rules
4.21(b) and 4.31(b) are discussed below in the acknowledgment section.
Websites that contain multiple trading programs or commodity pools
may contain a separate Disclosure Document for each such program or
pool. CTAs or CPOs, however, are not required to deliver a Disclosure
Document for every trading program or commodity pool before allowing a
potential client or pool participant access to all portions of a
website. Rather, a CTA or CPO may
[[Page 42160]]
allow a prospective investor to select a particular trading program or
commodity pool, and following delivery of the Disclosure Document for
such program or pool, the prospective investor may access general
information or material specific to such program or pool. CTAs or CPOs
who operate several trading programs or commodity pools must ensure
that there is no solicitation on behalf of programs or pools for which
a Disclosure Document has not been delivered and reviewed. For example,
a CPO who delivers a prospective pool participant a Disclosure Document
for ``Pool A'' must not allow such prospective pool participant to
access materials on his website pertaining to ``Pool B.''
Commission rules require that a CPO or CTA deliver a particular
Disclosure Document only once; consequently, with respect to ``repeat
visitors,'' separate delivery is not required for subsequent
solicitations for the same pool or trading program so long as the
Disclosure Document has not changed or expired. Thus, CTAs and CPOs may
design websites systems that allow ``repeat visitors'' who have already
reviewed a Disclosure Document to bypass the requirement to receive
that Disclosure Document again. For example, a prospective investor,
after receiving the required Disclosure Document(s), may be given a
password or PIN to enter at the beginning of a CTA's or CPO's homepage
to allow him to bypass the consent and Disclosure Document delivery
portions of the website for the trading program(s) or pool(s) for which
he has already recieved a Disclosure Document. However, in order to
comply with Commission Rules 4.26 and 4.36, the password or PIN must
expire once the CPO or CTA amends his Disclosure Document(s) or the
effective period of the Disclosure Documents expires.
Documents can be delivered electronically in a variety of ways;
some of these methods require very little effort on the part of the
recipient, whereas others demand substantial computer expertise or
lengthy download times.93 The Commission believes that delivery
should be made in a manner that is not unduly burdensome to the
recipient of the document. In cases where information is unduly
burdensome to access, the Commission will deem such delivery to be
ineffective unless the party making delivery can demonstrate that the
recipient actually accessed the document. In the case of a Disclosure
Document, an acknowledgment of receipt, provided that it is fully
informed and voluntary, should suffice for this purpose.
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\93\ Certain methods of delivery require relatively little
sophistication on the part of the user. For instance, the content of
a site on the World Wide Web can be accessed simply by entering that
address into a ``web browser'' program. Similarly, the contents of
an electronic mail message are viewed simply by reading the
electronic mail screen or by viewing an attachment to electronic
mail that is formatted for a widely available word processing
program. On the other hand, where a party must download a file and
also a program to decode that file (e.g., ``unzip'' programs), it is
less certain that such party will ultimately be able to access the
document. In raising this concern, the Commission does not
necessarily intend to preclude any particular types of electronic
transfer but, instead, is seeking to ensure that the recipient is
able to access the information communicated without substantial
burden.
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However, electronic media present special concerns with respect to
access because an acknowledgment of receipt in this context does not
evidence the ability to access the document over time. The Commission
believes that the recipient of electronically delivered documents
should be able to have repeated access to the document following
delivery. Such accessibility should be comparable to that of a paper
document that can be read and re-read over time.94 The ability to
re-read a document, such as a Disclosure Document, is often necessary
to a careful evaluation of the risks and benefits of a particular
investment or a meaningful comparison of Disclosure Documents of
different pools or trading programs. Accordingly, in order for the
electronic delivery of Disclosure Documents to satisfy the Commission's
requirements, the recipient must be able to access the document upon
receipt and continually thereafter. If the method of electronic
delivery of a Disclosure Document requires the reader to download a
file to a permanent storage device (such as a hard drive) and to
confirm that he has done so, the accessibility concern may be
addressed. However, in other circumstances, such as where a Disclosure
Document is not downloaded, the Commission believes that accessibility
of the Disclosure Document to the prospective (or actual) CTA client or
commodity pool participant for a period of nine months after the
solicitation occurs would be sufficient but requests comment on this
issue.
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\94\ For example, a ``one-time'' or ``live'' broadcast over the
Internet generally does not allow a recipient repeated access to the
information. In the absence of adequate evidence that the intended
recipient actually recorded or stored the information, this method
of presentation would not satisfy the access concerns identified
above.
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Acknowledgments. The requirement to deliver a Disclosure Document
is only part of a CTA's or CPO's obligation. Before a CTA may enter
into an agreement with a prospective client to direct or guide his
account, or before a CPO may accept or receive funds, securities or
property from a prospective pool participant, such CTA or CPO must
receive a signed and dated acknowledgment from the prospective client
or pool participant confirming receipt of the Disclosure Document for
the trading program or pool, respectively.95 A CPO or CTA may not
rely solely on the fact that a prospective investor may have visited
the Disclosure Document while reviewing a CPO's or CTA's homepage or
consented to receive a Disclosure Document by electronic media.96
The signed and dated acknowledgment is a certification by the
prospective investor that he has received the required Disclosure
Document and is among the items required to be kept by CPOs and CTAs
under the Part 4 recordkeeping requirements.97
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\95\ See Rule 4.31(b) and Rule 4.21(b) for CTAs and CPOs,
respectively.
\96\ As noted previously, the requirement of a signed
acknowledgment of receipt is distinct from that of delivery, i.e.,
an adequate delivery mechanism may be implemented without receipt of
a signed acknowledgment of receipt. In the recent revisions to Part
4, 60 FR 38146 (July 25, 1995), the Commission confirmed the
importance of the requirement that the prospective investor
separately acknowledge receipt of the required Disclosure Document
but commented that ``an acknowledgment may be included in the
subscription documents for a pool, provided that the text of the
acknowledgment is prominently captioned and distinguished from the
subscription agreement and that there is a separate line for the
acknowledgment signature and date thereof.'' 60 FR at 38181.
\97\ See Commission Rules 4.23(a)(3) and 4.33(a)(2),
respectively.
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The Commission supports the use of electronic media to obtain
customer acknowledgments but believes that measures must be taken to
assure an adequate level of verification of the authenticity of such
acknowledgments. Requiring the reader to send an electronic mail
message or click on an ``acknowledgment button'' on a website would
not, without more, be sufficient for this purpose. As discussed above,
the Division of Trading and Markets has permitted the use of a personal
identification number (``PIN'') to represent a manual signature for the
transmission of certain financial reports in which a manual signature
normally is required.98 The use of a PIN serves two important
objectives. First, it enables the recipient, to the extent practicable,
to verify the identity of the person sending the electronic
communication. If an electronic transmission is
[[Page 42161]]
accompanied by a unique and valid PIN, and the recipient knows the
identity of the person who requested and received such PIN, it then may
confirm the identity of the sender of such message. Second, use of PINs
helps to protect innocent persons from false claims that they have sent
a particular electronic communication. If a message is sent by one
person claiming to be another, the failure to include the valid PIN
assigned to such person would render the message invalid. Although the
Commission invites comments from interested parties generally on
methods to assure the validity of electronic acknowledgments, it
believes that a PIN system similar to that used by FCMs for the filing
of financial reports with certain self-regulatory organizations would
provide an acceptable form of obtaining acknowledgments of receipt of
Disclosure Documents. Under Rules 4.21(b) and 4.31(b), CPOs and CTAs
bear the burden of obtaining a valid acknowledgment of receipt from
prospective pool participants and clients; they are thus responsible
for establishing procedures adequate to establish the authenticity of
electronic acknowledgments and to preserve records thereof. Currently,
in light of this concern, if a CTA or CPO wishes to establish a system
for the electronic acknowledgement of receipt of a Disclosure Document,
it must create a procedure by which the prospective client or pool
participant requests and receives by means of electronic or postal mail
an individualized PIN from the CPO or CTA. Once a person receives a
PIN, he may then use that PIN in lieu of a manual signature to
authenticate the acknowledgment of receipt.99 The mechanics of
using a PIN signature are illustrated by example below. The Commission
welcomes comment concerning other procedures for electronic
acknowledgment that are consistent with the objectives stated above.
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\98\ Advisory No. 28-96, [Current Transfer Binder] Comm. Fut. L.
Rep. (CCH) para. 26,711 (May 28, 1996), discussed supra note 25.
\99\ The Commission notes that various states have established
or are developing requirements for ``digital signatures.'' See,
e.g., ``Utah Digital Signature Act,'' Utah Code Ann. 46-3-101 et
seq. (1995). To the extent that a particular state recognizes as
valid only certain digital signatures, it is the responsibility of
the registrant to ensure compliance with such rules in order to
comply with state law requirements.
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Of course, CTAs or CPOs, even those providing a Disclosure Document
by electronic media, are not required to obtain acknowledgments of
receipt electronically. A CTA or CPO may require that the prospective
client or pool participant provide a signed and dated paper
acknowledgment by mail or facsimile, although the acknowledgment form
may be sent to prospective investors by mail, facsimile, or through the
Internet.
Format. The Commission's rules contain a number of specific format
requirements relevant to Disclosure Documents, reflecting the
Commission's determination that certain information should be accorded
special prominence in the Disclosure Document. Parameters for the order
of presentation ensure that certain key information is presented first,
that important disclosures are not minimized or relegated to the end of
the document, and that information of lesser relevance is placed after
matters of greater importance. The prescribed order also facilitates
the comparison of documents by maintaining the same sequence of topics
across documents of different registrants. For example, Rules 4.24,
4.25, 4.34 and 4.35 include specifications as to the placement in
Disclosure Documents of required risk disclosure and cautionary
statements, tables of contents, and supplemental information, as well
as the sequence of various past performance records.100 In
addition, certain items are required to be set forth in capital letters
and bold-face type, certain information is required to be accompanied
by cautionary legends or disclaimers, and in some contexts, page number
cross-references are required.101
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\100\ See Rules 4.24(a) through (d), 4.24(v), 4.25(a)(2) and
(3), 4.34(a) through (d), 4.34(n) and 4.35(a)(2).
\101\ See Rules 4.24 (a) and (b), 4.25 (a)(9) and (c), 4.34 (a)
and (b), 4.35 (a)(8) and (b) and 4.41(b)(1).
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Where Commission rules specify the prominence, location, or other
attributes of the information required to be delivered, any acceptable
electronic presentation of such information used to satisfy Commission
rules must present the information in the same format and order as
specified in Commission rules and must reflect (if it does not actually
replicate) the differences in emphasis and prominence that would exist
in the paper document.102 Further, the addition of any audio,
video or graphic material, whether included as separate sections or as
enhancements or overlays to written text, must be consistent with the
requirements of Commission rules regarding the order of presentation
and the relative prominence of information.103 Such material would
constitute ``supplemental information'' 104 and thus must be
presented in the Disclosure Document in accordance with Rules 4.24(v)
and 4.34(n).105 Such material may not be presented in a manner
that obscures or diminishes the prominence of any required disclosures.
If one version of a document contains audio, video, graphic or other
material that cannot be included in another version, e.g., if the
electronic version of a Disclosure Document has an audio narration,
such material must be reproduced in the medium of the version that does
not actually contain the material.106
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\102\ For example, where text is required to be presented in
bold-face type, acceptable on-screen presentation could be
accomplished by changing the color or shading of the text and/or the
background in a prominent manner. In addition, information such as
the break-even point per unit of initial investment must be
presented in the forepart of the Disclosure Document and the Risk
Disclosure Statement, which must appear immediately following
disclosures required to be on the cover of the Disclosure Document,
must highlight the page (or highlight the link) where the break-even
point is presented. If the document is not paginated, a registrant
may use hyperlinks in lieu of page numbers.
\103\ For example, Rule 4.25(a)(3)(ii) requires that performance
results for pools of a different class from the offered pool be
presented ``less prominently'' than the performance of pools of the
same class. Audio, video or graphic devices may not be used in a
manner that is inconsistent with this requirement. Similarly, an
audio voice-over that asks a prospective client to turn directly to
the CTA's performance tables, bypassing the cautionary and risk
disclosure statements and the forepart information required by Rule
4.34 (a), (b) and (d), is not permitted.
\104\ ``Supplemental information'' refers to ``information not
specifically called for by Commission rules or federal or state
securities laws or regulations.'' 60 FR at 38150.
\105\ Rules 4.24(v) and 4.34(n) specify that supplemental
performance information (not including proprietary, hypothetical,
extracted, pro forma or simulated trading results) must be placed
after all required performance information in the Disclosure
Document and that supplemental non-performance information relating
to a required disclosure may be included with the related required
disclosure. Other supplemental information may be included only
after all required disclosures. 17 CFR 4.24(v) and 4.34(n). Rules
4.24(v) and 4.34(n) also provide that supplemental information may
not be misleading in content or presentation or inconsistent with
the required disclosures and is subject to the antifraud provisions
of the Act and Commission and NFA rules.
\106\ Commission Rules 4.26(d) and 4.36(d) require that a CPO or
CTA, respectively, file a Disclosure Document with the Commission
prior to its use. To the extent that a Disclosure Document contains
any audio, video, or graphic material, the CPO or CTA must file that
version as well as any paper version. CPOs and CTAs who are required
to file a Disclosure Document that contains audio, video, or graphic
portions should contact the Division of Trading and Markets to
establish a method whereby the Commission may receive such
documents.
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Modifications. Commission Rules 4.26 and 4.36 require that
Disclosure Documents be used for no more than nine months and that
performance information included therein be current as of a date not
more than three months prior to the date of the Disclosure Document.
Additionally, if at any time the Disclosure Document becomes materially
inaccurate or incomplete, the registrant must correct the defect and
distribute the correction to, in the case
[[Page 42162]]
of a CPO, all existing pool participants and previously solicited pool
participants prior to accepting or receiving funds from such
prospective participants,107 and in the case of a CTA, all
existing clients in the trading program and each previously solicited
client for the trading program prior to entering into an agreement to
manage such prospective client's account.108 For persons who have
consented to receive such information electronically, registrants may
provide amendments and updates in the same manner, provided that such
recipients' consent to the use of electronic media extends to
amendments and updates.
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\107\ 17 CFR 4.26(c)(1).
\108\ 17 CFR 4.36(c)(1).
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One of the salient features of electronic media is the ability to
modify or update information more simply and more frequently than in a
paper environment. On the Internet, many financial service providers
update their performance on a daily basis, a practical impossibility
using conventional postal mail.109 The Commission believes that
the greater timeliness of information that electronic media is capable
of providing is an important benefit. Certainly, therefore, information
contained in electronic form can be expected to be at least as current
as that in paper form. Consequently, where a registrant employs
electronic and paper media, the electronic version of any publicly
disseminated document must be at least as current as any paper-based
version. If registrants elect to update their performance more
frequently than is required, any such performance history must be
calculated and presented in accordance with Commission rules.
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\109\ Indeed, by the time the recipient received such updated
information, it would already be out of date.
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Record Retention. Another important area of regulatory concern in
the context of electronic media is that of recordkeeping, as provided
by Commission Rules 4.23 and 4.33.110 These rules require that
CPOs and CTAs keep, among other records, ``the original or a copy of
each report, letter, circular, memorandum, publication, writing,
advertisement or other literature or advice (including the texts of
standardized oral presentations and of radio, television, seminar or
similar mass media presentations) distributed or caused to be delivered
* * * showing the first date of distribution or receipt if not
otherwise shown on the document.'' 111 The Commission's Part 4
recordkeeping requirements thus extend to the contents of CTA and CPO
websites and related electronic mail messages. The Commission's rules
concerning the use of electronic media for recordkeeping, e.g., optical
disk or CD-ROM storage, permit storage of computer generated records in
ASCII or EBCDIC format only.112 These formats generally do not
allow storage of paper records or electronic images, such as webpages,
since such records or images are normally not written in ASCII or
EBCDIC format. Therefore, these records would be required to be
retained in hardcopy form. The Commission invites interested parties to
comment concerning whether these rules, and in particular, Rule 1.31,
are sufficient to address record retention in the current electronic
environment.
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\110\ For instance, Rule 4.23(a)(9) provides that a CPO must
keep:
The original or a copy of each report, letter, circular,
memorandum, publication, writing, advertisement or other literature
or advice (including the texts of standardized oral presentations
and of radio, television, seminar or similar mass media
presentations) distributed or caused to be distributed by the
commodity pool operator to any existing or prospective pool
participant or received by the pool operator from any commodity
trading advisor of the pool, showing the first date of distribution
or receipt if not otherwise shown on the document.
Analogous requirements for CTAs are found in Rule 4.33(a)(7).
\111\ Commission Rules 4.23(a)(9) and 4.33(a)(7).
\112\ 17 CFR 1.31(d). See 58 FR 27458, 27462-63 (May 10, 1993).
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The following examples are illustrative of the requirements
discussed above.
(22) (Hyperlink to Disclosure Document From Homepage Satisfies
Delivery Obligation) RST is a CTA who operates a site on the World
Wide Web. RST provides copies of its Disclosure Documents, in an
acceptable format, which visitors to its website can access from a
menu of options at the beginning of its website. Before the visitor
may access data on the website other than the menu or table of
contents, such as a description of RST's principals and summaries of
its trading programs, performance data, or other matters, visitors
must select and view a Disclosure Document for the trading
program(s) in which they are interested. By providing access to each
of these Disclosure Documents and assuring that the visitor has
reviewed the Disclosure Document prior to proceeding, RST has
complied with Rule 4.31(a), which requires that at or before the
time a CTA solicits a prospective client, the CTA deliver to the
prospective client a Disclosure Document for the trading program
pursuant to which the CTA will direct or guide the account.
(23) (Obtaining Informed Consent) GHJ is a CTA with a site on
the World Wide Web. On the first page of GHJ's website, and before
any solicitation materials are presented, is a page requesting
informed consent from visitors to receive GHJ's Disclosure Document
by electronic means. This page informs visitors that: (a)
prospective managed account clients must receive a Disclosure
Document; (b) they can receive the Disclosure Document in hardcopy
if they prefer; (c) the electronic version of the Disclosure
Document will be contained in a portion of GHJ's website; (d)
persons accessing the electronic version of the Disclosure Document
may incur charges relating to on-line access fees; (e) the original
Disclosure Document as well as any amendments thereto will be
provided on the website; and (f) visitors have the right to revoke
their consent to receive electronic delivery at any time. At the
bottom of the webpage is a button for visitors to ``click'' if they
consent to receive electronic delivery of GHJ's Disclosure Document
and any amendments thereto. If a visitor ``clicks'' on the
acknowledgment button, he is hyperlinked to a copy of GHJ's
Disclosure Document. If a visitor ``clicks'' on a button signifying
that he does not provide his consent to receive a Disclosure
Document by electronic means, he is then hyperlinked to a form
asking for his name and postal address, which will be used to send a
hardcopy Disclosure Document through postal mail and is not allowed
to view any other portions of the website. GHJ's website properly
obtains informed consent from visitors. Before engaging in any
solicitation activity, GHJ obtains informed consent to deliver the
Disclosure Document electronically. Then, immediately upon receipt
of such consent, visitors are delivered the Disclosure Document.
Once a visitor scrolls down to the end of the Disclosure Document
and acknowledges that he has received the Disclosure Document, he
may view other data on the site. However, before the visitor may
open a managed account with GHJ, an acknowledgment of receipt of the
Disclosure Document in accordance with Rule 4.31(b) must be
obtained, either electronically (see example 25 below) or in
hardcopy.
(24) (Registrant May Require Acknowledgment to be Returned by
Postal Mail) X, a registered CTA, has established a site on the
World Wide Web. After users review X's Disclosure Document, they may
access other portions of X's website. In the section dealing with
opening an account, users are informed that before a trading account
may be opened with X, a prospective client must download X's
Disclosure Document and return a signed acknowledgment of receipt
thereof. On X's website is a form receipt of acknowledgment, with a
statement informing the user that the acknowledgment must be
printed, and signed, dated and returned to X by postal mail before X
will open an account for the user. Receipt of such an acknowledgment
would comply with Rule 4.31(b). Registrants are permitted to
distribute Disclosure Documents to prospective clients
electronically and may obtain acknowledgments of receipt
electronically. However, they are not required to do so. A CTA
operating a site on the World Wide Web may require that
acknowledgments be signed, dated and returned by postal mail.
(25) (Acknowledgments May Be Signed Electronically With a
Personal Identification Number) LMN, a registered CTA, operates a
[[Page 42163]]
site on the World Wide Web. LMN's website permits prospective
clients to acknowledge receipt of its Disclosure Document by
electronic media. Jill Doe visits LMN's website and wishes to open a
managed futures account. LMN's website instructs Jill Doe that in
order for her to acknowledge receipt of its Disclosure Document, she
must receive a PIN. LMN's website asks Jill Doe to provide her
electronic mail address, to which a PIN may be sent. Upon receipt of
Jill Doe's electronic mail address, LMN then sends her a PIN. Jill
Doe may then use that PIN in lieu of a manual signature required
under Commission Rule 4.31(b).
(26) (Consent To Receive Monthly Statements Electronically Can
Be Withdrawn) JKL is the registered CPO of the Fund. John Smith and
Jane Doe are both participants in the Fund. In September, JKL sends
a notice to participants indicating that it will be sending monthly
account statements to participants via electronic mail through the
Internet, as Microsoft Word documents. JKL informs all pool
participants that persons wishing to receive monthly account
statements by means of electronic mail may incur costs relating to
on-line access time, maintaining an electronic mail account, and
owning a licensed copy of Microsoft Word. Further, JKL informs pool
participants that electronic delivery of the monthly account
statements will begin in January 1997. At the bottom of the notice
is a form for participants to complete if they are interested in
receiving monthly account statements electronically. The form asks
for the participant's electronic mail address and for the
participant's signature agreeing to the conditions of the electronic
delivery.
John Smith and Jane Doe complete the form and mail it back to
JKL in November. In December, John Smith decides that he prefers to
receive monthly account statements by means of postal mail and
notifies JKL that he no longer agrees to electronic delivery. In
January, JKL can send monthly account statements to Jane Doe by
means of electronic mail but must send such statements to John Smith
by means of postal mail. The requirements for manual signatures
under 4.22(h) for these reports will be satisfied if JKL keeps such
signed reports in paper form at its place of business.
(27) (Registrant Must Abide by Parameters of Consent) In the
same example as above, JKL now decides to post its monthly account
statements on its World Wide Web homepage. JKL sends electronic mail
to Jane Doe infor
FR Doc. 96-20691 Interpretation Regarding Use of Electronic Media by Commodity Pool Operators and Commodity Trading Advisors
ming her that the monthly account statement can be
accessed on JKL's homepage on the World Wide Web. This form of
delivery would not satisfy the requirements of Rule 4.22. Jane Doe
has only consented to receive monthly account statements as
Microsoft Word attachments to Internet electronic mail. If JKL
changes its method of electronic delivery, it must again obtain
informed consent from pool participants. Jane Doe's consent to
receive monthly account statements was limited to the means
specified in the September notice. JKL cannot assume that Jane Doe
has access to the World Wide Web or that she will agree to receive
her monthly account statements by viewing them on JKL's homepage.
(28) (Use of Hyperlinks in Table of Contents Acceptable) WXY, a
CPO, posts her Disclosure Document on the World Wide Web. As it
appears on the World Wide Web, the Disclosure Document is without
any ``pages;'' instead it is a continuous stream of HTML text, which
contains all of the required disclosures. In lieu of page numbers as
contemplated by Rule 4.24, WXY has placed in the table of contents a
series of hyperlinks, i.e., subject headings which trigger access to
the various sections of the Disclosure Document. In addition, in the
Risk Disclosure statement, where page numbers are required for the
discussion of expenses, break-even point and principal risk factors,
WXY has provided hyperlinks to those sections. This would comply
with the format requirements of Rule 4.24. Where a Disclosure
Document is posted on the World Wide Web without pages, the CPO may
use readily comprehensible hyperlinks instead of page numbers to
denote specific sections. Both page numbers and hyperlinks allow the
reader to locate a particular section.
(29) (Electronic Version Identical to Paper Version) ABC is a
CTA who operates a homepage on the World Wide Web, with a hyperlink
to enable visitors to download her Disclosure Document. The
Disclosure Document can be downloaded in a form compatible with
Microsoft Word for Windows or WordPerfect for DOS. Once downloaded,
the Disclosure Document is in all respects identical to the paper
version, including page numbers, bold-faced text and capsule
performance information. In this case, ABC has met the format
requirements of Rules 4.34.
(30) (Electronic Version of Disclosure Document May Include More
Recent Performance Data) ABC is a CTA who operates a website. ABC's
hardcopy Disclosure Document is dated August 1 and reflects the
ABC's performance through July 31. It is now October 1, and ABC
wants to amend the performance section of its Disclosure Document
that appears on the website to include performance through September
30. ABC may amend the performance section of the website Disclosure
Document to include more recent performance data. However, the
calculation and presentation of such recent performance data must be
in accordance with Commission rules. ABC is not required to amend
its hardcopy Disclosure Document, which still may reflect ABC's
performance through July 31. Under Rule 4.26, ABC may solicit
prospective clients with the October 1 Disclosure Document and the
version on its website with more recent performance data. However,
on May 1 of the next year (i.e., nine months after date of the
hardcopy Disclosure Document), ABC may no longer use the hardcopy
Disclosure Document. Beginning May 1, ABC must use a new Disclosure
Document. In addition, the Disclosure Document used on the website,
which contains updated performance data, must also be amended to
conform to any other changes reflected in the new hardcopy
Disclosure Document.
(31) (Disclosure Documents Delivered Electronically Must Be
Current and Updated) DEF is a CTA who distributes a hardcopy of its
Disclosure Document and also operates a website with an electronic
version of its Disclosure Document. DEF solicits through its website
but also sends each prospective client a hardcopy of its Disclosure
Document via postal mail. The Disclosure Document DEF sends its
prospective clients has been updated to reflect some material
changes, but the electronic version on the Internet has not. DEF is
in violation of Rule 4.36. Even though DEF provides its prospective
customers with a current version of its Disclosure Document, it may
not solicit customers using a superseded or out-of-date Disclosure
Document.
(32) (Outdated Disclosure Documents May Not Be Used on
Electronic Media) ABC is a CTA who operates a site on the World Wide
Web. ABC's website contains a Disclosure Document that is more than
nine months old. The website also contains a form that allows
persons to request a current version of ABC's Disclosure Document.
ABC is in violation of Rule 4.36. Even though ABC allows prospective
clients to obtain a current version of its Disclosure Document, ABC
may not continue to provide its out-of-date Disclosure Document on
the World Wide Web.
(33) (Outdated Disclosure Document Contained on CD-ROM Cannot Be
Used To Solicit Clients) RST is a CTA who has created a CD-ROM
containing promotional materials and a Disclosure Document. The date
of the Disclosure Document on the CD-ROM is January 15, 1995. On
December 15, 1995, RST provides a prospective client with a copy of
his CD-ROM but at the same time provides the client with a revised
Disclosure Document dated October 1, 1995, which reflects certain
material changes. Even though RST has provided the prospective
client with a revised Disclosure Document, RST is in violation of
Rule 4.36(b) because the CD-ROM contains a Disclosure Document dated
more then nine months prior to its use. After October 15, 1995, RST
may no longer distribute the CD-ROM with the Disclosure Document
dated January 15, 1995.
IV. Electronic Filing With the Commission
A. Pilot Program Commencing October 15, 1996
In response to numerous inquiries from managed futures
professionals, the Commission is evaluating the potential benefits and
costs of electronic document filing, both to registrants and to the
Commission's regulatory program. The Commission is also considering the
relative merits of several alternatives for implementing an electronic
filing system. In furtherance of this objective, the Commission is
announcing a pilot program for optional electronic filing of Disclosure
Documents and is requesting comments concerning the standards and
specifications that should be utilized if the Commission elects to
establish a permanent program for electronic filing.
The Commission has determined to initiate a six-month pilot program
for
[[Page 42164]]
electronic filing of CPO and CTA Disclosure Documents, commencing
October 15, 1996. Participation in the pilot program will be voluntary
and will be open to all registered CPOs and CTAs who are members of
NFA. The pilot program will be conducted by the Commission's Division
of Trading and Markets and will be restricted (at least initially) to
electronic submission of Disclosure Documents (and amendments thereto)
which CTAs and CPOs are required to file with the Commission pursuant
to Rules 4.36 and 4.26, respectively. Electronic filing of other
documents, such as annual reports for commodity pools required to be
filed pursuant to Rule 4.22, and documents filed to obtain relief
available under certain Commission rules, such as notices of
eligibility under Rule 4.5, notices of claims of exemption under Rule
4.7, claims of exemption under Rule 4.12(b) and notices of exemption
under Rule 4.14(a)(8), may be implemented in the future.113
Participation in the pilot program will not obligate a registrant to
provide its Disclosure Documents to prospective clients or pool
participants by electronic means.
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\113\ The Commission is considering electronic filing of the
entire range of documents and reports covered by the Act and
Commission rules, including without limitation, Forms 1-FR for FCMs
and IBs, Form 103 (Large Trader Reporting Form), and Form 40
(Statement of Reporting Trader). As noted in Section I, the
Commission has approved self-regulatory organization (``SRO'')
programs (notably those of the CBT and the CME) permitting FCMs and
IBs to file electronically with such SROs the periodic financial
reports on Form 1-FR required by Commission Rule 1.10. In Advisory
28-96, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) para.
26,711 (May 28, 1996), the Commission noted its intention to
implement procedures to permit FCMs and IBs that file electronically
with SROs also to file their financial reports electronically with
the Commission.
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Under the pilot program as currently envisioned, a partici-pating
registrant will transmit its Disclosure Document, as an attachment to
electronic mail, to an address specified by the Commission for purposes
of this program. Receipt of the filed document will be acknowledged by
electronic mail, followed by the customary review process conducted by
Commission staff. Electronic mail also may be used by Commission staff
for providing comments on the filed Disclosure Document and by the
registrant to submit document revisions in response to staff comments.
The Commission's pilot program will accommodate use of two widely
utilized commercial word processing systems without the need for
extensive formatting specifications, and it will not require
specialized coding and formatting of numerical tables. At the outset,
Documents filed under the Commission's pilot program will not be made
publicly available in an electronic equivalent of a public reference
room, as is currently the case with the document dissemination function
of the EDGAR system; however, this enhancement may be considered in the
future.114
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\114\ Persons may, of course, obtain hardcopies of Disclosure
Documents filed under the pilot program through a request made under
the Freedom of Information Act, 5 U.S.C. 552 (1994), as implemented
in Part 145 of the Commission rules.
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B. Filing Procedure Under the Pilot Program
The Commission is establishing the following procedures for CTAs
and CPOs seeking to employ electronic filing under the pilot program.
The Commission welcomes comments concerning the adequacy and
appropriateness of these requirements, and suggestions concerning any
additional criteria that the Commission should consider in the pilot
program.
Beginning October 15, 1996, a CPO or CTA may file a Disclosure
Document (or amendment) by taking the following steps:
1. Save the Disclosure Document as a WordPerfect for DOS (version
5.1 or earlier) or a Microsoft Word for Windows (version 6.0 or
earlier) file. Retain both a hardcopy and a diskette or tape backup.
2. Use the participating registrant's NFA identification number as
the file name for the saved Disclosure Document, and add a file
extension (DD1, DD2, DD3, . . . D10, D11, etc.) indicating whether the
submission is sequentially the first, second, etc. submission by the
registrant.115
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\115\ For example, XYZ, whose NFA identification number is
99999999, is a CTA with separate Disclosure Documents for two
trading programs. XYZ names one Disclosure Document ``99999999.DD1''
and the other ``99999999.DD2.'' The first amendment to either
Disclosure Document will be named ``99999999.DD3,'' and each
subsequent submission will follow the same pattern. In the event
that a registrant has more than one version of the Disclosure
Document for a particular trading program or pool offering, each
version would similarly be given a separate file extension.
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3. Add the file as an attachment to an electronic mail message
addressed to [email protected].116 Persons who participate
in the pilot program must agree to receive comments from Commission
staff by electronic mail. Accordingly, the message text should include
the electronic mail address where comments, if any, may be sent.
Confirmation of receipt of the filed Disclosure Document will be
provided by Commission staff to the electronic mail address supplied by
the participating registrant, and the Disclosure Document will undergo
the customary review process. Following review of the filed document,
staff comments also will be transmitted to the participating
registrant's electronic mail address as an electronic mail attachment
in Microsoft Word for Windows or WordPerfect 5.1 for DOS format.
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\116\ Persons participating in the pilot program are not
required to make duplicate filings under Rules 4.26(d) or 4.36(d).
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4. Submit the registrant's response to staff comments by electronic
mail message to the Commission's electronic mail filing address. The
message should indicate the date of the staff comment message, and any
revised text or pages should be attached in the same manner as the
original filing (using the registrant's NFA identification number and
the appropriate sequential file extension as described in No. 2,
above).
For purposes of the pilot program, a document of up to one megabyte
(approximately 230 pages) can be received as an electronic mail
attachment. If a participating registrant's Disclosure Document exceeds
one megabyte, the registrant should contact the Division of Trading and
Markets, Managed Funds Branch, for guidance.
C. Expansion of Pilot Program; Request for Comments
The Commission intends to use its experience with the pilot program
to develop and implement a permanent system for electronic filing of
Disclosure Documents. As stated previously, the Commission will also
consider permitting electronic filing of other types of required
documents (e.g., annual reports to commodity pool participants, and
notices of claims of exemption filed pursuant to Commission rules), as
well as permanent implementation of electronic filing of CPO and CTA
Disclosure Documents, either as an alternative to paper filing or as
the sole filing method.
Interested persons are invited to comment on the proposed structure
of the pilot program, as well as the contemplated adoption of a
permanent electronic filing system. Specifically, the Commission seeks
comment on: (1) whether it is preferable to retain the option for
registrants to submit documents in paper form or to eliminate that
alternative in favor of a universal requirement to file electronically;
(2) whether security concerns make it advisable to require that filings
be encrypted or otherwise protected from unauthorized interception and
use, and if so, what measures would be appropriate (e.g., commercially
available encryption software); (3)
[[Page 42165]]
whether there is a need for a graphics capability (beyond that
currently offered by the WordPerfect 5.1 for DOS and Microsoft Word for
Windows programs) to permit transmission of pictorial or graphic
material included in Disclosure Documents or in other documents
required to be filed with the Commission; (4) whether the Commission
should specify uniform formatting requirements for electronically-filed
documents (e.g., margin dimensions, type font and point size,
pagination, etc.) and if so, what the appropriate requirements would
be; and (5) whether the selection of word processing formats currently
being considered by the Commission for use in the pilot program
(WordPerfect 5.1 for DOS or Microsoft Word for Windows) is adequate,
and if not, which additional word processing programs or text formats
registrants should be permitted to use.
D. Unsolicited Proposal Recently Presented to the Commission
The Commission has been approached by a prospective vendor
(``Vendor'') with a proposal to implement a system to permit electronic
filing of Disclosure Documents utilizing a computer system developed by
Vendor. The Vendor's prototype system assumes use of a WordPerfect or
Microsoft Word word processing system in a Microsoft Windows operating
system environment. Registrants would download from the Commission's
Internet website a document ``packaging'' program, which would prompt
the registrant to provide identifying information and facilitate secure
uploading of the registrant's Disclosure Document to Vendor's
system.117 Vendor has offered to develop a separate program for
Commission staff handling and tracking of filed Disclosure Documents
during the review process. Vendor's system, if implemented, may be
designed to accommodate other required Commission filings, including
CPO annual reports to pool participants. Under one variation of
Vendor's system, filed Disclosure Documents would ``reside''
electronically on a server located at Vendor's offices, rather than at
the Commission's headquarters.
---------------------------------------------------------------------------
\117\ The document packaging software includes a scrambling or
encryption function enabling transmission of the document over phone
lines without permitting unauthorized persons to read or alter the
text.
---------------------------------------------------------------------------
The Commission plans to publish in Commerce Business Daily a notice
seeking information and indications of interest on the part of
proprietary vendors and developers of data processing and
telecommunication systems with respect to developing and implementing a
system to accept, track and control electronically-filed documents, as
well as incoming and outgoing correspondence in connection with such
documents.
Comment is sought regarding the advisability of the Commission's
selecting and entering into a contractual relationship with one or more
independent vendors to facilitate electronic filing of documents on
behalf of the Commission, and/or to serve as a repository or
dissemination point to provide public access to electronically-filed
documents. Finally, to the extent that a filing fee would be necessary
to cover the operating and development costs of Vendor's system, the
Commission seeks comment on the willingness of registrants to bear such
costs and suggestions concerning how such fees should be calculated.
E. Future Releases
The Commission invites comment not only on the specific issues
discussed in this release, but also on any other approaches or issues
that should be considered in connection with facilitating the use of
electronic media. In the future, the Commission may issue further
releases, as may be suitable to expand or provide additional guidance
regarding the pilot program; to propose and adopt rules and amendments
to existing rules to implement electronic filing procedures; or to give
guidance generally with respect to the use of electronic media in the
context of the Commission's regulatory program.
Issued in Washington, DC, on May 8, 1996, by the Commission.
Catherine D. Dixon,
Assistant to the Secretary of the Commission.
[FR Doc. 96-20691 Filed 8-13-96; 8:45 am]
BILLING CODE 6351-01-P
Complete official Federal Register PDF
FR Doc. 96-20670 General Services Administration Acquisition Regulation; Implementation of FAC 90-39 and Miscellaneous Changes
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Page 42190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20670]
=======================================================================
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GENERAL SERVICES ADMINISTRATION
48 CFR Parts 506, 547 and 552
[APD 2800.12A, CHGE 72]
RIN 3090-AF97
General Services Administration Acquisition Regulation;
Implementation of FAC 90-39 and Miscellaneous Changes
AGENCY: Office of Acquisition Policy, GSA.
ACTION: Correction to final regulation.
-----------------------------------------------------------------------
SUMMARY: This document corrects the effective date of final regulation
(APD 2800.12A, CHGE 72), which was published Friday, July 26, 1996 (61
FR 39088). The regulation related to the approval levels for the
justification of other than full and open competition in part 506 and
made editorial changes in parts 547 and 552.
EFFECTIVE DATE: August 19, 1996.
FOR FURTHER INFORMATION CONTACT:
Ed McAndrew, Office of GSA Acquisition Policy (202) 501-1224.
SUPPLEMENTARY INFORMATION:
Background
As published, the effective date of the regulation is incorrect.
Accordingly, the publication on July 26, 1996, of the final
regulation (APD 2800.12A CHGE 72), which was the subject of FR Doc. 96-
18987, is corrected as follows: On page 39088, second column, the
effective date is corrected to read ``EFFECTIVE DATE: August 19,
1996.''
Dated: August 8, 1996.
Ida M. Ustad,
Deputy Associate Administrator for Acquisition Policy.
[FR Doc. 96-20670 Filed 8-13-96; 8:45 am]
BILLING CODE 6820-61-M
Complete official Federal Register PDF
FR Doc. 96-20663 Treatment of Section 355 Distributions by U.S. Corporations to Foreign Persons
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42165-42178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20663]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8682]
RIN 1545-AU23
Treatment of Section 355 Distributions by U.S. Corporations to
Foreign Persons
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: These temporary regulations amend the Income Tax Regulations
relating to the distribution of stock and securities under section 355
of the Internal Revenue Code of 1986 by a domestic corporation to a
person that is not a United States person. These regulations are
necessary to implement section 367(e)(1) as added by the Tax Reform Act
of 1986. The text of these regulations also serves as the text of the
proposed regulations set forth in the notice of proposed rulemaking on
this subject in the Proposed Rules section of this issue of the Federal
Register.
EFFECTIVE DATE: These regulations are effective September 13, 1996.
FOR FURTHER INFORMATION CONTACT: Philip L. Tretiak at (202) 622-3860
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued without prior notice and public
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553).
For this reason, the collection of information contained in these
regulations has been reviewed and, pending receipt and evaluation of
public comments, approved by the Office of Management and Budget under
control number 1545-1487. Responses to this collection of information
are required in order for a U.S. corporation that distributes domestic
stock or securities to a foreign person to qualify for an exception to
the general rule of taxation provided by the regulations under section
367(e)(1).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
and where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
On January 16, 1990, temporary regulations under section 367(e)(1)
and 367(e)(2) were published in the Federal
[[Page 42166]]
Register (55 FR 1406). A cross-referenced Notice of Proposed Rulemaking
was published on that same date (55 FR 1472). These regulations were
proposed to implement section 367(e) of the Internal Revenue Code of
1986 (Code), as revised by sections 631(d)(1) and 1810(g) of the Tax
Reform Act of 1986 (100 Stat. 2085, 2272, Public Law 99-514 [1986-3
C.B. (Vol. 1) 1, 189, 745]). On January 15, 1993, final regulations
under section 367(e)(1) were published in the Federal Register.
Need for Temporary Regulations
Under the current regulations, in certain circumstances the gain
recognition exception may be dependent on the form rather than the
substance of a taxpayer's transaction. As a result, certain taxpayers
may be subject to strict restrictions under this exception, while other
taxpayers arguably may avoid the restrictions by structuring their
transactions in a different fashion (even though the substance of the
transactions is similar). Based on these considerations, it is
determined that immediate regulatory guidance will ensure the efficient
administration of the tax laws and that it would be impracticable and
contrary to the public interest to issue this Treasury decision with
prior notice under section 553(b).
Explanation of Provisions
Section 355 provides that, if certain requirements are met, a
distributing corporation (Distributing) does not recognize gain or loss
on the distribution of the stock or securities of a controlled
corporation (Controlled) to Distributing's shareholder or shareholders
(Distributee(s)). However, section 367(e)(1) provides that, in the case
of any distribution described in section 355 (or so much of section 356
as relates to section 355) by a domestic corporation to a Distributee
who is not a United States person (an outbound section 355
distribution), to the extent provided in regulations, gain shall be
recognized under principles similar to the principles of section 367.
The existing regulations under section 367(e)(1) provide different
tax treatment to Distributing in an outbound section 355 distribution
depending upon whether Controlled is a foreign corporation or a
domestic corporation. If Controlled is a foreign corporation, an
outbound section 355 distribution by Distributing is taxable, with no
exceptions. If Controlled is a domestic corporation, however, the
existing regulations provide that the distribution is taxable, but
permit three exceptions: (i) a FIRPTA exception in cases where both
Distributing and Controlled are U.S. real property holding corporations
(as defined in section 897(c)(2)) at the time of the distribution, (ii)
a publicly traded exception in certain cases where Distributing is
publicly traded in the United States at the time of the distribution,
and (iii) a gain recognition agreement (GRA) exception described in
detail below.
The new temporary regulations retain the general framework of the
existing regulations by permitting no exceptions in the case of an
outbound section 355 distribution of foreign stock and the same three
exceptions in the case of an outbound section 355 distribution of
domestic stock. However, the new temporary regulations substantially
modify the GRA exception.
The temporary regulations retain many of the provisions from the
existing regulations. However, the IRS and Treasury have decided to
reissue all of the regulations under section 367(e)(1) as temporary
regulations to obtain a uniform set of regulations.
GRA Exception Under the Existing Regulations
The GRA exception in the existing regulations contains a number of
specific requirements, all of which must be satisfied for the
distributing corporation to defer taxation under the exception.
In general, if Distributee is a resident of a country that has an
income tax treaty with the United States and meets certain other
requirements, Distributing can defer its gain by entering into a GRA.
Under the GRA, if a (foreign) Distributee sells all or a portion of the
stock of either Distributing or Controlled within 60 months after the
close of the taxable year in which the distribution occurs,
Distributing agrees to amend its return and include the deferred gain
in income based upon the proportion of the stock that is sold by
Distributee. Thus, for example, if Distributee sells 10 percent of its
stock of Distributing or Controlled, Distributing is required to amend
its return to include 10 percent of the deferred gain. There is no
special rule (i.e., no full trigger of the deferred gain) if
Distributee sells a substantial amount of its stock of either company.
In addition, there is no special rule that triggers gain in the case of
a nonrecognition transaction (such as the issuance of additional stock
by either Distributing or Controlled to third parties through a public
offering) that results in a substantial reduction of the percentage of
stock owned by Distributee(s).
The existing regulations generally provide that the GRA will not be
triggered if Distributee transfers the stock of either Distributing or
Controlled in certain nonrecognition transactions (permitted
transactions). The transfer of the stock of either company in a
(second) section 355 distribution, however, is not permitted.
In the case of a permitted transaction, the existing regulations
provide special successor-in-interest rules under which the deferred
gain generally will be taxable unless Distributee maintains a direct or
indirect 80 percent interest in the stock of Distributing and
Controlled that it owned immediately after the distribution. For
example, if Distributing distributed the stock of Controlled in an
outbound section 355 distribution that qualified for the GRA exception
and, within the term of the GRA, Distributee then contributed the stock
of Distributing to a new company (Newco) in a section 351 exchange and
received 100 percent of Newco, the successor-in-interest rules apply.
Thus, Distributee generally would be required to maintain an 80 percent
indirect interest in Distributing. Under these rules, (i) Distributee's
sale of up to 20 percent of the stock of Newco, or (ii) Newco's sale of
up to 20 percent of the stock of Distributing would result in a
corresponding trigger of the deferred gain. The issuance of new stock
by Newco or Distributing of up to 20 percent to unrelated persons,
however, would not result in any trigger of the GRA. If, however, Newco
(or Distributing) issued more than 20 percent of its stock to unrelated
persons (or any other nonrecognition transaction reduced Distributee's
indirect interest in Distributing to below 80 percent as a result of a
nonrecognition transaction), the entire gain would be triggered.
Reasons for Change/Overview of Temporary Regulations
The treatment of non pro rata outbound section 355 distributions is
not adequately addressed in the existing regulations. For example,
assume that a foreign parent (FP) owns all of the stock of
Distributing, a domestic corporation, which, in turn, owns all of the
stock of Controlled, also a domestic corporation. Assume that the
distribution of Controlled by Distributing to FP qualifies for the GRA
exception. If FP then contributes all of the stock of Distributing to a
newly formed foreign corporation (Newco), the successor rules would
apply, and FP would be required to maintain a direct or indirect 80
percent interest in Distributing.
The outcome under the existing regulations arguably is
substantially different, however, if the corporations structured the
distribution as a non pro
[[Page 42167]]
rata distribution. For example, assume that FP first forms Newco and
transfers to Newco a percentage of the Distributing stock (the
percentage equal to the value of Distributing (without the Controlled
stock) divided by the combined value of Distributing and Controlled) in
an exchange under section 351. Distributing then distributes the stock
of Controlled to FP in exchange for FP's stock of Distributing (a non
pro rata section 355 distribution). After the distribution, FP owns all
of the stock of Controlled and all of the stock of Newco; Newco owns
all of the stock of Distributing. Under the existing regulations, FP is
a Distributee. However, because FP has no direct interest in
Distributing after the distribution, the regulations effectively treat
FP as a Distributee only with respect to Controlled. Moreover, because
Newco does not actually receive stock of Controlled in the distribution
(even though its percentage ownership interest in Distributing
increases as a result of the distribution), it is arguably not a
Distributee with respect to the Distributing stock. As a result,
because the taxpayer structures the transaction in this manner (rather
than a section 355 distribution followed by a section 351 exchange as
in the first hypothetical), if the steps of the transaction are
respected and in the absence of the application of other sections of
the Code, Distributing could take the position that there are no
restrictions in the existing regulations with respect to (i) the sale
by FP of Newco stock, or (ii) the sale by Newco of Distributing stock.
To remedy this potential disparity in treatment between pro rata
and non pro rata distributions, the temporary regulations expand the
definition of Distributee in the GRA exception (referred to as Foreign
Distributee under such exception) to include all persons that were
shareholders of Distributing immediately prior to the distribution.
Thus, for example, in the second hypothetical above, Newco and FP would
both be Foreign Distributees. Provided that nonrecognition treatment is
claimed under the GRA exception with respect to Newco and FP (referred
to as Qualified Foreign Distributees in the case of Foreign
Distributees for which nonrecognition may be claimed), the GRA would be
triggered by either (i) the sale by FP of Newco stock, or (ii) the sale
by Newco of Distributing stock.
Second, even in the case of pro rata distributions, the IRS and
Treasury believe that the results obtained under the existing
regulations are too dependent upon the form of the transaction. This is
principally because taxpayers could be subject to the stricter
successor-in-interest rules if their transactions were structured in a
particular way, but might be subject to the more liberal distributee
rules if the order of the steps of the particular transaction are
reversed.
In the preamble to the existing regulations, the IRS and Treasury
stated that the successor-in-interest rules were ``designed to provide
taxpayers with flexibility to restructure their operations, without
imposing undue administrative burdens on the Service.'' The IRS
solicited taxpayer comments on the scope of these rules. A number of
commentators have stated that the rules are overly restrictive.
The temporary regulations harmonize the treatment of the
distributee and successor-in-interest rules in order to minimize the
importance of the form of a particular transaction. In addition, as
discussed below, the temporary regulations liberalize the strict
successor rules by replacing the 80-percent threshold (computed on an
individual Distributee basis) with a 50-percent threshold (computed
with reference to all Qualified Foreign Distributees as a group).
The temporary regulations follow the existing regulations by
providing that a sale by a Qualified Foreign Distributee of the stock
of either Controlled or Distributing triggers gain in the same
proportion as the percentage of stock that is sold. However, the
temporary regulations provide that a sale by Qualified Foreign
Distributee(s) of either Distributing or Controlled that results in a
substantial transformation results in a trigger of the full amount of
the deferred gain. A substantial transformation is defined as a greater
than 50-percent (direct or indirect) reduction, on an aggregate basis,
in either the total voting power or the total value of the stock of
Controlled or Distributing held by Qualified Foreign Distributee(s)
immediately after the distribution. The new temporary regulations also
provide that a nonrecognition transaction that results in a substantial
transformation (such as the issuance of stock by Distributing or
Controlled in a public offering) generally causes a trigger of the full
amount of the deferred gain. No gain will be triggered if a
nonrecognition transaction does not result in a substantial
transformation.
The temporary regulations also expand the types of post-
distribution nonrecognition transactions that are permitted
transactions to include section 355 distributions. A post-distribution
section 355 transaction may qualify for nonrecognition treatment if the
foreign distributee (referred to as a Substitute Distributee) that
receives stock of Distributing and/or Controlled qualifies as a
Qualified Foreign Distributee. In such case, the Substitute Distributee
will replace the initial Qualified Foreign Distributee as the person
whose ownership interest is considered for purposes of determining
whether a disposition or substantial transformation has occurred (on a
cumulative, aggregate basis) with respect to such stock.
In addition, the temporary regulations provide that foreign persons
that owned stock or securities of Distributing within two years prior
to the distribution and that own (directly, indirectly, or
constructively) 50 percent or more of the stock of Distributing or
Controlled immediately after the distribution will also be considered
Foreign Distributees. Thus, for example, if F1, a foreign corporation,
transfers the stock of US1 to F2 in exchange for all of the stock of F2
in a section 351 exchange and, within two years after the transfer, US1
distributes all of the stock of US2, its wholly owned subsidiary, to F2
in a section 355 exchange, F1 is also treated as a Foreign Distributee
under this rule. (F1 would have been treated as a Foreign Distributee
without the operation of this rule if the section 355 distribution
occurred prior to the section 351 exchange.)
The IRS and the Treasury also believe that certain procedural
aspects of the GRA exception need modification. The temporary
regulations enhance reporting and security requirements, extend the
term of the GRA from 5 to 10 years, and delete other requirements that
are believed to be unnecessary in light of the modifications herein.
To address the security concerns of the IRS resulting from the
liberalization of the successor-in-interest rules and the expansion of
permissible post-distribution nonrecognition transactions to include
section 355 distributions, the assets of Distributing are more closely
monitored to insure that such corporation has sufficient funds to pay a
potential tax on the deferred gain. In addition, Controlled must agree
to be secondarily liable (after Distributing) for the tax on the
deferred gain.
Moreover, the new temporary regulations extend the term of the GRA
from 5 to 10 years in order to conform the GRA term under section
367(e)(1) to the GRA term under section 367(a). Under section 367(a),
the GRA term in the case of outbound stock transfers is 10 years when
U.S. transferors own at least 50 percent of the stock of a foreign
transferee company. See Sec. 1.367(a)-3T(c)(3) and Notice 87-85 (1987-2
C.B. 395). The IRS and Treasury believe that
[[Page 42168]]
the GRA term under section 367(e)(1) should be no less than the term
under section 367(a) when U.S. transferors control the transferee
because, once the GRA under section 367(e)(1) expires, the sale of
Distributing or Controlled stock by a Qualified Foreign Distributee
likely will not be subject to Federal income taxation. In contrast,
under section 367(a), even if the GRA lapses, an amount approximating
the deferred gain likely will be subject to Federal income taxation if
the U.S. transferor later sells the stock of the transferee foreign
corporation.
Finally, the IRS and Treasury believe that section 367(e)(1)
distributions should be subject to some form of section 6038B
reporting, as are transfers described under sections 367(a) and 367(d).
Thus, the temporary regulations extend limited section 6038B reporting
to section 367(e)(1) transactions. The reporting requirements under
section 6038B will be deemed satisfied in the case of a taxpayer that
qualifies for one of the three exceptions to taxation under the
regulations if the taxpayer complies with the applicable reporting
requirements relating to the relevant exception. This change is also
intended to extend the statute of limitations under section 6501(c)(8)
in cases where distributing corporations do not properly report their
outbound section 355 distributions. Separately, the temporary
regulations provide new notice and reporting rules in cases where
Distributing qualifies for either the FIRPTA or publicly traded
exception.
Specific changes to GRA Exception in Temporary Regulations
The specific requirements of the GRA exception, as amended, are as
follows:
(A) Ten or Fewer Qualified Foreign Distributees
The existing regulations provide that Distributing is permitted to
claim nonrecognition with respect to 10 or fewer individual or
corporate foreign distributees. A ruling is required in the case of a
foreign distributee that holds its interest in Distributing through a
partnership, trust, or estate (whether foreign or domestic). This
requirement is unchanged in the temporary regulations.
(B) Active Trade or Business
The existing regulations provide that, if Distributee is a foreign
corporation, it must be engaged in an active trade or business. This
requirement is removed in the temporary regulations.
(C) Value of Distributing
The existing regulations provide that, immediately after the
distribution, the value of Distributing must be at least equal to the
value of the distributed stock and securities. This requirement is
waived by the existing regulations if Distributing and Controlled are
members of the same consolidated group at the time of the distribution.
This requirement is revised in the temporary regulations to provide
that the value of Distributing (the value of its assets less all of its
liabilities) must be at least equal to the amount of the deferred gain
on all testing dates during the GRA period. (Alternatively,
Distributing may satisfy this test using the adjusted basis of its
assets instead of fair market value.) A testing date is the last day of
each taxable year of Distributing and any day in which Distributing
distributes money or property to its shareholders (regardless of
whether such distribution is treated as a dividend). The waiver in the
existing regulations if Distributing and Controlled are members of the
same consolidated group is eliminated in the temporary regulations.
(D) Treaty Residence
The existing regulations provide that all Distributees are required
to be residents of a country that maintains a comprehensive income tax
treaty with the United States that contains an exchange of information
provision. This requirement is not changed in the temporary
regulations.
(E) Continuity of Interest Rule
The existing regulations provide that the Distributee is required
to continue to own, for a 60-month period, all of the stock of
Distributing and Controlled that it owns at the time of the
distribution. This requirement is maintained, but the period is
increased to 120 months.
(F) Distributing Must Remain in Existence
The existing regulations provide that Distributing cannot go out of
existence pursuant to the distribution. This requirement is maintained
in the temporary regulations.
(G) GRA
The existing regulations provide that Distributing is required to
enter into a 5-year GRA and receive annual certifications from
Distributees, stating that they continue to own the stock that they
held immediately after the distribution. The temporary regulations
increase the GRA term to 10 years.
(H) Annual Certifications
The existing regulations provide that Distributees must provide
their certifications directly to Distributing. Under the temporary
regulations, Controlled also must provide an annual statement to
Distributing, containing information regarding whether any of its
Qualified Foreign Distributees have disposed of their stock in
Controlled during the relevant taxable year.
Special Analyses
It has been determined that this temporary regulation is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It is hereby certified that this
regulation does not have a significant impact on a substantial number
of small entities. This certification is based on the fact that the
number of corporations that distribute stock or securities to foreign
persons in transactions that qualify under section 355, and thus become
subject to the collection of information contained in these
regulations, is estimated to be only 260 per year. Moreover, because
these regulations will primarily affect large multinational
corporations with foreign shareholders, it is estimated that out of the
260 annual transactions subject to reporting, very few, if any, will
involve small entities. Therefore, the regulations do not significantly
alter the reporting or recordkeeping duties of small entities. Thus, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the
Internal Revenue Code, a copy of these temporary regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Philip L. Tretiak of
the Office of Associate Chief Counsel (International), within the
Office of Chief Counsel, IRS. However, other personnel from the IRS and
Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
[[Page 42169]]
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entry for Sec. 1.367(e)-1 and adding an entry in numerical
order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.367(e)-1T also issued under 26 U.S.C. 367(e)(1) * * *
Sec. 1.367 [Amended]
Par. 2. Sections 1.367(e)-0 and 1.367(e)-1 are removed.
Par. 3. Sections 1.367(e)-0T and 1.367(e)-1T are added to read as
follows:
Sec. 1.367(e)-0T Treatment of section 355 distributions by U.S.
corporations to foreign persons; table of contents.
This section lists captioned paragraphs contained in Sec. 1.367(e)-
1T.
Sec. 1.367(e)-1T Treatment of section 355 distributions by U.S.
corporations to foreign persons.
(a) Purpose and scope.
(b) Recognition of gain required.
(1) In general.
(2) Computation of gain of the distributing corporation.
(3) Treatment of foreign distributee.
(4) Nonapplication of section 367(a) principles that provide for
exceptions to gain recognition.
(5) Partnerships, trusts, and estates.
(i) In general.
(ii) Written statement.
(6) Anti-abuse rule.
(c) Nonrecognition of gain.
(1) Distribution by a U.S. real property holding corporation of
stock in a second U.S. real property holding corporation.
(2) Distribution by a publicly traded corporation.
(i) Conditions for nonrecognition.
(ii) Recognition of gain if foreign distributee owns 5 percent of
distributing corporation.
(iii) Reporting requirements.
(iv) Timely filed return.
(v) Relation to other nonrecognition provisions.
(3) Distribution of certain domestic stock to 10 or fewer qualified
foreign distributees.
(i) In general.
(ii) Conditions for nonrecognition.
(iii) Agreement to recognize gain.
(iv) Waiver of period of limitation.
(v) Annual certifications and other reporting requirements.
(vi) Special rule for nonrecognition transactions.
(vii) Recognition of gain.
(viii) Failure to comply.
(d) Other consequences.
(1) Exchange under section 897(e)(1).
(2) Dividend treatment under section 1248.
(3) Distribution of stock of a passive foreign investment company.
[Reserved]
(4) Reporting under section 6038B.
(e) Examples.
(f) Effective date.
Sec. 1.367(e)-1T Treatment of section 355 distributions by U.S.
corporations to foreign persons (temporary).
(a) Purpose and scope. This section provides rules concerning the
recognition of gain by a domestic corporation on a distribution that
qualifies for nonrecognition under section 355 of stock or securities
of a domestic or foreign corporation to a person who is not a U.S.
person. Paragraph (b) of this section states as a general rule that
gain recognition is required on the distribution. Paragraph (c) of this
section provides exceptions to the gain recognition rule for certain
distributions of stock or securities of a domestic corporation.
Paragraph (d) of this section refers to other consequences of
distributions described in this section. Paragraph (e) of this section
provides examples of these rules. Finally, paragraph (f) of this
section specifies the effective date of this section.
(b) Recognition of gain required--(1) In general. (i) If a domestic
corporation (distributing corporation) makes a distribution that
qualifies for nonrecognition under section 355 of stock or securities
of a domestic or foreign corporation (controlled corporation) to a
person who is not a qualified U.S. person, then, except as provided in
paragraph (c) of this section, the distributing corporation shall
recognize gain (but not loss) on the distribution under section
367(e)(1). No gain is required to be recognized under this section with
respect to a distribution to a qualified U.S. person of stock or
securities that qualifies for nonrecognition under section 355. For
purposes of this section, a qualified U.S. person is--
(A) A citizen or resident of the United States; and
(B) A domestic corporation.
(ii) In the case of stock or securities owned through a
partnership, trust, or estate, see paragraph (b)(5) of this section.
(2) Computation of gain of the distributing corporation. The gain
recognized by the distributing corporation under paragraph (b)(1) of
this section shall be equal to the excess of the fair market value of
the stock or securities distributed to persons who are not qualified
U.S. persons (determined as of the time of the distribution) over the
distributing corporation's adjusted basis in the stock or securities
distributed to such distributees. For purposes of the preceding
sentence, the distributing corporation's adjusted basis in each unit of
each class of stock or securities distributed to a distributee shall be
equal to the distributing corporation's total adjusted basis in all of
the units of the respective class of stock or securities owned
immediately before the distribution, divided by the total number of
units of the class of stock or securities owned immediately before the
distribution.
(3) Treatment of distributee. If the distribution otherwise
qualifies for nonrecognition under section 355, each distributee shall
be considered to have received stock or securities in a distribution
qualifying for nonrecognition under section 355, even though the
distributing corporation may recognize gain on the distribution under
this section. Thus, the distributee shall not be considered to have
received a distribution described in section 301 or a distribution in
an exchange described in section 302(b) upon the receipt of the stock
or securities of the controlled corporation. Except where section
897(e)(1) and the regulations thereunder cause gain to be recognized by
the distributee, the basis of the distributed domestic or foreign
corporation stock in the hands of the foreign distributee shall be the
basis of the distributed stock determined under section 358 without any
increase for any gain recognized by the domestic corporation on the
distribution.
(4) Nonapplication of section 367(a) principles that provide for
exceptions to gain recognition. Paragraph (b)(1) of this section
requires recognition of gain notwithstanding the application of any
principles contained in section 367(a) or the regulations thereunder.
The only exceptions to paragraph (b)(1) of this section are contained
in paragraph (c) of this section. None of these exceptions applies to
distributions of stock or securities of a foreign corporation.
(5) Partnerships, trusts, and estates--(i) In general.
For purposes of this section, stock or securities owned by or for a
partnership (whether foreign or domestic) shall be considered to be
owned proportionately by its partners. In applying this principle, the
proportionate share of the stock or securities of the distributing
corporation considered to be owned by a partner of the partnership at
the time of the distribution shall equal the partner's distributive
share of gain that would be realized by the partnership from a sale of
stock of the distributing corporation immediately before the
distribution (without regard to whether, under the particular facts,
any gain would actually be realized on the sale
[[Page 42170]]
for U.S. tax purposes), determined under the rules and principles of
sections 701 through 761 and the regulations thereunder. For purposes
of this section, stock or securities owned by or for a trust or estate
(whether foreign or domestic) shall be considered to be owned
proportionately by the persons who would be treated as owning such
stock or securities under sections 318(a)(2)(A) and (B). In applying
section 318(a)(2)(B), if a trust includes interests that are not
actuarially ascertainable and a principal purpose of the inclusion of
the interests is the avoidance of section 367(e)(1), all such interests
shall be considered to be owned by foreign persons. In a case where an
interest holder in a partnership, trust, or estate that owns stock of
the distributing corporation is itself a partnership, trust, or estate,
the rules of this paragraph (b)(5) apply to individuals or corporations
that own (direct or indirect) interests in the upper-tier partnership,
trust or estate.
(ii) Written statement. If, prior to the date on which the
distributing corporation must file its income tax return for the year
of the distribution, the corporation obtains a written statement,
signed under penalties of perjury by an interest holder in a
partnership, trust, or estate that receives a distribution described in
paragraph (b)(1) of this section from the corporation, which statement
certifies that the interest holder is a qualified U.S. person (as
defined in paragraph (b)(1)(i) of this section), no liability shall be
imposed under paragraph (b)(1) of this section with respect to the
distribution to the partnership, trust, or estate to the extent of the
interest holder's interest in the partnership, trust, or estate, unless
the distributing corporation knows or has reason to know that the
statement is false, or it is subsequently determined that the interest
holder, in fact, was not a qualified U.S. person at the time of the
distribution. The written statement must set forth the amount of the
interest holder's proportionate interest in the partnership, trust, or
estate as determined under paragraph (b)(5)(i) of this section and must
set forth the amount of such entity's proportionate interest in the
distributing and controlled corporation, as well as the interest
holder's name, taxpayer identification number, home address (in the
case of an individual) or office address and place of incorporation (in
the case of a corporation). The written statement must be retained by
the distributing corporation with its books and records for a period of
three calendar years following the close of the last calendar year in
which the corporation relied upon the statement.
(6) Anti-abuse rule. If a domestic corporation is directly or
indirectly formed or availed of by one or more foreign persons to hold
the stock of a second domestic corporation for a principal purpose of
avoiding the application of section 367(e)(1) and the requirements of
this section, any distribution of stock or securities to which section
355 applies by such second domestic corporation shall be treated for
Federal income tax purposes as a distribution to such foreign person or
persons, followed by a transfer of the stock or securities to the first
domestic corporation. The qualification of the distribution to the
foreign person for an exception to the general gain recognition rule of
paragraph (b)(1) of this section, and the consequences of the transfer
to the first domestic corporation under this section, shall be
determined in accordance with all of the facts and circumstances.
(c) Nonrecognition of gain--(1) Distribution by a U.S. real
property holding corporation of stock in a second U.S. real property
holding corporation. Gain shall not be recognized under paragraph (b)
of this section by a domestic corporation making a distribution that
qualifies for nonrecognition under section 355 of stock or securities
of a domestic controlled corporation to a person who is not a qualified
U.S. person (as defined in paragraph (b)(1)(i) of this section) if the
conditions specified in paragraphs (c)(1) (i) and (ii) of this section
are both satisfied:
(i) Immediately after the distribution, both the distributing and
controlled corporations are U.S. real property holding corporations (as
defined in section 897(c)(2)). For the treatment of the distribution
under section 897, see section 897(e)(1) and the regulations
thereunder.
(ii) The distributing corporation attaches to its timely filed
Federal income tax return for the taxable year in which the
distribution occurs a statement titled ``Section 367(e)(1)--Reporting
of Section 355 Distribution by U.S. Real Property Holding
Corporation'', signed under penalties of perjury by an officer of the
corporation, disclosing the following information--
(A) A statement that the distribution is one to which paragraph
(c)(1) of this section applies; and
(B) A description of the transaction in which one U.S. real
property holding corporation distributes the stock of another U.S. real
property holding corporation in a transaction that is described under
section 355.
(iii) For purposes of this paragraph (c)(1), an income tax return
(including an amended return) will be considered a timely filed Federal
income tax return if it is filed prior to the time that the Internal
Revenue Service discovers that the reporting requirements of this
paragraph have not been satisfied.
(2) Distribution by a publicly traded corporation--(i) Conditions
for nonrecognition. Except as provided by paragraph (c)(2)(ii) of this
section, gain shall not be recognized under paragraph (b) of this
section by a domestic corporation making a distribution that qualifies
for nonrecognition under section 355 of stock or securities of a
domestic controlled corporation to a person who is not a qualified U.S.
person (as defined in paragraph (b)(1)(i) of this section) if both of
the following conditions are satisfied:
(A) Stock of the domestic controlled corporation with a value of
more than 80 percent of the outstanding stock of the corporation is
distributed with respect to one or more classes of the outstanding
stock of the distributing corporation that are regularly traded on an
established securities market, as defined in Sec. 1.897-1(m) (1) and
(3), located in the United States. Stock is considered to be regularly
traded if it is regularly quoted by brokers or dealers making a market
in such interests. A broker or dealer is considered to make a market
only if the broker or dealer holds himself out to buy or sell interests
in the stock at the quoted price.
(B) The distributing corporation satisfies the reporting
requirements contained in paragraph (c)(2)(iii) of this section.
(ii) Recognition of gain if distributee owns 5 percent of
distributing corporation. If, at the time of the distribution, the
distributing corporation knows or has reason to know that any
distributee who is not a qualified U.S. person (as defined in paragraph
(b)(1)(i) of this section) owns, directly, indirectly, or
constructively (using the rules of sections 897(c)(3) and (c)(6)(C),
but subject to the rules of paragraph (b)(5) of this section), more
than 5 percent (by value) of a class of stock or securities of the
distributing corporation with respect to which the stock or securities
of the controlled corporation is distributed (a 5-percent shareholder),
the distributing corporation will qualify for nonrecognition under
paragraph (c)(2)(i) of this section if, with respect to such 5-percent
shareholder, either--
[[Page 42171]]
(A) The distribution qualifies for nonrecognition under paragraph
(c)(3) of this section; or
(B) The distributing corporation recognizes gain (but not loss) on
the distribution under paragraph (b) of this section.
(iii) Reporting Requirements. To qualify for nonrecognition
treatment under paragraph (c)(2)(i) of this section, the distributing
corporation must attach to its timely filed Federal income tax return,
for the taxable year in which the distribution occurs a statement
titled ``Section 367(e)(1)--Reporting of Section 355 Distribution by
U.S. Publicly Traded Corporation to Foreign Persons,'' signed under
penalties of perjury by an officer of the corporation, disclosing the
following information:
(A) A statement that the distribution is one to which paragraph
(c)(2) of this section applies.
(B) A description of the transaction in which the distributing
corporation that is publicly traded on a U.S. securities market
distributed stock or securities of a domestic controlled corporation.
(C) The U.S. securities market on which the stock of the
distributing corporation is publicly traded.
(D) A statement that, at the time of the distribution, either--
(1) The distributing corporation does not know or have reason to
know that any distributee who is not a qualified U.S. shareholder (as
defined in paragraph (b)(1)(i) of this section) is a 5-percent
shareholder; or
(2) The distributing corporation knows or has reason to know that
one or more distributees who are not qualified U.S. persons are 5-
percent shareholders, and, that with respect to each such 5-percent
shareholder, either--
(i) Gain will not be recognized because the requirements of
paragraph (c)(3) of this section are satisfied; or
(ii) Gain (but not loss) will be recognized in accordance with
paragraph (b) of this section.
(iv) Timely filed return. For purposes of this paragraph (c)(2), an
income tax return (including an amended return) will be considered a
timely filed Federal income tax return if it was received prior to the
time that the Internal Revenue Service discovers that the reporting
requirements of this paragraph (c)(2) have not been satisfied.
(v) Relation to other nonrecognition provisions. If the
distribution of the stock and securities of the controlled corporation
also qualifies for nonrecognition under paragraph (c)(1) of this
section, the distributing corporation shall be entitled to
nonrecognition under paragraph (c)(1) of this section and not this
paragraph (c)(2).
(3) Distribution of certain domestic stock to 10 or fewer qualified
foreign distributees--(i) In general. (A) Gain shall not be recognized
under paragraph (b) of this section by a domestic corporation making a
distribution that qualifies for nonrecognition under section 355 of
stock or securities of a domestic controlled corporation with respect
to a foreign distributee (defined in paragraph (c)(3)(i)(B) of this
section) that is a qualified foreign distributee (defined in paragraph
(c)(3)(i)(C) of this section), provided that each of the conditions
contained in paragraph (c)(3)(ii) of this section is satisfied. If one
or more foreign distributees are not treated as qualified foreign
distributees, the distributing corporation shall recognize a percentage
of the gain realized on the distribution, equal to the percentage of
its stock owned immediately before the distribution, directly or
indirectly, by foreign distributees who are not qualified foreign
distributees. See paragraph (b)(5) of this section for rules regarding
the ownership of stock held by a partnership, trust, or estate.
(B) For purposes of this paragraph (c)(3), the term foreign
distributee is any person who is not a qualified U.S. person (as
defined in paragraph (b)(1)(i) of this section) if such person--
(1) Owned stock or securities of the distributing corporation
immediately prior to the distribution;
(2) Owned stock or securities of the distributing corporation
within two years prior to the distribution and directly, indirectly, or
constructively (using the rules of section 318) owns 50 percent or more
of either the total voting power or the total value of the stock of the
distributing or controlled corporation immediately after the
distribution; or
(3) Is a transferee or substitute distributee, as defined in
paragraph (c)(3)(vi) (C) or (D) of this section.
(C) For purposes of this section, except as provided by paragraph
(c)(3)(i)(D) of this section, the term qualified foreign distributee is
a foreign distributee that, during the entire period for which the
agreement to recognize gain (described in paragraph (c)(3)(iii) of this
section) is in effect with respect to the distributee, is either an
individual or a corporation (as defined in section 7701(a)(3)),
resident of a foreign country that maintains a comprehensive income tax
treaty with the United States which contains an information exchange
provision. However, no more than ten foreign distributees in total may
be current or former qualified foreign distributees (including any
transferee or substitute distributees as defined in paragraph
(c)(3)(vi) (C) or (D) of this section) during the entire term of the
gain recognition agreement. See, however, paragraph (c)(3)(vi)(G) of
this section for special rules applicable to substitute distributees.
(D) Unless the distributing corporation obtains a ruling from the
Internal Revenue Service to the contrary, no foreign distributee shall
be treated as a qualified foreign distributee if it holds its interest
in the distributing corporation through a partnership, trust or estate,
characterized as such under the taxation laws of the United States or
any entity that is treated as fiscally transparent under the taxation
laws of the foreign country in which it is a resident if such country
maintains a comprehensive income tax treaty with the United States
which contains an information exchange provision.
(ii) Conditions for nonrecognition. A distribution of stock or
securities described in paragraph (c)(3)(i) of this section to a
qualified foreign distributee shall not result in the recognition of
gain if each of the following conditions is satisfied:
(A) If more than ten foreign distributees, at any time during the
entire term of the gain recognition agreement, are eligible to be
qualified foreign distributees, the distributing corporation shall
designate the foreign distributees to be considered qualified foreign
distributees for which nonrecognition is claimed under this paragraph
(c)(3).
(B) Immediately after the distribution and on each testing date
beginning after the distribution and during the period that the
agreement to recognize gain (described in paragraph (c)(3)(iii) of this
section) is in effect, the value of the distributing corporation (that
is, the fair market value of the assets of the distributing
corporation, less all liabilities of the distributing corporation) must
exceed the amount of gain that the distributing corporation realized,
but did not recognize (on or after the distribution) under this
paragraph (c)(3), as a consequence of the distribution with respect to
qualified foreign distributees. This requirement will be deemed
satisfied for any testing date upon which the adjusted basis of the
distributing corporation's assets, less all liabilities of the
distributing corporation, exceeds the amount of the deferred gain. A
testing date is--
(1) The last day of any taxable year of the distributing
corporation during which the agreement to recognize gain is in effect;
and
[[Page 42172]]
(2) Any date upon which the distributing corporation distributes
property to its shareholders under section 301(a).
(C) At all times until the close of the 120-month period following
the end of the taxable year of the distributing corporation in which
the distribution was made, except under the circumstances and subject
to the consequences prescribed in paragraphs (c)(3) (vi) and (vii) of
this section, all qualified foreign distributees must continue to own,
directly or indirectly, all of the stock and securities of the
distributing and controlled corporations that the qualified foreign
distributee owned, directly or indirectly, immediately after the
distribution (including any stock and securities of the distributing or
controlled corporation later acquired from the distributing or
controlled corporation for which the distributee has a holding period
determined under section 1223 by reference to the stock or securities).
(D) The distribution of stock or securities described in paragraph
(c)(3)(i) of this section must not be a distribution pursuant to which
the distributing corporation goes out of existence.
(E) The distributing corporation must file an agreement to
recognize gain, and the controlled corporation must agree to be
secondarily liable in the event that the distributing corporation does
not pay the tax due upon a recognition event described in paragraph
(c)(3)(vii) of this section. The agreement is described in paragraph
(c)(3)(iii) of this section and filed by the distributing corporation
with its Federal income tax return for its taxable year in which the
distribution is made.
(F) For each of the taxable years of the distributing corporation,
beginning with the taxable year of the distribution and ending with the
taxable year that includes the close of the 120-month period following
the end of the taxable year of the distributing corporation in which
the distribution was made, all qualified foreign distributees and the
controlled corporation must provide to the distributing corporation the
annual certifications described in paragraph (c)(3)(v) of this section,
and the distributing corporation must file the certifications with its
tax return.
(iii) Agreement to recognize gain. The agreement to recognize gain
required by this paragraph (c)(3)(iii) shall be prepared by or on
behalf of the distributing corporation and signed under penalties of
perjury by an authorized officer of the distributing corporation. An
authorized officer of the controlled corporation must also sign the
agreement under penalties of perjury, agreeing to extend the statute of
limitations and accept liability for the tax in the event that the
distributing corporation fails to pay the tax upon a recognition event.
The agreement provided by the distributing corporation shall set forth
the following items, under the heading ``GAIN RECOGNITION AGREEMENT
UNDER Sec. 1.367(e)-1T(c)(3)(iii)'', with paragraphs labeled to
correspond with such items:
(A) A declaration that the distribution is one to which paragraph
(c)(3) of this section applies.
(B) A description of each qualified foreign distributee, which
shall include the qualified foreign distributee's--
(1) Name;
(2) Address;
(3) Taxpayer identification number (if any); and
(4) Residence and citizenship (in the case of an individual) or
place of incorporation and country of residence (in the case of a
qualified foreign distributee that is a corporation for Federal income
tax purposes under section 7701(a)(3)).
(C) A description of the stock and securities of the distributing
and controlled corporations owned (directly or indirectly) by each
qualified foreign distributee, including--
(1) The number or amount of shares;
(2) The type of stock or securities;
(3) The fair market values of the stock and securities of the
controlled corporation owned (directly or indirectly) by the qualified
foreign distributee(s), determined immediately before and immediately
after the distribution;
(4) The distributing corporation's adjusted basis (immediately
before the distribution) in the stock and securities of the controlled
corporation distributed to the qualified foreign distributees;
(5) The fair market value of the distributing corporation (fair
market value of its assets, less all liabilities of the distributing
corporation) immediately after the distribution. Such amount must
exceed the amount of gain that the distributing corporation realized,
but did not recognize under this paragraph (c)(3), on the distribution
to qualified foreign distributees. Alternatively, the fair market value
standard will be deemed satisfied if the adjusted basis of the assets
of the distributing corporation, less all liabilities of the
distributing corporation, exceeds the amount of the deferred gain.
(6) For each applicable valuation, a summary of the method
(including appraisals, if any) used for determining the fair market
values required by this paragraph (c)(3)(iii).
(D) The distributing corporation's agreement to recognize gain in
accordance with paragraph (c)(3)(vii) of this section.
(E) The controlled corporation's agreement to be secondarily liable
for the distributing corporation's tax liability, pursuant to the gain
recognition agreement described in this paragraph (c)(3)(iii).
(F) A waiver of the period of limitations by both the distributing
and controlled corporation as described in paragraph (c)(3)(iv) of this
section.
(G) An attached statement from each qualified foreign distributee
declaring that the qualified foreign distributee will provide to the
distributing corporation the annual certifications described in
paragraph (c)(3)(v)(A) of this section for each of the taxable years of
the distributing corporation, beginning with the taxable year of the
distribution and ending with the taxable year that includes the close
of the 120-month period following the taxable year of the distributing
corporation in which the distribution was made. The attached statements
shall be signed under penalties of perjury by an authorized officer in
the case of any qualified foreign distributee that is a corporation for
Federal income tax purposes or by the individual in the case of a
qualified foreign distributee that is an individual.
(H) An attached statement from the controlled corporation declaring
that it will provide to the distributing corporation the annual
certifications described in paragraph (c)(3)(v)(B) of this section.
(I) An agreement by the distributing corporation to attach to its
tax returns the annual certifications of the qualified foreign
distributees and the controlled corporation described in paragraphs
(c)(3)(v)(A) and (B) of this section, respectively, and to meet any
other reporting requirement in accordance with paragraph (c)(3)(v) of
this section.
(iv) Waiver of period of limitation. The distributing corporation
and the controlled corporation must file, with the gain recognition
agreement described in paragraph (c)(3)(iii) of this section, a waiver
of the period of limitation on the assessment of tax upon the gain
realized on the distribution to the qualified foreign distributee(s).
The waiver shall be executed on Form 8838, substitute form, or such
other form as may be prescribed by the Commissioner for this purpose
and shall extend the period for assessment of such tax to a date not
earlier than the close of the thirteenth full year following the
taxable year that includes the distribution. A
[[Page 42173]]
properly executed Form 8838, substitute form, or such other form
authorized by this paragraph (c)(3)(iv) shall be deemed to be consented
to and signed by a Service Center Director or the Assistant
Commissioner (International) for purposes of Sec. 301.6501(c)-1(d) of
this chapter.
(v) Annual certifications and other reporting requirements. For
each of the taxable years of the distributing corporation, beginning
with the taxable year of the distribution and ending with the taxable
year that includes the close of the 120-month period following the end
of the taxable year of the distributing corporation in which the
distribution was made, the distributing corporation must file with its
Federal income tax return the annual certifications for that year
described in this paragraph (c)(3)(v).
(A) Each current qualified foreign distributee must provide to the
distributing corporation an annual certification, signed under
penalties of perjury by an authorized officer of the qualified foreign
distributee that is a corporation or by the qualified foreign
distributee that is an individual (as the case may be). Each annual
certification must identify the distribution with respect to which it
is given by setting forth the date and a summary description of the
distribution. In the annual certification, the qualified foreign
distributee must declare that--
(1) The qualified foreign distributee continues to satisfy
paragraph (c)(3)(i)(C) of this section; and
(2) The qualified foreign distributee continues to own, directly or
indirectly, without interruption, the stock and securities of the
distributing and controlled corporations (except to the extent the
stock or securities have been disposed of in a transfer described in
paragraph (c)(3)(vi) of this section).
(B) The controlled corporation must provide a certification to the
distributing corporation, signed under penalties of perjury by an
authorized officer of the corporation, that lists each current
qualified foreign distributee holding (directly or indirectly) stock of
the controlled corporation and its direct or indirect ownership
interest in the controlled corporation at both the first day and the
last day of the taxable year for which the distributing corporation
files its Federal income tax return, and certifies the accuracy of that
list.
(C) The distributing corporation must attach to the annual
certifications described in paragraphs (c)(3)(v)(A) and (B) of this
section, a statement signed under penalties of perjury by an authorized
officer of the corporation, in which the corporation declares that, to
the best of its knowledge, the annual certifications are true.
(D) The distributing corporation must also attach to the annual
certifications a separate statement indicating--
(1) The names and addresses of each current and each former
qualified foreign distributee;
(2) The percentage of direct or indirect ownership that the
qualified foreign distributees retain in the distributing corporation
at year-end; and
(3) A certification that the value of the distributing corporation
(or the adjusted basis of its assets), less all of the liabilities of
the distributing corporation on all testing dates, exceeded the amount
of the gain deferred as of the testing date.
(vi) Special rule for nonrecognition transactions. (A) Gain shall
not be recognized under paragraph (c)(3)(vii) of this section if the
distributing or controlled corporation is acquired by a successor-in-
interest (described in paragraph (c)(3)(vi)(B) of this section), or
upon a direct or indirect disposition by a qualified foreign
distributee of stock or securities of a distributing or controlled
corporation (or a successor-in-interest) that is subject to a gain
recognition agreement described in paragraph (c)(3)(iii) of this
section, if the requirements of this paragraph (c)(3)(vi) are satisfied
and the disposition consists of a transfer described in section 332,
337, 351, 354, 355, 356, or 361 that does not result in a substantial
transformation (as defined in paragraph (c)(3)(vii)(B) of this
section). For special rules regarding transfers described in section
355, see paragraph (c)(3)(vi)(G) of this section.
(B) For purposes of this section, the term successor-in-interest
refers to any domestic corporation that acquires the assets of the
distributing or controlled corporation in a transaction described in
section 381(a) to which this paragraph (c)(3)(vi) applies.
(C) For purposes of this section, the term transferee distributee
refers to:
(1) Any corporation whose stock or securities are exchanged for the
stock or securities of the distributing or controlled corporation (or a
successor-in-interest), or of another transferee distributee, in a
transaction described in section 351, 354, or sections 361 and
381(a)(2), to which this paragraph (c)(3)(vi) applies.
(2) Any corporation that acquires the assets of any qualified
foreign distributee, transferee distributee or substitute distributee
in a transaction described in section 381(a).
(D) For purposes of this section, the term substitute distributee
refers to any person that acquires the stock or securities of the
distributing or controlled corporation (or a successor-in-interest), or
of a qualified foreign distributee, in a section 355 distribution.
(E) Gain shall not be recognized under paragraph (c)(3)(vii) of
this section in a transaction involving a transfer of the assets of the
distributing or controlled corporation to a successor-in-interest, only
if the following information and agreements are included with the first
annual certification thereafter filed under paragraph (c)(3)(v) of this
section:
(1) A description of the transaction (including a statement of
applicable Internal Revenue Code provisions, and a description of stock
or securities transferred, exchanged, or received in the transaction).
(2) A description of the successor-in-interest (including the name,
address, taxpayer identification number, and place of incorporation of
the successor in interest).
(3) An agreement of the successor-in-interest, signed under
penalties of perjury by an authorized officer of the successor-in-
interest corporation, to succeed to all of the responsibilities and
duties of the distributing corporation or the controlled corporation
(as the case may be) under this paragraph (c)(3) as if the successor-
in-interest were the distributing or controlled corporation.
(F) Gain shall not be recognized under paragraph (c)(3)(vii) of
this section in a transaction described in paragraph (c)(3)(vi)(A) of
this section in which a qualified foreign distributee, directly or
indirectly, disposes of, and a transferee distributee acquires, stock
or securities of the distributing or controlled corporation (or a
successor-in-interest), or another transferee distributee, only if the
transferee distributee is either a qualified U.S. person or qualifies
as a qualified foreign distributee under this paragraph (c)(3) and the
following information and agreements are included with the first annual
certification thereafter filed under paragraph (c)(3)(v) of this
section:
(1) A description of the transaction (including a statement of
applicable Internal Revenue Code provisions, and a description of the
stock or securities of the distributing or controlled corporation (or a
successor-in-interest) owned, directly or indirectly, by qualified
foreign distributees immediately after the transaction).
(2) An agreement of the distributing corporation and the controlled
corporation (amending the agreement described in paragraph (c)(3)(iii)
of this section), signed under penalties of perjury by an authorized
officer of the corporation, to recognize gain (in the
[[Page 42174]]
case of the distributing corporation) and to be secondarily liable (in
the case of the controlled corporation) in accordance with the
provisions of this paragraph (c)(3) upon the occurrence of a
disposition, directly or indirectly, by the foreign transferee
distributee of any stock or securities of the distributing or
controlled corporation (or a successor-in-interest) (other than a
disposition that itself satisfies the requirements of this paragraph
(c)(3)(vi)).
(3) An agreement of each foreign transferee distributee, signed
under penalties of perjury by the individual or an authorized officer
of the corporation, to comply with all of the responsibilities,
qualifications and duties of a qualified foreign distributee under this
paragraph (c)(3), with respect to the stock or securities of the
distributing or controlled corporation (or a successor-in-interest)
owned, directly or indirectly, by the transferee distributee.
(G) Gain shall not be recognized under paragraph (c)(3)(vii) of
this section in the case of a section 355 distribution by a qualified
foreign distributee of stock or securities of the distributing or
controlled corporation (or a successor-in-interest), or of another
qualified foreign distributee. The qualified foreign distributee that
distributed the stock or securities is no longer required to comply
with the rules of this section applicable to qualified foreign
distributees, provided such person no longer has any interest, directly
or indirectly, in the distributing and controlled corporation. Thus,
for example, such person is not counted as a qualified foreign
distributee for purposes of limiting gain recognition to 10 or fewer
foreign distributees. In order for this provision to apply, the
substitute distributee must either be a qualified U.S. person or
satisfy the requirements applicable to qualified foreign distributees
contained in this paragraph (c)(3) and must include with the first
annual certification thereafter filed under paragraph (c)(3)(v) of this
section the following information and agreements:
(1) A description of the transaction (including a statement of
applicable Internal Revenue Code sections, and a description of the
stock or securities distributed in the transaction).
(2) An agreement of the distributing corporation and the controlled
corporation (amending the agreement described in paragraph (c)(3)(iii)
of this section), signed under penalties of perjury by an authorized
officer of the corporation, to recognize gain (in the case of the
distributing corporation) and to be secondarily liable (in the case of
the controlled corporation) in accordance with the provisions of this
paragraph (c)(3) upon the occurrence of a disposition, directly or
indirectly, by a foreign substitute distributee of any stock or
securities received by the substitute distributee in the transaction.
(3) An agreement of each foreign substitute distributee, signed
under penalties of perjury by the individual or authorized officer of
the corporation, to succeed to all of the responsibilities,
qualifications and duties of a qualified foreign distributee under this
paragraph (c)(3), with respect to the stock or securities of the
distributing or controlled corporation (or a successor-in-interest)
received by such substitute distributee.
(vii) Recognition of gain. (A) (1) The distributing corporation
must file, within 90 days of a transaction described in this paragraph
(c)(3)(vii)(A), an amended return for the year of the distribution and
recognize gain realized but not recognized upon such distribution, if,
prior to the close of the 120-month period following the end of the
taxable year of the distributing corporation in which the distribution
was made, either--
(i) A qualified foreign distributee sells (or otherwise disposes
of) the stock or securities of the distributing or controlled
corporation that the qualified foreign distributee owned (directly or
indirectly) (other than pursuant to a transfer described in paragraph
(c)(3)(vi) of this section); or
(ii) Any other transaction (e.g., a public offering or
reorganization) results in a substantial transformation (as defined in
paragraph (c)(3)(vii)(B) of this section) in either the distributing or
controlled corporation (or both).
(2) For purposes of this paragraph (c)(3)(vii)(A), a disposition
includes, but is not limited to, any disposition treated as a sale or
exchange under this subtitle (e.g., section 301(c)(3)(A), 302(a),
351(b) or 356(a)(1)). For the computation of gain in the case of a sale
(or similar disposition), see paragraph (c)(3)(vii)(C) of this section.
For the computation of gain in the case of other transactions, see
paragraphs (c)(3)(vii) (D) and (F) of this section. For special rules
regarding substitute distributees, see paragraph (c)(3)(vii)(E) of this
section.
(B) A transaction is treated as a substantial transformation if, as
a result of such transaction, the qualified foreign distributees,
transferee distributees and substitute distributees own, in the
aggregate, less than 50 percent of either the total voting power or the
total value of the stock of the distributing or the controlled
corporation, directly or indirectly, that the qualified foreign
distributees owned immediately after the distribution.
(C) In the case of a sale (or similar disposition), directly or
indirectly, by a qualified foreign distributee of the stock or
securities of the distributing or controlled corporation (or a
successor-in-interest) that does not result in a substantial
transformation, the distributing corporation shall be required to
recognize a proportionate amount of the gain realized but not
recognized under this paragraph (c)(3), equal to the percentage of
stock of the distributing or controlled corporation, as the case may
be, sold (or otherwise disposed of), directly or indirectly, by the
qualified foreign distributee. However, if the sale (or other
disposition) of stock or securities by a qualified foreign distributee
results in a substantial transformation, the distributing corporation
(or its successor-in-interest) must recognize the entire deferred gain
that has not already been recognized under paragraph (c)(3)(vii) of
this section.
(D) In the case of a nonrecognition transaction that results in a
substantial transformation, the distributing corporation must recognize
the entire deferred gain that has not already been recognized under
paragraph (c)(3)(vii) of this section. If a nonrecognition transaction
does not result in a substantial transformation, the distributing
corporation does not recognize any gain provided that the requirements
of paragraph (c)(3)(vi) of this section are satisfied.
(E) A sale (or other disposition), directly or indirectly, by a
substitute distributee, of all or a portion of the stock or securities
of the distributing or controlled corporation (or a successor-in-
interest) that the substitute distributee received in the section 355
distribution shall be treated as a disposition of such stock or
securities by a qualified foreign distributee (in accordance with
paragraph (c)(3)(vii)(C) of this section) for purposes of computing
gain under this paragraph (c)(3)(vii).
(F) Other transactions or events shall trigger gain under this
paragraph (c)(3)(vii) as follows:
(1) If a qualified foreign distributee ceases to satisfy the
requirements for a qualified foreign distributee contained in paragraph
(c)(3)(i)(C) of this section (or any other specified requirements in
paragraph (c)(3) of this section), the qualified foreign distributee
shall be treated as if it sold all of the stock and securities that it
owned, directly or indirectly, in the distributing and controlled
corporation (or a successor-
[[Page 42175]]
in-interest), on the date that such person ceased to meet the
requirements.
(2) If a substitute distributee ceases to satisfy the requirements
for a qualified foreign distributee contained in paragraph (c)(3)(i)(C)
of this section (or any other specified requirements in paragraph
(c)(3) of this section), the substitute distributee shall be treated as
if it sold all of the stock and securities of the distributing or
controlled corporation (or a successor-in-interest) that it received in
the distribution, on the date that it ceased to meet the requirements.
(3) If the distributing corporation (or a successor-in-interest)
fails to satisfy the requirement contained in paragraph (c)(3)(ii)(B)
of this section on any testing date during which the agreement to
recognize gain is in effect, such failure will be treated as if a
substantial transformation has occurred on such date.
(4) If either the distributing or controlled corporation (or a
successor-in-interest) is acquired in a section 381(a) exchange and the
acquirer is not a successor-in-interest that satisfies the requirements
of paragraph (c)(3)(vi)(E), such acquisition will be treated as if a
substantial transformation has occurred on the date of the acquisition.
(G) A qualified foreign distributee that sells (or otherwise
disposes of) all of its interest, directly or indirectly, in the
distributing and controlled corporation ceases thereafter to be a
qualified foreign distributee. In addition, where one qualified foreign
distributee owns all of the stock of another qualified foreign
distributee, and both persons have identical direct or indirect
interests in the distributing or controlled corporation, the direct or
indirect sale (or other disposition) by one qualified foreign
distributee of all of its interest in the distributing or controlled
corporation (under paragraph (c)(3)(vii) of this section) will
terminate the qualified foreign distributee status for the second
qualified foreign distributee. The principles of this paragraph
(c)(3)(vii) shall generally be applied so that any gain relating to the
same stock of the distributing or controlled corporation by more than
one person is not taxed more than once under this paragraph
(c)(3)(vii). In any event, gain recognized pursuant to this paragraph
(c)(3)(vii), on a cumulative basis, shall not exceed the amount of gain
that the distributing corporation would have recognized under section
367(e)(1) if its initial distribution of the stock or securities of the
controlled corporation was fully taxable under paragraph (b) of this
section.
(H) If additional tax is required to be paid by the distributing
corporation (or a successor-in-interest) for the year of the
distribution, interest must be paid by the distributing corporation (or
the controlled corporation if the distributing corporation fails to pay
the tax due) on that amount at the rates determined under section
6621(a)(2) with respect to the period between the date that was
prescribed for filing the distributing corporation's original i
FR Doc. 96-20663 Treatment of Section 355 Distributions by U.S. Corporations to Foreign Persons
ncome
tax return for the year of the distribution and the date on which the
additional tax for that year is paid.
(I) Net operating losses, capital losses, or credits against tax
that were available in the year of the distribution and that are unused
(whether or not they have expired since the distribution) at the time
of gain recognition described in this paragraph (c)(3)(vii) may be
applied (respectively) by the distributing corporation against any gain
recognized or tax owed by reason of this provision, but no other
adjustments shall be made with respect to any other items of income or
deduction in the year of distribution or other years.
(viii) Failure to comply. (A) Except as otherwise provided in
paragraph (c)(3)(viii)(B) of this section, if the distributing
corporation or the controlled corporation fails to comply in any
material respect with the requirements of this paragraph (c)(3) or with
the terms of an agreement submitted pursuant hereto, or if the
distributing corporation knows or has reason to know of any failure of
another person to so comply, the distributing corporation shall treat
the initial distribution of the stock or securities of the controlled
corporation as a taxable exchange in the year of the distribution. In
such event, the period for assessment of tax shall be extended until
three years after the date on which the Internal Revenue Service
receives actual notice of such failure to comply.
(B) If a person fails to comply in any material respect with the
requirements of this paragraph or with the terms of an agreement
submitted pursuant thereto, the provisions of paragraph (c)(3)(viii)(A)
of this section shall not apply if the person is able to show that such
failure was due to reasonable cause and not willful neglect, provided
that the person achieves compliance as soon as the person becomes aware
of the failure. Whether a failure to materially comply was due to
reasonable cause shall be determined by the district director under all
the facts and circumstances.
(d) Other consequences--(1) Exchange under section 897(e)(1). With
respect to the treatment under section 897(e)(1) of a foreign
distributee on the receipt of stock or securities of a domestic or
foreign corporation where the foreign distributee's interest in the
distributing domestic corporation is a United States real property
interest, see section 897(e)(1) and the regulations thereunder.
(2) Dividend treatment under section 1248. With respect to the
treatment as a dividend of a portion of the gain recognized by the
domestic corporation on the distribution of the stock of certain
foreign corporations, see sections 1248(a) and (f) and the regulations
thereunder.
(3) Distribution of stock of a passive foreign investment company.
[Reserved]
(4) Reporting under section 6038B. Notice shall be required under
section 6038B with respect to a distribution described in this section.
See Sec. 1.6038B-1T(e).
(e) Examples. The rules of paragraphs (b), (c), and (d) of this
section are illustrated by the examples below. In all examples, assume
that all foreign companies are treated as corporations for Federal
income tax purposes and are not treated as fiscally transparent under
the taxation laws of the relevant foreign country.
Example 1. (i) FC, a Country Z company, owns all of the
outstanding stock of DC1, a domestic corporation. DC1 owns all of
the outstanding stock of DC2, another domestic corporation. The fair
market value of the DC1 stock is 300x, and FC has a 100x basis in
the DC1 stock. The fair market value of the DC2 stock is 180x, and
DC1 has a 80x basis in the DC2 stock. Neither DC1 nor DC2 is a U.S.
real property holding corporation. Country Z does not maintain an
income tax treaty with the United States.
(ii) In a transaction qualifying for nonrecognition under
section 355, DC1 distributes all of the stock of DC2 to FC. After
the distribution, the DC1 stock has a fair market value of 120x.
(iii) Under paragraphs (b) (1) and (2) of this section, DC1
recognizes gain of 100x, which is the difference between the fair
market value (180x) and the adjusted basis (80x) of the stock
distributed. Under paragraph (d)(1) of this section and section 358,
FC takes a basis of 40x in the DC1 stock, and a basis of 60x in the
DC2 stock.
Example 2. (i) C, a citizen and resident of Country F, owns all
of the stock of DC1, a domestic corporation. DC1, in turn, owns all
of the stock of DC2, also a domestic corporation. The fair market
value of the DC1 stock is 500x, and C has a 100x basis in the DC1
stock. The DC2 stock has a fair market value of 200x, and DC1 has a
180x basis in the DC2 stock.
(ii) In a transaction qualifying for nonrecognition under
section 355, DC1 distributes to C all of the stock of DC2. DC1 and
DC2 are U.S. real property holding corporations immediately after
the distribution. After the distribution, the DC1 stock has a fair
market value of 300x.
[[Page 42176]]
(iii) Under paragraph (c)(1) of this section, provided that DC1
complies with the reporting requirements contained in paragraph
(c)(1)(ii) of this section, DC1 does not recognize gain on the
distribution of the DC2 stock because DC1 and DC2 are U.S. real
property holding corporations immediately after the distribution.
(iv) Under section 897(e) and the regulations thereunder, C is
considered to have exchanged DC1 stock with a fair market value of
200x and an adjusted basis of 40x for DC2 stock with a fair market
value of 200x. Because DC2 is a U.S. real property holding
corporation, and its stock is a U.S. real property interest, C does
not recognize any gain under section 897(e) on the distribution. C
takes a basis of 40x in the DC2 stock, and its basis in the DC1
stock is reduced to 60x pursuant to section 358.
Example 3. (i) All of the outstanding common stock of DC, a
domestic corporation that is not a U.S. real property holding
corporation, is regularly traded on an established securities market
located in the United States. None of the foreign shareholders of DC
(directly, indirectly, or constructively) owns more than five
percent of the common stock of DC. DC owns all of the stock of DS, a
domestic corporation. The stock of DS has appreciated in the hands
of DC.
(ii) In a transaction qualifying for nonrecognition under
section 355, DC distributes all of the stock of DS to the common
shareholders of DC.
(iii) Under paragraph (c)(2) of this section, DC does not
recognize gain on the distribution of the DS stock to any foreign
distributee, provided that DC complies with the reporting
requirements contained in paragraph (c)(2)(iii) of this section.
Each shareholder's basis in the DC and DS stock is determined
pursuant to section 358.
Example 4. (i) FC, a company resident in Country X, owns all of
the stock of DC1, a domestic corporation. DC1, in turn, owns all of
the stock of DC2, a domestic corporation. The fair market value of
the DC1 stock is 1,000x, and FC has a basis in the DC1 stock of
800x. The DC2 stock has a fair market value of 500x at the time of
the distribution, and DC1 has a 100x basis in the DC2 stock. Neither
DC1 nor DC2 is a U.S. real property holding corporation. Country X
maintains an income tax treaty with the United States that includes
an information exchange provision.
(ii) In a transaction qualifying for nonrecognition under
section 355, DC1 distributes to FC all of the stock of DC2.
Immediately after the distribution, the DC1 stock has a fair market
value of 500x. Thus, the value of DC1 exceeds 400x, the amount of
the deferred gain on the distribution.
(iii) Under paragraph (c)(3) of this section, DC1 will not
recognize gain on the distribution of the DC2 stock to (foreign
distributee) FC if FC is a qualified foreign distributee (as
described in paragraph (c)(3)(i)(C) of this section) and DC1 enters
into a gain recognition agreement (in which DC2 agrees to be
secondarily liable), as described in paragraph (c)(3)(iii) of this
section, and DC1, DC2 and FC otherwise comply with all of the
provisions of paragraph (c)(3) of this section. Pursuant to section
358, FC will take a 400x basis in the DC2 stock and FC's basis in
the DC1 stock will be reduced to 400x.
Example 5. (i) Assume the same facts as in Example 4. In
addition, two years after DC1's distribution of DC2 stock to FC, FC
sells 25 percent of the DC2 stock to Y, an unrelated corporation.
One year later, FC sells an additional 30 percent of its DC2 stock
to Z, another unrelated corporation.
(ii) Under paragraph (c)(3)(vii) of this section, upon FC's sale
of 25 percent of its DC2 stock, DC1 is required to file an amended
return for the year in which the DC2 stock was distributed to FC,
and recognize 100x of gain, which represents 25 percent of the gain
realized but not recognized on the distribution.
(iii) Upon FC's second sale of 30 percent of its DC1 stock, DC1
is required to file another amended return for the year of the
distribution and recognize the balance of the deferred gain, or
300x, because such sale results in a substantial transformation
(within the meaning of paragraph (c)(3)(vii)(B) of this section).
Example 6. (i) Assume the same facts as in Example 5, except
that FC did not sell an additional 30 percent of its DC2 stock.
Instead, DC2 issued additional stock in a public offering that
reduced FC's interest in DC2 to less than 50 percent.
(ii) The public offering caused a substantial transformation
because, as a result of the public offering, the interest of FC in
DC2 was reduced to less than 50 percent of the amount of stock that
FC owned in DC2 immediately after the distribution. Thus, the result
is the same as in Example 5.
Example 7. (i) Assume the same facts as in Example 4 In
addition, one year after DC1's distribution of DC2 stock to FC, FC
transfers all of the DC2 stock to FS, a company resident in Country
X, in exchange for all of the FS stock, in a transaction described
in section 351.
(ii) FS is described as a transferee distributee under paragraph
(c)(3)(vi)(C) of this section. The transfer by FC of DC2 stock to FS
is a nonrecognition transaction under paragraph (c)(3)(vi) of this
section provided all of the requirements in paragraph (c)(3)(vi)(F)
of this section are satisfied. (FS is counted, together with FC, for
purposes of limiting nonrecognition treatment to up to ten qualified
foreign distributees during the time that the gain recognition
agreement is in effect.) DC1 will not recognize gain under the gain
recognition agreement upon FC's transfer of the stock of DC2 to FS
if DC1 enters into a new agreement, agreeing to recognize gain if FS
sells DC2 stock, and the provisions of paragraph (c)(3)(vi) of this
section are satisfied. A sale by FC of FS stock would be treated as
a recognition event under paragraph (c)(3)(vii) because such sale
would constitute an indirect disposition by FC of the DC2 stock.
Example 8. (i) P1, an entity treated as a partnership for
Federal income tax purposes, owns all of the outstanding stock of
DC1, a domestic corporation. DC1 owns all of the outstanding stock
of DC2, another domestic corporation. The fair market value of the
DC1 stock is 900x and P1 has an 900x basis in the DC1 stock. The
fair market value of the DC2 stock is 600x and DC1 has a 400x basis
in the DC2 stock. Neither DC1 nor DC2 is a U.S. real property
holding corporation.
(ii) FC, a company resident in country X, and USP, a U.S.
corporation, are the sole partners of P1. Under the rules and
principles of sections 701 through 761, FC is entitled to a 60
percent, and USP is entitled to a 40 percent, distributive share of
each item of P1 income and loss. Country X maintains an income tax
treaty with the United States that includes an information exchange
provision.
(iii) In a distribution qualifying for nonrecognition under
section 355, DC1 distributes all of the stock of DC2 to P1.
Paragraph (b)(5)(i) of this section provides that stock owned by a
partnership is considered to be owned proportionately by its
partners. Under paragraph (b)(5)(ii) of this section, if USP
certifies to DC1 that it is a qualified U.S. person (and DC1 does
not know or have reason to know that the certification is false), no
Federal income tax shall be imposed with respect to the distribution
by DC1 of DC2 to P1, to the extent of USP's 40 percent interest in
P1.
(iv) Paragraph (c)(3)(i)(D) of this section provides that no
foreign distributee may be treated as a qualified foreign
distributee with respect to stock of the distributing corporation
owned through a partnership, unless the distributing corporation
receives a ruling from the Internal Revenue Service to the contrary.
Thus, DC1 may not avoid recognition of the remaining 60 percent of
the realized gain (relating to the interest of P1 owned by FC) by
entering into a gain recognition agreement pursuant to paragraph
(c)(3) of this section, unless DC1 obtains a ruling to the contrary.
Example 9. (i) DC1, a domestic corporation, owns all of the
stock of DC2, also a domestic corporation. The stock of DC1 is owned
equally by three shareholders: A, a domestic corporation, B, a U.S.
citizen, and FB, a Country Y company.
(ii) A short time before DC1 adopted a plan to distribute the
stock of DC2 to its shareholders, but after the board of directors
of DC1 began contemplating the distribution, FB formed Newco, a
domestic corporation, and contributed its DC1 stock to Newco in a
transaction qualifying for nonrecognition under section 351. A valid
business purpose existed for FB's transfer of the DC1 stock to
Newco, but this purpose would have been fulfilled irrespective of
whether FB transferred the DC1 stock to Newco before the
distribution of DC2, or after the distribution of DC2 (in which case
FB would have transferred the stock of DC1 and DC2 to Newco).
(iii) Pursuant to paragraph (b)(6) of this section, the District
Director may determine that FB formed Newco for a principal purpose
of avoiding section 367(e)(1). In such case, for Federal income tax
purposes, FB will be treated as having received the stock of DC2 in
a section 355 distribution, and then as having transferred the stock
to Newco in a section 351 transaction.
(iv) If B was not a shareholder of DC1 so that A and FB were
equal (50 percent) shareholders, FB would be treated as a foreign
distributee within the meaning of
[[Page 42177]]
paragraph (c)(3)(i)(B) of this section without the application of
paragraph (b)(6) of this section. In such case, DC1 would recognize
50 percent of the gain realized on the distribution of the DC2
stock, unless FB was a qualified foreign distributee within the
meaning of paragraph (c)(3)(i) of this section and the conditions
under paragraph (c)(3)(ii) of this section were satisfied.
Example 10. (i) DC1, a domestic corporation, owns all of the
stock of DC2, also a domestic corporation. The stock of DC1 is owned
by FP, a company resident in Country X. Country X maintains in
income tax treaty with the United States that includes an
information exchange provision. The DC2 stock has a fair market
value of 500x at the time of the distribution, and DC1 has a basis
of 100x in the DC2 stock. The stock of DC1 has a value of 500x
(excluding DC1's investment in DC2). Neither DC1 nor DC2 is a U.S.
real property holding corporation.
(ii) FP forms a holding company resident in Country X, Newco,
and transfers 50 percent of its DC1 stock to Newco in an exchange
described in section 351. Immediately after those transactions, DC1
distributes all of its DC2 stock to FP in exchange for FP's stock of
DC1 in a transaction described in section 355. Thus, after the non
pro rata distribution, FP owns all of the stock of DC2, and FP also
owns all of the stock of Newco, which, in turn, owns all of the
stock of DC1.
(iii) Newco and FP are foreign distributees (under paragraph
(c)(3)(i)(B)(1) of this section) because they owned stock of DC1
immediately prior to the distribution. Assuming that all of the
requirements of the gain recognition agreement exception under
paragraph (c)(3) of this section are satisfied (so that both FP and
Newco are qualified foreign distributees under paragraph
(c)(3)(i)(C) of this section), DC1 will not be immediately taxable
on the 400x gain realized on the distribution of the stock of DC2.
Gain will be triggered under the gain recognition agreement under
paragraph (c)(3)(vii) of this section if FP sells stock of Newco
(because such sale would be an indirect disposition by FP of the
stock of DC1), if Newco sells stock of DC1, or if FP sells stock of
DC2.
Example 11. (i) Assume the same facts as in Example 10, except
that Newco is a company resident of Country Z, and Country Z does
not maintain an income tax treaty with the United States that
includes an information exchange provision.
(ii) DC1 may still enter into a gain recognition agreement under
paragraph (c)(3) of this section. Both FP and Newco are foreign
distributees, but Newco is not a qualified foreign distributee.
Thus, DC1 must recognize 50 percent, or 200x, of the 400x deferred
gain on the distribution of DC2 stock. Such (50 percent) portion
equals the percentage of the DC1 stock owned by foreign distributees
that are not qualified foreign distributees (the 50 percent of the
stock owned by Newco). DC1 may defer 50 percent of the gain, with
respect to the portion of its stock owned by FP, a qualified foreign
distributee, provided that it meets the requirements of paragraph
(c)(3) of this section.
Example 12. (i) FC, a company resident in Country X, owns all of
the stock of DC1, a domestic corporation (and has owned DC1 for many
years). Country X maintains an income tax treaty with the United
States that includes an information exchange provision. DC1, in
turn, owns all of the stock of DC2, a domestic corporation. DC1 has
a basis of 200x in the DC2 stock, and the DC2 stock has a value of
500x. Immediately after the distribution of DC2 described below, DC1
has a value of more than 300x.
(ii) DC1 distributes all of the stock of DC2 to FC (a qualified
foreign distributee) in a transaction described under section 355,
and satisfies all of the requirements of paragraph (c)(3) of this
section to qualify for an exception to the general rule of taxation
under section 367(e)(1). Two years after the initial distribution,
FC distributes all of the stock of DC2 to its sole shareholder, FP,
a resident of Country X, in a transaction described under section
355.
(iii) Under paragraph (c)(3)(vi)(D) of this section, FP is a
substitute distributee with respect to the DC2 stock. Provided that
the requirements of paragraph (c)(3)(vi)(G) of this section are
satisfied, FP replaces FC as a qualified foreign distributee with
respect to the DC2 stock (although FC is still a qualified foreign
distributee with respect to the DC1 stock). FC is no longer required
to maintain an interest in DC2 for purposes of determining whether a
substantial transformation occurs. Thus, a sale by FP of the stock
of FC would not trigger gain under paragraph (c)(3)(vii) of this
section.
Example 13. (i) DC1, a domestic corporation, owns all of the
stock of DC2, also a domestic corporation. The stock of DC1 is owned
by two shareholders: FP and FX. FP, a company resident in Country Z,
owns 25 percent of the stock of DC1. FX, a company resident in
Country X, owns 75 percent of the stock of DC1. Country X maintains
an income tax treaty with the United States that includes an
information exchange provision; Country Z does not. The fair market
value of DC2 is 500x and DC1 has a basis of 100x in the DC2 stock.
Immediately after the distribution described below, DC1 has a value
in excess of 400x.
(ii) FP formed FS, a company resident in Country X, and
transferred its 25 percent interest in DC1 to FS in exchange for all
of the stock of FS in an exchange described in section 351. Within
two years of the exchange, DC1 distributed all of the stock of DC2
to its shareholders.
(iii) Under paragraph (c)(3) of this section, DC1 may defer a
portion of its gain realized on the distribution of DC2. DC1 must
immediately recognize 25 percent of the realized gain, or 100x,
because FP, a 25 percent (indirect) shareholder is a foreign
distributee (within the meaning of paragraph (c)(3)(i)(B) of this
section), but may not be treated as a qualified foreign distributee
(within the meaning of paragraph (c)(3)(i)(C) of this section). DC1
may defer 75 percent of its realized gain if FX is a qualified
foreign distributee and DC1 enters into a gain recognition agreement
(in which DC2 agrees to be secondarily liable), and the provisions
of paragraph (c)(3) of this section are otherwise met. DC1 need not
include FS as a qualified foreign distributee because FP and FS had
identical 25 percent ownership interests in DC1, and DC1 is taxable
with respect to such 25 percent interest. Thus, under paragraph
(c)(3)(vii)(G) of this section, a sale by FS of its DC1 or DC2 stock
will not result in an additional trigger of the gain recognition
agreement under paragraph (c)(3)(vii) of this section.
(iv) If FP was instead a resident of Country X, DC1 could defer
its entire realized gain if both FP and FS were qualified foreign
distributees. In such case, DC1 would have three qualified foreign
distributees. (DC1 is limited to ten qualified foreign distributees,
including transferee and substitute distributees during the term of
the gain recognition agreement.) If FS sold its entire interest in
either DC1 or DC2, DC1 would be required to amend its Federal income
tax return for the year of the transfer and include 100x in income.
In such case, neither FP nor FS would be considered a qualified
foreign distributee immediately after the sale (and, as a result,
FP's sale of its FS stock would not trigger additional gain under
paragraph (c)(3)(vii)(G) of this section). The result would be the
same if FP sold all of the stock of FS (as such sale is an indirect
disposition by FP of all its stock of DC1 and DC2). (In such case,
the sale by FS of its stock of DC1 or DC2 would not trigger
additional gain under paragraph (c)(3)(vii)(G) of this section.)
(f) Effective date. This section shall be effective with respect to
distributions occurring on or after September 13, 1996. However,
taxpayers may elect to apply the rules of this section with respect to
distributions occurring on or after December 31, 1995.
Par. 4. Section 1.6038B-1T is amended by revising the second
sentence of paragraph (b)(2)(i) and adding the text of paragraph (e) to
read as follows:
Sec. 1.6038B-1T Reporting of transfers described in section 367
(temporary).
* * * * *
(b) * * *
(2) * * * (i) * * * For special reporting rules applicable to
transfers described under section 367(e)(1), see paragraph (e) of this
section; no reporting is required for transfers described in section
367(e)(2). * * *
* * * * *
(e) * * * (1) In general. If a domestic corporation (distributing
corporation) makes a distribution described in section 367(e)(1), the
distributing corporation must comply with the reporting requirements
under this paragraph (e)(1). Form 926 and other requirements described
in this section need not be met by the distributing corporation in the
case of a distribution described in section 367(e)(1).
(2) Reporting requirements if transaction is taxable under section
367(e)(1). If the distribution is taxable to the distributing
corporation under
[[Page 42178]]
section 367(e)(1) and the regulations thereunder, the distributing
corporation must attach to its Federal income tax return for the
taxable year that includes the date of the transfer a statement titled
``Section 367(e)(1) Reporting--Compliance With Section 6038B'', signed
under penalties of perjury by an officer of the corporation, disclosing
the following information:
(i) A description of the transaction in which the U.S. distributing
corporation distributed stock or securities of a controlled corporation
(whether domestic or foreign) to one or more foreign distributees.
(ii) The basis and fair market value of the stock and securities
that were distributed by the distributing corporation in the
transaction.
(3) Reporting requirements if transaction qualifies for an
exception to section 367(e)(1). If the distributing corporation
qualifies for an exception under Sec. 1.367(e)-1T(c)(1), the
requirements of section 6038B are satisfied if the distributing
corporation complies with the reporting requirements contained in
Sec. 1.367(e)-1T(c)(1)(ii). If the distributing corporation qualifies
for an exception under Sec. 1.367(e)-1T(c)(2), the requirements of
section 6038B are satisfied if the distributing corporation complies
with the reporting requirements contained in Sec. 1.367(e)-
1T(c)(2)(iii). If the distributing corporation qualifies for an
exception under Sec. 1.367(e)-1T(c)(3), the requirements of section
6038B are satisfied if the distributing corporation complies with the
reporting requirements contained in Sec. 1.367(e)-1T(c)(3).
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 5. The authority for citation for part 602 continues to read
as follows:
Authority: 26 U.S.C. 7805.
Par. 6. In Sec. 602.101, paragraph (c) is amended by removing the
entry for ``1.367(e)-1'' and adding an entry in numerical order to read
as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control
No.
------------------------------------------------------------------------
* * * * *
1.367(e)-1T................................................ 1545-1487
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved:
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-20663 Filed 8-09-96; 12:19 pm]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-20647 Regulations Governing Fees for Services Performed in Connection With Licensing and Related Services1996 Update
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42190-42194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20647]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
49 CFR Part 1002
[STB Ex Parte No. 542]
Regulations Governing Fees for Services Performed in Connection
With Licensing and Related Services--1996 Update
AGENCY: Surface Transportation Board.
ACTION: Final rules.
-----------------------------------------------------------------------
SUMMARY: In compliance with its fee update regulations, the Surface
Transportation Board (Board) adopts its 1996 User Fee Update and
revises its fee schedule at this time to recover the costs associated
with providing services to the public.
EFFECTIVE DATE: September 16, 1996.
FOR FURTHER INFORMATION CONTACT: Kathleen M. King, (202) 927-5249 or
David T. Groves, (202) 927-6395. [TDD for the hearing impaired: (202)
927-5721.]
SUPPLEMENTARY INFORMATION: The Board's regulations in 49 CFR 1002.3
require the Board to update its user fee schedule annually. By notice
of proposed rulemaking published on April 5, 1996, at 61 FR 15208, the
Board requested comments on its 1996 proposed fee schedule. Upon
reviewing the comments, the Board is adopting the proposed fee schedule
with the following modifications: (1) Fee Item (27)--Trails use
requests is established at $150; (2) Fee Item (47)--National Railroad
Passenger Corporation conveyance proceeding is established at $150; (3)
Fee Item (48)--National Railroad Passenger Corporation compensation
proceeding is established at $150; (4) Fee Item (56)(i)--Formal
complaints filed under the coal rate guidelines is tentatively set at
$23,300, Fee Item (56)(ii)--All other formal complaints is tentatively
set at $2,300; 1 (5) Fee Item (58)(i)--A petition for declaratory
order involving an existing rate or practice remains at $1,000, and Fee
Item (58)(ii)--All other petitions for declaratory order remains at
$1,400; (6) Fee Item (61)--Appeals to Board decisions and petitions to
revoke an exemption is established at $150; and (7) Fee Item (62)--
Motor carrier undercharge proceeding is established at $150. In
addition, Fee Item (12)--Petition
---------------------------------------------------------------------------
\1\ Fee items 56(i) and 56(ii) are currently the subject of
legislative debate. Therefore, these items are being set
tentatively, but will not take effect at this time. The Board will
issue a further decision addressing these items after the
legislative debate is concluded. In the meantime, they will remain
at $1,000 each in the Board's fee schedule.
---------------------------------------------------------------------------
[[Page 42191]]
for exemption involving construction of a rail line is modified so that
the $41,700 fee also applies to construction applications.
We note that in Class Exemption For Acquisition or Operation of
Rail Lines By Class III Rail Carriers Under 49 U.S.C. 10902, STB Ex
Parte No. 529, published in the Federal Register on June 24, 1996 at 61
FR 32355, the Board adopted Fee Item 36, Notice of exemption under 49
CFR 1150.41-1150.45, with a fee of $950. To be consistent with the
revisions that are being made to the fee schedule in this proceeding,
that fee item will be renumbered as Fee Item 14(ii) and the fee item
[proposed Fee Item 14(ii)] for petition for exemption under 49 U.S.C.
10502 relating to an exemption from the provisions of 49 U.S.C. 10902
will be renumbered as Fee Item 14(iii).
The Board also adopts the proposed modifications to update these
regulations to reflect the recent enactment of the ICC Termination Act
of 1995, Pub. L. No. 104-88, 109 Stat. 803.
The Board certifies that the fee changes adopted here will not have
a significant economic impact on a substantial number of small entities
because the modifications made in these rules and the Board's
regulations in 49 CFR 1002.2(e) provide for waiver of filing fees for
those entities which can make the required showing of financial
hardship.
Additional information is contained in the Board's decision. To
obtain a copy of the full decision, write, call, or pick up in person
from DC News & Data, Inc., Room 2229, 1201 Constitution Ave. NW.,
Washington, DC 20423. Telephone: (202) 289-4357/4359. [Assistance for
the hearing impaired is available through TDD services (202) 927-5721.]
List of Subjects in 49 CFR Part 1002
Administrative practice and procedure, Common carriers, Freedom of
information, User fees.
Decided: August 2, 1996.
By the Board, Chairman Morgan, Vice Chairman Simmons, and
Commissioner Owen.
Vernon A. Williams,
Secretary.
For the reasons set forth in the preamble, title 49, chapter X,
part 1002, of the Code of Federal Regulations is amended as follows:
PART 1002--FEES
1. The authority citation for part 1002 continues to read as
follows:
Authority: 5 U.S.C. 552(a)(4)(A) and 553; 31 U.S.C. 9701 and 49
U.S.C. 721(a).
Sec. 1002.1 [Amended]
2. Section 1002.1 is amended as follows:
a. In the introductory paragraph remove the words ``Interstate
Commerce Commission'' and add in their place the words ``Surface
Transportation Board''.
b. In paragraph (e)(2) remove the word ``Commission's'' and add in
its place the word ``Board's''; remove the words ``Section of Systems
Development, Interstate Commerce Commission,'' and add in their place
the words ``System Services Branch, Surface Transportation Board,''.
c. In paragraph (f)(11) remove the word ``Commission's'' and add in
its place the word ``Board's''.
d. In the concluding text of paragraph (f)(14) remove the phrase
``ICC's Freedom of Information Office, 12th and Constitution Avenue
N.W. Room 3132, Washington, DC 20423.'' and add in their place the
words ``Surface Transportation Board's Freedom of Information Office,
Washington, DC 20423.''.
e. In paragraph (g) remove the words ``Interstate Commerce
Commission,'' and in their place add the words ``Surface Transportation
Board,''.
f. In paragraph (h) remove the word ``Commission's'' and in its
place add the word ``Board's''; remove the words ``Interstate Commerce
Commission,'' and in their place add the words ``Surface Transportation
Board,''
g. Paragraphs (b), (e)(1) and the chart in paragraph (f)(6) are
revised to read as follow:
Sec. 1002.1 Fees for records search, review, copying, certification,
and related services.
* * * * *
(b) Service involved in examination of tariffs or schedules for
preparation of certified copies of tariffs or schedules or extracts
therefrom at the rate of $24.00 per hour.
* * * * *
(e) * * *
(1) A fee of $42.00 per hour for professional staff time will be
charged when it is required to fulfill a request for ADP data.
* * * * *
(f) * * *
(6) * * *
------------------------------------------------------------------------
Grade Rate
------------------------------------------------------------------------
GS-1.......................................................... $7.13
GS-2.......................................................... 7.76
GS-3.......................................................... 8.75
GS-4.......................................................... 9.82
GS-5.......................................................... 10.99
GS-6.......................................................... 12.25
GS-7.......................................................... 13.61
GS-8.......................................................... 15.07
GS-9.......................................................... $16.65
GS-10......................................................... 18.33
GS-11......................................................... 20.14
GS-12......................................................... 24.14
GS-13......................................................... 28.71
GS-14......................................................... 33.93
GS-15 and over................................................ 39.91
------------------------------------------------------------------------
* * * * *
Sec. 1002.2 [Amended]
3. Section 1002.2 is amended as follows:
a. In paragraph (a)(2) introductory text remove the word
``Commission's'' and add in its place the word ``Board's''.
b. In paragraph (a)(2)(ii) after the words ``Debt Collection Act''
add the words ``of 1982'', remove the word ``Commission's'' and add in
its place the word ``Board's''.
c. In paragraph (a)(2)(iii) remove the words ``room 1330,
Interstate Commerce Commission, Washington, DC 20423:'' and add in
their place the words ``Surface Transportation Board, Washington,
DC:''.
d. In paragraph (a)(3) remove the words ``Interstate Commerce
Commission'' and add in their place the words ``Surface Transportation
Board''.
e. In paragraphs (b), (c), and (d)(4) remove the word
``Commission'' wherever it appears and add in its place the word
``Board''.
f. In paragraph (e), the heading, remove the first ``of'' and add
in its place the word ``or''. Also, in the introductory text,
paragraphs (e)(2), (e)(2)(i), and in the heading of paragraph
(e)(2)(iii) remove the word ``Commission'' and add in its place the
word ``Board''.
g. In paragraphs (g)(1), (g)(1)(ii), (g)(1)(iii) and (g)(2) remove
the word ``Commission'' wherever it appears and add in its place the
word ``Board''.
h. In Sec. 1002.2, paragraphs (a)(1), (d), and (f) are revised to
read as follows:
Sec. 1002.2 Filing fees.
(a) Manner of payment. (1) Except as specified in this section, all
filing fees will be payable at the time and place the application,
petition, notice, tariff, contract summary, or other document is
tendered for filing. The filing fee for tariffs, including schedules,
and contracts summaries including supplements (Item 78) may be charged
to tariff filing fee accounts established by the Board in accordance
with paragraph (a)(2) of this section.
* * * * *
(d) Related or consolidated proceedings. (1) Separate fees need not
be paid for related applications filed by the same applicant which
would be the subject of one proceeding.
[[Page 42192]]
(2) A separate fee will be assessed for the filing of an
application for temporary authority to operate a motor carrier of
passengers as provided for in paragraph (f)(5) of this section
regardless of whether such application is related to a corresponding
transfer proceeding as provided for in paragraph (f)(2) of this
section.
(3) The Board may reject concurrently filed applications,
petitions, notices, contracts, or other documents asserted to be
related and refund the filing fee if, in its judgment, they embrace two
or more severable matters which should be the subject of separate
proceedings.
* * * * *
(f) Schedule of filing fees.
------------------------------------------------------------------------
Type of proceeding Fee
------------------------------------------------------------------------
Part I: Non-Rail Applications or
Proceedings to Enter Upon a Particular
Financial Transaction or Joint
Arrangement:
(1) An application for the pooling or $2,400.
division of traffic.
(2) An application involving the $1,100.
purchase, lease, consolidation,
merger, or acquisition of control of a
motor carrier of passengers under 49
U.S.C. 14303.
(3) An application for approval of a $15,400.
non-rail rate association agreement.
49 U.S.C. 13706.
(4) An application for approval of an
amendment to a non-rail rate
association agreement:
(i) Significant amendment.......... $2,500.
(ii) Minor amendment............... $50.
(5) An application for temporary $250.
authority to operate a motor carrier
of passengers. 49 U.S.C. 14303(i).
(6)-(10) [Reserved]
Part II: Rail Licensing Proceedings other
than Abandonment or Discontinuance
Proceedings:
(11) (i) An application for a $4,000.
certificate authorizing the extension,
acquisition, or operation of lines of
railroad. 49 U.S.C. 10901.
(ii) Notice of exemption under 49 $1,000.
CFR 1150.31-1150.35.
(iii) Petition for exemption under $7,000.
49 U.S.C. 10502 (except petitions
involving construction of a rail
line).
(12) An application or a petition for $41,700.
exemption under 49 U.S.C. 10502
involving the construction of a rail
line.
(13) A Feeder Line Development Program $2,600.
application filed under 49 U.S.C.
10907(b)(1)(A)(i) or
10907(b)(1)(A)(ii).
(14) (i) An application of a class II $3,400
or class III carrier to acquire an
extended or additional rail line under
49 U.S.C. 10902..
(ii) Notice of exemption under 49 $950.
CFR 1150.41-1150.45.
(iii) Petition for exemption under $3,700.
49 U.S.C. 10502 relating to an
exemption from the provisions of
49 U.S.C. 10902.
(15) A notice of a modified certificate $950.
of public convenience and necessity
under 49 CFR 1150.21-1150.24.
(16)-(20) [Reserved]
Part III: Rail Abandonment or
Discontinuance of Transportation Services
Proceedings:
(21) (i) An application for authority $12,400.
to abandon all or a portion of a line
of railroad or discontinue operation
thereof filed by a railroad (except
applications filed by Consolidated
Rail Corporation pursuant to the
Northeast Rail Service Act [Subtitle E
of Title XI of Pub. L. 97-35],
bankrupt railroads, or exempt
abandonments).
(ii) Notice of an exempt $2,000.
abandonment or discontinuance
under 49 CFR 1152.50.
(iii) A petition for exemption $3,500.
under 49 U.S.C. 10502.
(22) An application for authority to $250.
abandon all or a portion of a line of
a railroad or operation thereof filed
by Consolidated Rail Corporation
pursuant to Northeast Rail Service Act.
(23) Abandonments filed by bankrupt $1,000.
railroads.
(24) A request for waiver of filing $1,000.
requirements for abandonment
application proceedings.
(25) An offer of financial assistance $900.
under 49 U.S.C. 10904 relating to the
purchase of or subsidy for a rail line
proposed for abandonment.
(26) A request to set terms and $12,700.
conditions for the sale of or subsidy
for a rail line proposed to be
abandoned.
(27) A request for a trail use $150.
condition in an abandonment proceeding
under 16 U.S.C. 1247(d).
(28)-(35) [Reserved]
Part IV: Rail Applications to Enter Upon a
Particular Financial Transaction or Joint
Arrangement:
(36) An application for use of terminal $10,600.
facilities or other applications under
49 U.S.C. 11102.
(37) An application for the pooling or $5,700.
division of traffic. 49 U.S.C. 11322.
(38) An application for two or more
carriers to consolidate or merge their
properties or franchises (or a part
thereof) into one corporation for
ownership, management, and operation
of the properties previously in
separate ownership. 49 U.S.C. 11324:
(i) Major transaction.............. $830,500.
(ii) Significant transaction....... $166,100.
(iii) Minor transaction............ $3,400.
(iv) Notice of an exempt $950.
transaction under 49 CFR 1180.2(d).
(v) Responsive application......... $3,400.
(vi) Petition for exemption under $5,200.
49 U.S.C. 10502.
(39) An application of a non-carrier to
acquire control of two or more
carriers through ownership of stock or
otherwise. 49 U.S.C. 11324:
(i) Major transaction.............. $830,500.
(ii) Significant transaction....... $166,100.
(iii) Minor transaction............ $3,400.
(iv) A notice of an exempt $750.
transaction under 49 CFR 1180.2(d).
(v) Responsive application......... $3,400.
(vi) Petition for exemption under $5,200.
49 U.S.C. 10502.
(40) An application to acquire trackage
rights over, joint ownership in, or
joint use of any railroad lines owned
and operated by any other carrier and
terminals incidental thereto. 49
U.S.C. 11324:
(i) Major transaction.............. $830,500.
(ii) Significant transaction....... $166,100.
(iii) Minor transaction............ $3,400.
(iv) Notice of an exempt $650.
transaction under 49 CFR 1180.2(d).
(v) Responsive application......... $3,400.
[[Page 42193]]
(vi) Petition for exemption under $5,200.
49 U.S.C. 10502.
(41) An application of a carrier or
carriers to purchase, lease, or
contract to operate the properties of
another, or to acquire control of
another by purchase of stock or
otherwise. 49 U.S.C. 11324:
(i) Major transaction.............. $830,500.
(ii) Significant transaction....... $166,100.
(iii) Minor transaction............ $3,400.
(iv) Notice of an exempt $800.
transaction under 49 CFR 1180.2(d).
(v) Responsive application......... $3,400.
(vi) Petition for exemption under $3,700.
49 U.S.C. 10502.
(42) Notice of a joint project $1,300.
involving relocation of a rail line
under 49 CFR 1180.2(d)(5).
(43) An application for approval of a $39,000.
rail rate association agreement. 49
U.S.C. 10706.
(44) An application for approval of an
amendment to a rail rate association
agreement. 49 U.S.C. 10706:
(i) Significant amendment.......... $7,200.
(ii) Minor amendment............... $50
(45) An application for authority to $400.
hold a position as officer or director
under 49 U.S.C. 11328.
(46) A petition for exemption under 49 $4,400.
U.S.C. 10502 (other than a rulemaking)
filed by rail carrier not otherwise
covered.
(47) National Railroad Passenger $150.
Corporation (Amtrak) conveyance
proceeding under 45 U.S.C. 562.
(48) National Railroad Passenger $150.
Corporation (Amtrak) compensation
proceeding under Section 402(a) of the
Rail PassengerService Act.
(49)-(55) [Reserved]
Part V: Formal Proceedings:
(56) A formal complaint alleging
unlawful rates or practices of rail
carriers, motor carriers of passengers
or motor carriers of household goods:
(i) A formal complaint filed under $1,000.
the coal rate guidelines (Stand-
Alone Cost Methodology) alleging
unlawful rates and/or practices of
rail carriers under 49 U.S.C.
10704(c)(1).
(ii) All other formal complaints... $1,000.
(57) A complaint seeking or a petition $4,900.
requesting institution of an
investigation seeking the prescription
or division of joint rates, or
charges. 49 U.S.C. 10705.
(58) A petition for declaratory order:
(i) A petition for declaratory $1,000.
order involving a dispute over an
existing rate or practice which is
comparable to a complaint
proceeding.
(ii) All other petitions for $1,400.
declaratory order.
(59) An application for shipper $3,900.
antitrust immunity. 49 U.S.C.
10706(a)(5)(A).
(60) Labor arbitration proceedings..... $7,600.
(61) Appeals to a Surface $150.
Transportation Board decision and
petitions to revoke an exemption
pursuant to 49 U.S.C. 10502(d).
(62) Motor carrier undercharge $150.
proceedings.
(63)-(75) [Reserved]
Part VI: Informal Proceedings:
(76) An application for authority to $650.
establish released value rates or
ratings for motor carriers and freight
forwarders of household goods under 49
U.S.C. 14706.
(77) An application for special $70.
permission for short notice or the
waiver of other tariff publishing
requirements.
(78) (i) The filing of tariffs, $1 per page. ($13 minimum
including supplements, or contract charge).
summaries.
(ii) Tariffs transmitted by fax.... $1 per page.
(79) Special docket applications from
rail and water carriers:
(i) Applications involving $25,000 $40.
or less.
(ii) Applications involving over $80.
$25,000.
(80) Informal complaint about rail rate $300.
applications.
(81) Tariff reconciliation petitions
from motor common carriers:
(i) Petitions involving $25,000 or $40.
less.
(ii) Petitions involving over $80.
$25,000.
(82) Request for a determination of the $100.
applicability or reasonableness of
motor carrier rates under 49 U.S.C.
13710(a) (2) and (3).
(83) Filing of documents for $22 per document.
recordation. 49 U.S.C. 11301 and 49
CFR 1177.3(c).
(84) Informal opinions about rate $100.
applications (all modes).
(85) A railroad accounting $600.
interpretation.
(86) An operational interpretation..... $800.
(87)-(95) [Reserved]
Part VII: Services:
(96) Messenger delivery of decision to $17 per delivery.
a railroad carrier's Washington, DC,
agent.
(97) Request for service or pleading $13 per list.
list for proceedings.
(98) (i) Processing the paperwork $150.
related to a request for the Carload
Waybill Sample to be used in a Surface
Transportation Board or State
proceeding that does not require a
Federal Register notice.
(ii) Processing the paperwork $350.
related to a request for Carload
Waybill Sample to be used for
reasons other than a Surface
Transportation Board or State
proceeding that requires a Federal
Register notice.
(99) (i) Application fee for the $100
Surface Transportation Board's
Practitioners' Exam.
(ii) Practitioners' Exam $25.
Information Package.
(100) Uniform Railroad Costing System
(URCS) software and information:
(i) Initial PC version URCS Phase $50.
III software program and manual.
(ii) Updated URCS PC version Phase $10.
III cost file, if computer disk
provided by requestor.
(iii) Updated URCS PC version Phase $20.
III cost file, if computer disk
provided by the Board.
(iv) Public requests for Source $500.
Codes to the PC version URCS Phase
III.
[[Page 42194]]
(v) PC version or mainframe version $400.
URCS Phase II.
(vi) PC version or mainframe $50.
version Updated Phase II databases.
(vii) Public requests for Source $1,500.
Codes to PC version URCS Phase II.
(101) Carload Waybill Sample data on
recordable compact disk (R-CD):
(i) Requests for Public Use File on $450.
R-CD--First Year.
(ii) Requests for Public Use File $150.
on R-CD Each Additional Year.
(iii) Waybill--Surface $650.
Transportation Board or State
proceedings on R-CD--First Year.
(iv) Waybill--Surface $450.
Transportation Board or State
proceedings on R-CD--Second Year
on same R-CD.
(v) Waybill--Surface Transportation $500.
Board of State proceeding on R-CD--
Second Year on different R-CD.
(vi) User Guide for latest $50.
available Carload Waybill Sample.
------------------------------------------------------------------------
Sec. 1002.3 [Amended]
4. Section Sec. 1002.3 is amended as follows:
a. In paragraph (a) remove the word ``Commission'' and add in its
place the word ``Board''.
b. In paragraph (d)(1) remove the word ``Commission'' and add in
its place the word ``Board''; remove the phrase ``the Commission's FY
1983-1984 User Fee Cost Study.'' and add in its place the phrase ``the
cost study set forth in Revision of Fees For Services, 1 I.C.C.2d 60
(1984) or subsequent cost studies.''.
c. In paragraph (d)(3)(i) remove the words ``and Bureaus''
following the words ``the Offices''.
d. In paragraph (d)(3)(ii) remove the word ``Commission'' wherever
it appears and add in its place the word ``Board''.
e. In paragraph (d)(4) add a period after the words ``Federal
Register'' and remove the remainder of the sentence.
[FR Doc. 96-20647 Filed 8-13-96; 8:45 am]
BILLING CODE 4915-00-P
Complete official Federal Register PDF
FR Doc. 96-20646 Radio Broadcasting Services; Farmington, Grass Valley, Jackson, Linden, Placerville, and Fair Oaks, CA, Carson City and Sun Valley, NV
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Page 42190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20646]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket 90-189; RM-6904, RM-7114, RM-7186, RM-7415, RM-7298]
Radio Broadcasting Services; Farmington, Grass Valley, Jackson,
Linden, Placerville, and Fair Oaks, CA, Carson City and Sun Valley, NV
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document reallots Channel 234C from Carson City, Nevada,
to Fair Oaks, California, as Channel 234B1. In doing so, it also
modifies the license of Station KIZS, Channel 234C, Carson City, to
specify operation on Channel 234B1 at Fair Oaks. This action also makes
possible the allotment of Channel 233C2 to Sun Valley, Nevada. The
reference coordinates for Channel 234B1 at Fair Oaks, California, are
38-40-22 and 121-19-47. The reference coordinates for Channel 233C2 at
Sun Valley, Nevada, are 39-40-3 and 119-30-21.
EFFECTIVE DATE: August 29, 1996.
FOR FURTHER INFORMATION CONTACT: Robert Hayne, Mass Media Bureau, (202)
418-2177.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Second Report and Order in MM Docket No.90-189, adopted July 5, 1996,
and released July 12, 1996. The full text of this Commission decision
is available for inspection and copying during normal business hours in
the FCC Reference Center (Room 239), 1919 M street, NW., Washington,
DC. The complete text of this decision may also be purchased from the
Commission's copy contractor, International Transcription Service,
Inc., (202) 857-3800, 1919 M Street, NW., Room 246, or 2100 M Street,
NW., Washington, DC 20037.
List of Subjects in 47 CFR Part 73
Radio broadcasting.
Part 73 of title 47 of the Code of Federal Regulations is amended
as follows:
PART 73--[AMENDED]
1. The authority citation for part 73 continues to read as follows:
Authority: Secs. 303, 48 Stat., as amended, 1082; 47 U.S.C. 154,
as amended.
Sec. 73.202 [Amended]
2. Section 73.202(b), the Table of FM Allotments under Nevada, is
amended by removing Carson City, Channel 234C.
3. Section 73.202(b), the Table of FM Allotments under Nevada, is
amended by adding Sun Valley, Channel 233C2.
4. Section 73.202(b), the FM Table of Allotments under California,
is amended by adding Fair Oaks, Channel 234B1.
Federal Communications Commission.
John A Karousos,
Chief, Allocations Branch, Policy and Rules Division, Mass Media
Bureau.
[FR Doc. 96-20646 Filed 8-13-96; 8:45 am]
BILLING CODE 6712-01-F
Complete official Federal Register PDF
FR Doc. 96-20625 Time for Performance of Acts Where Last Day Falls on Saturday, Sunday, or Legal Holiday
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42178-42179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20625]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Part 301
[TD 8681]
RIN 1545-AT22
Time for Performance of Acts Where Last Day Falls on Saturday,
Sunday, or Legal Holiday
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations relating to the time
for performance of acts by taxpayers and by the Commissioner, a
district director, or the director of a regional service center, when
the last day for performance falls on a Saturday, Sunday, or legal
holiday. In particular, these regulations replace the list of legal
holidays with a citation to the District of Columbia law that is the
source of the list.
EFFECTIVE DATE: These regulations are effective August 14, 1996.
FOR FURTHER INFORMATION CONTACT: Judith A. Lintz (202) 622-6232 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On September 25, 1995, the IRS published in the Federal Register
(60 FR 49356) a notice of proposed rulemaking (IA-36-91 [1995-2 C.B.
470]) relating to the time for performance of acts when the last day
for performance falls on a Saturday, Sunday, or legal holiday. When the
last day for performance of an act by a taxpayer or an employee or
administrator of the IRS falls on a Saturday, Sunday, or legal holiday,
section 7503 of the Internal Revenue Code (Code) extends the time for
performing the act. Under the extension, the act must be performed by
the next day that is not a Saturday, Sunday, or legal holiday. The
current regulations explain and supplement section 7503. This document
contains final regulations that simplify and update the current
regulations. In particular, the final regulations replace the list of
holidays, which are determined by reference to the law in the District
of Columbia, with a citation to that law.
The IRS received oral and written comments on the notice of
proposed rulemaking. No public hearing was held or requested. After
consideration of the comments, which are addressed below, the proposed
regulations under section 7503 are adopted as published in the notice.
Explanation of Provisions and Summary of Comments
In response to the notice of proposed rulemaking for the
regulations under section 7503, three categories of comments were
received. First, there was some concern that replacing the list of
legal holidays with a citation to the law in the District of Columbia
would mean the list of holidays would no longer be accessible. It was
suggested that the IRS annually publish the holidays by announcement or
some other method. The final regulations do not retain the list of
holidays because such a list requires regulatory revision whenever a
change in the law occurs with respect to the holidays. However, a tax
calendar that lists the legal holidays is annually made available
through IRS Publication 509. This free publication can be obtained by
calling the toll free telephone number 1-800-TAX-FORM (1-800-829-3676),
or by contacting an IRS Forms Distribution Center.
Second, it was requested that the IRS address the impact of a
federal government shutdown on the time for performance of acts when
the last day for performance is a day when the government is closed.
Section 7503 of the Code is limited to extending the time for
performance of acts when the last day for performance falls on a
Saturday, Sunday, or legal holiday. Therefore, the regulations for
section 7503 are not appropriate for clarifying the effect of a federal
government shutdown on the time allowed for performance of an act.
Third and last, it was requested that the regulations outline the
kinds of acts to which the extension of time provided under section
7503 applies. The final regulations do not include this information.
The purpose of the current regulatory project is to replace the list of
holidays and revise other outdated material in the regulations.
Outlining the kinds of acts to which section 7503 applies is not within
the scope of the current project.
[[Page 42179]]
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Judith A. Lintz,
Office of Assistant Chief Counsel (Income Tax & Accounting), Internal
Revenue Service. However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 301 is amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7503-1 is amended as follows:
1. In the fourth sentence of paragraph (a), the language
``Thursday, November 22, 1956 (Thanksgiving Day), the suit will be
timely if filed on Friday, November 23, 1956, in the Court of Claims''
is removed and the language ``Thursday, November 23, 1995 (Thanksgiving
Day), the suit will be timely if filed on Friday, November 24, 1995, in
the Court of Federal Claims'' is added in its place.
2. Paragraph (b) is revised as set forth below.
3. Paragraph (c) is removed. The revision reads as follows:
Sec. 301.7503-1 Time for performance of acts where last day falls on
Saturday, Sunday, or legal holiday.
* * * * *
(b) Legal holidays. For the purpose of section 7503, the term legal
holiday includes the legal holidays in the District of Columbia as
found in D.C. Code Ann. 28-2701. In the case of any return, statement,
or other document required to be filed, or any other act required under
the authority of the internal revenue laws to be performed, at an
office of the Internal Revenue Service, or any other office or agency
of the United States, located outside the District of Columbia but
within an internal revenue district, the term legal holiday includes,
in addition to the legal holidays in the District of Columbia, any
statewide legal holiday of the state where the act is required to be
performed. If the act is performed in accordance with law at an office
of the Internal Revenue Service or any other office or agency of the
United States located in a territory or possession of the United
States, the term legal holiday includes, in addition to the legal
holidays in the District of Columbia, any legal holiday that is
recognized throughout the territory or possession in which the office
is located.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: June 20, 1996.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-20625 Filed 8-13-96; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-20623 Wetlands Reserve Program
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42137-42143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20623]
========================================================================
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. 158 / Wednesday, August 14, 1996 /
Rules and Regulations
[[Page 42137]]
DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
Natural Resources Conservation Service
7 CFR Parts 620 and 1467
RIN 0578-AA16
Wetlands Reserve Program
AGENCY: Commodity Credit Corporation, Natural Resources Conservation
Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Credit Corporation (CCC) and the Natural
Resources Conservation Service (NRCS) are issuing its final rule for
the Wetlands Reserve Program. This rule adopts as final the interim
rule for the Wetlands Reserve Program published on June 1, 1995,
responds to comments received from the public during the comment
period, and incorporates specific changes required by the Federal
Agriculture Improvement and Reform Act of 1996. The final rule will
provide the process by which the Wetlands Reserve Program is
administered by the NRCS.
EFFECTIVE DATE: August 14, 1996.
FOR FURTHER INFORMATION CONTACT:
Robert Misso, (202) 720-3534.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
final rule is significant and was reviewed by the Office of Management
and Budget under Executive Order 12866. Pursuant to Sec. 6(a)(3) of
Executive Order 12866, CCC and NRCS prepared a cost-benefit assessment
of the potential impact of the program. The assessment concluded that
several mechanisms at the State and National level of the agency are in
place to ensure environmental benefits are maximized for each Federal
dollar spent in the WRP. These mechanisms include a comprehensive
prioritization and ranking procedure for each site offered for
enrollment in the program and the requirement for locally-determined
easement payment caps based on the agricultural land value. These
mechanisms are developed and implemented on a state-by-state basis,
with guidance and coordination from the National level of the agency,
to ensure that regional and geophysical variations are addressed. The
WRP costs data indicate that the procedures in place are promoting
cost-effectiveness. Copies of the cost-benefit assessment are available
upon request from Robert Misso, Program Manager, Watersheds and
Wetlands Division, Natural Resources Conservation Service, P.O. Box
2890, Washington, DC 20250.
Regulatory Flexibility Act
It has been determined that the Regulatory Flexibility Act is not
applicable to this rule because neither the CCC or NRCS are required by
5 U.S.C. 553 or any other provision of law to publish a notice of
proposed rulemaking with respect to the subject matter of this rule.
Environmental Evaluation
It has been determined through an environmental review that this
action is a modification of the existing WRP and is covered under the
NRCS 1990 Environmental Assessment entitled, ``Wetlands Reserve
Program--Environmental Assessment: Wetlands Reserve Provision of the
Conservation Program Improvements Act of 1990.'' NRCS supplemented the
environmental assessment to evaluate the changes to the program made
pursuant to the Federal Agriculture Improvement and Reform Act of 1996.
Copies of the environmental assessment with supplement are available
upon request from: Robert Misso, Program Manager, Watersheds and
Wetlands Division, Natural Resources Conservation Service, Post Office
Box 2890, Washington, DC 20250.
Executive Order 12372
This program/activity is not subject to the provisions of Executive
Order 12372 because it involves direct payments to individuals and not
to State and local officials. See notice related to 7 CFR Part 3015,
Subpart V, published at 48 FR 29115 (June 24, 1983).
Federal Domestic Assistance Program
The title and number of the Federal Domestic Assistance Program, as
found in the Catalog of Federal Domestic Assistance, to which this rule
applies are: Wetlands Reserve Program--10.072.
Paperwork Reduction Act
No substantive changes have been made in this final rule which
affect the recordkeeping requirements and estimated burdens previously
reviewed and approved under OMB control number 0578-0013.
Executive Order 12778
This final rule has been reviewed in accordance with Executive
Order 12778. The provisions of this final rule are not retroactive.
Furthermore, except as provided at 16 U.S.C. 3837a(e)(2), the
provisions of this final rule preempt State and local laws to the
extent such laws are inconsistent with this final rule. Before an
action may be brought in a Federal court of competent jurisdiction, the
administrative appeal rights afforded persons at 7 CFR Part 614 must be
exhausted.
Unfunded Mandates Reform Act of 1995
Pursuant to Title II of the Unfunded Mandates Reform Act of 1995,
which the President signed into law on March 22, 1995, the affects of
this rulemaking action on State, local, and tribal governments, and the
public have been assessed. This action does not compel the expenditure
of $100 million or more by any State, local or tribal governments, or
anyone in the private sector, and therefore a statement under section
202 of the Unfunded Mandates Reform Act of 1995 is not required.
Discussion of Program
The NRCS published the current regulations for the Wetlands Reserve
Program as an interim rule on June 1, 1995 (60 FR 28511). Enacted on
April 4, 1996, the Federal Agriculture Improvement and Reform Act (the
1996 Act) authorized the enrollment of non-easement acres into the
program through the use of restoration cost-share agreements and made
other minor changes to the focus of the program. This final rule adopts
the procedures outlined in the interim rule with the
[[Page 42138]]
addition of the few changes recommended during public comment and/or
required by the 1996 Act. These changes are described below. Minor
editorial changes have also been made for clarification and
administrative purposes. The 1996 Act amended the Food Security Act of
1985 (the 1985 Act), Pub. L. 99-198, to provide that the WRP should be
funded by CCC. Accordingly, this final rule is issued by CCC and NRCS.
Discussion of Comments
The NRCS received 16 comments concerning the interim rule during
the 60-day public comment period that ended July 31, 1995. Respondents
included national wildlife and conservation organizations, state
agencies, public utilities, and one State farm organization. Two of the
comments simply indicated support for the WRP and did not offer
specific suggested changes.
Definitions
NRCS received two comments requesting slight modifications to the
definitions in Sec. 620.2 of the interim rule. One comment suggested
that the definition for ``State Technical Committee'' be changed to
allow the State Conservationist flexibility in delegating the chair
position to other members of the committee. Currently, the State
Conservationist may delegate the chair position to other NRCS
personnel. Even so, implementation of the WRP at the state level
remains the responsibility of the State Conservationist and therefore,
no changes were made to the definition of State Technical Committee.
The commenter also suggested that the definition of ``wetland functions
and values'' be revised from ``social worth placed upon these
characteristics'' to ``the socioeconomic value placed upon these
characteristics.'' This change clarifies the intent of the interim rule
and is adopted in this final rule.
NRCS also received a comment from a state forestry agency
requesting that ``timber'' be included in the definition for ``wetland
functions and values.'' NRCS did not adopt this change because the
concept is incorporated in the current definition but the actual term
is too specific for a nationwide program which enrolls many different
types of wetlands with differing wetlands functions and values.
Another commenter indicated that the definition of ``Conservation
Districts'' be modified to reflect better the mission of conservation
districts. The NRCS adopts the suggested language as an improvement to
the clarity of the definition. Additionally, section 620.3(f) is
modified to include conservation districts by specific reference to
clarify that NRCS values the special partnership that it has with
conservation districts in the effort to improve the Nation's soil,
water, and other natural resources, and NRCS will continue to seek
input from conservation districts in the administration of its
programs.
The Consolidated Farm Service Agency (CFSA) is now known as the
Farm Service Agency (FSA). The rule is amended to reflect this name
change.
Utility Easements
NRCS received two comments from utility companies, both of which
expressed concern about how NRCS would approach the overlapping of a
WRP easement with a utility easement. Utility easements are addressed
during the title clearance process. During that process, the NRCS must
determine whether: (1) NRCS can obtain a subordination agreement from
the utility easement holder; (2) the exercise of the utility easement
holder's rights would be consistent with the purposes of the WRP
easement; or, (3) the exercise of the utility easement holder's rights
would undermine the purposes for which the WRP easement would be
established. If the NRCS is unable to obtain a subordination agreement
from the utility easement holder and the exercise of that easement
holder's rights would undermine the WRP easement, then the NRCS will
not purchase a WRP easement on that property. One of these commenters
also expressed support for the preference given permanent easements by
the interim rule.
Water Quality
One utility company commenter requested that the impact on drinking
water sources be a ranking factor for giving priority to purchasing a
particular easement. One of the conservation organizations also urged
that easements that provided water quality functions receive priority
treatment. Because water quality is one of the wetland functions for
which the easement is being established, the NRCS considers in its
ranking process, directly or indirectly, the impact an easement would
have on drinking water sources. Currently, each State Conservationist,
in consultation with the State Technical Committee, will determine the
weight that water quality in general, and impact on drinking water
specifically, should receive in the ranking process. In the future,
NRCS along with other agencies with wetland responsibilities will use a
system (Hydrogeomorphic Modeling (HGM)) to evaluate wetland functions
and values more objectively. NRCS will be better able to rank wetland
sites for WRP that differ, thus providing for more consistency within
and between States.
Compatible Uses
NRCS received four letters from State forestry organizations and
one letter from a State farm organization which expressed opposition to
language placed in the preamble to the WRP interim rule regarding
compatible economic uses of the easement area as it related to forest
management activities. NRCS also received a comment, however, from a
conservation organization which supported the language used in the
preamble, suggesting that some management approaches may not be
consistent with the long-term protection of wetland resources.
According to the WRP authorizing language at 16 U.S.C. 3837a(d),
compatible economic uses, including forest management, are permitted if
consistent with the long-term protection and enhancement of the
wetlands resources for which the easement was established. In the
preamble, NRCS simply indicated that harvesting methods which are not
consistent with the long-term protection and enhancement of wetland
functions and values on a particular easement area will not be
considered a compatible use. Upon request by a landowner, the NRCS will
evaluate the particular site on an easement area and will make a
determination of what silvicultural approach, timing, intensity, and
duration may be considered compatible with the wetland functions and
values.
The document granting permission for forest management activities,
or any other request for a compatible use, specifies the amount,
method, timing, intensity, and duration of the use being granted. The
NRCS, however, reserves its ability to modify a particular use should
easement area conditions change. The management plan for an easement
area is a ``living document'' and may be updated with additional
compatible use requests as they are received from a landowner over
time.
For example, the wetland functions and values that are established
by the WRP restoration efforts are not available for mitigation
purposes. However, at a later date, the landowner may request
permission from the NRCS to enhance further the functions and values
established by the WRP restoration effort. If the NRCS determines that
the enhancement action is a compatible use and is clearly beyond the
scope of restoration actions that would be feasible under any
subsequent WRP
[[Page 42139]]
restoration efforts, the additional increment of functions and values
which directly result from the landowner's approved enhancement action
may be available to meet mitigation requirements under other federal,
state, or local law.
No matter the use, the test remains: ``Is a particular proposed use
consistent with the long-term protection and enhancement of the
wetlands resources for which the easement was established and Federal
funds expended?'' This approach is consistent with the WRP statute and
does not require any change to the WRP rule.
Non-permanent Easements
The NRCS received four comments in which the commenters expressed
concern that the interim rule gave such priority to the enrollment of
permanent easements that the enrollment of non-permanent easements
would be completely excluded from the program. One commenter expressed
the concern that the priority placed on permanent easements
overshadowed the other priority mandated by statute. In particular, the
WRP authorizing legislation at 16 U.S.C. 3837c(d) provides that
priority should be placed on acquiring easements based on the value of
the easement for protecting and enhancing habitat for migratory birds
and other wildlife.
Sections 620.8(b)(4) and (5) of the rule require that the NRCS
consider whether any permanent easement offer has the ecological and
cost characteristics which warrants acquisition before proceeding to
acquire a non-permanent easement. The commenters recognized that non-
permanent easements receive a different easement payment than a
permanent easement, but either did not express specific opposition to
the differentiated payment rate or expressed support for it. The 1996
Act amendments require, to the extent practicable after October 1,
1996, that NRCS enroll one-third of total program acres through the use
of 30-year easements.
In response to the comments received and explicit direction from
statute, NRCS has removed Secs. 620.8(b)(4) and (5) and thus eliminated
these particular constraints upon the enrollment of non-permanent
easements. The 1996 amendments also provided that the restoration cost-
share rate for a 30-year easement should be from 50 to 75 percent. The
interim rule provided that the easement payment rate for a non-
permanent easement should parallel the restoration cost-share rate.
Therefore, Sec. 620.8(b)(3) has been amended to indicate that the
easement payment for a 30-year easement shall be between 50 percent and
75 percent of that which would have been paid for a permanent easement.
One commenter noted that the $50,000 annual easement payment
limitation discriminated unduly against the acquisition of less than
permanent easements. The interim final rule had established the $50,000
annual easement payment cap for all non-permanent easement
acquisitions. However, by statute, the $50,000 annual easement payment
limitation for non-permanent easements is a discretionary cap. As such,
the NRCS has determined that in special circumstances involving
projects with partnership funding or participation, a greater annual
easement payment amount may be available. Additionally, the statute
provides that payments are exempted from the payment limitation if the
payment is received by a State, political subdivision, or agency
thereof in connection with agreements entered into under a special
wetland and environmental enhancement program carried out by that
entity that has been approved by NRCS. The final rule is amended
accordingly.
Section 620.17 addresses the administrative appeal procedures to be
used when a person desires review of an administration determination
concerning eligibility for participation. The interim final rule for
the National Appeals Division (NED) Rules of Procedures, 60 FR 67298
(December 29, 1995), amended Sec. 620.17 to include reference to 7 CFR
Part 780 and 7 CFR Part 11. The NAD interim final rule also amended 7
CFR Part 614, the NRCS appeals procedures originally referenced in
Sec. 620.17. Part 614, as amended, references the other appeal
procedures at 7 CFR Part 780 and 7 CFR Part 11, and their additional
mention in Sec. 620.17 is therefore redundant. This final rule amends
Sec. 620.17 to remove the redundant reference to 7 CFR Part 780 7 CFR
Part 11.
Discussion of the Federal Agriculture Improvement and Reform Act
The Federal Agriculture Improvement and Reform Act (the 1996 Act)
was enacted on April 4, 1996. The 1996 Act amended the Food Security
Act of 1985, 16 U.S.C. 3801 et seq., to re-authorize the Environmental
Conservation Acreage Reserve Program as the umbrella conservation
program encompassing the Conservation Reserve Program (16 U.S.C. 3831-
3836), the newly-created Environmental Quality Incentives Program (16
U.S.C. 3840), and the Wetlands Reserve Program (16 U.S.C. 3837 et
seq.). Under the Environmental Conservation Acreage Reserve program,
the Secretary of Agriculture may designate areas as conservation
priority areas to assist landowners to meet nonpoint source pollution
requirements and other conservation needs.
The 1996 Act effects several changes to the administration of the
WRP. In particular, the 1996 Act amendments authorize the enrollment of
land into the Wetlands Reserve Program until 2002, establishes a
program cap at 975,000 acres, and provides that eligible land must
maximize wildlife benefits and wetland functions and values.
The 1996 Act amendments also require that, to the extent
practicable beginning October 1, 1996, one-third of the remaining
program acres be enrolled through the use of permanent easements, one-
third through the use of 30-year easements, and one-third through the
use of restoration cost-share agreements. Further, after October 1,
1996, no new permanent easement can be enrolled until at last 75,000
acres of non-permanent easement are enrolled in the program. Section
721 of the agriculture Appropriations Act, enacted August 6, 1996,
stated that this condition on enrollment ``shall be deemed met upon the
enrollment of 43,333 acres through the use of temporary easements:
Provided further that the Secretary shall not enroll acres * * *
through the use of new permanent easements in fiscal year 1998 until
the Secretary has enrolled at least 31,667 acres in the program through
the use of temporary easements.'' In recognition that the NRCS must
enroll lands that maximize wildlife benefits and other wetland
functions and values, achieve cost-efficient restoration, and provide
the three identified enrollment approaches, the NRCS will emphasize
enrolling lands that have the least likelihood of being reconverted.
The NRCS will work with landowners and other conservation partners to
achieve these lasting benefits for wetland resources.
Through several public forums across the county, the NRCS received
comments from the public about the new conservation programs and the
changes to existing conservation programs as a result of the enactment
of the 1996 Act. The NRCS greatly appreciates the input provided by the
public through the forums and written comments submitted to the agency.
The NRCS will consider these comments during the formulation of its
policies and guidelines.
Many of the changes to the WRP required by the 1996 Act are
directives to the agency which do not impact the
[[Page 42140]]
WRP rule. Some of the amendments, however, require specific, non-
discretionary changes to the WRP regulations. Since these changes are
mandatory and do not require agency interpretation, the CCC and NRCS
have incorporated them into this final rule. The following sections and
parts are impacted:
Section 620.2
The 1966 Act made several changes to other programs which relate to
WRP, including the wetland conservation provisions, 7 CFR Part 12, and
the Conservation Reserve Program, 7 CFR Parts 704 and 1410. Therefore,
certain definitions are removed from this part to avoid any
inconsistencies with the implementation of these other provisions.
Section 620.3
The 1996 Act requires the Department of Agriculture to avoid
duplication of conservation plans required for the implementation of
the highly erodible land conservation provisions of the Food Security
Act of 1985, CRP, and the WRP. In response to this requirement,
Sec. 620.3(h) is amended to include coordination of the development of
conservation plans as an additional goal in the administration of the
WRP. The 1996 Act amendments also provide that areas may be designated
as conservation priority areas to help producers comply with nonpoint
source pollution requirements and other conservation needs. Therefore,
a new sentence is added to Sec. 620.3(h) that the Secretary of
Agriculture may designate areas as conservation priority areas to
assist landowners to meet nonpoint source pollution requirements and
other conservation needs.
Section 620.4
The 1996 Act amendments authorize the enrollment of acres into the
WRP through the use of restoration cost-share agreements. Therefore,
the first sentence of Sec. 620.4 has been amended to include the term
``restoration cost-share agreements.''
The 1996 Act amendments links eligibility for WRP easement or cost-
share payments to the highly erodible land and wetland conservation
provisions of the 1985 Act, 16 U.S.C. 3801 et seq., 7 CFR part 12.
Therefore, landowner eligibility, Sec. 620.4(c), is amended to reflect
that a person may not be eligible for participation in WRP if the
requirements of 7 CFR part 12 have not been met.
The 1996 Act amendments specify that the 25 percent county
enrollment cap and the 10 percent county easement cap only apply to
acres enrolled in the Conservation Reserve Program (CRP) and the WRP,
and not all acres enrolled in the Environmental Conservation Acreage
Reserve Program. Therefore, the reference to the Environmental
Conservation Acreage Reserve Program in Sec. 620.4(b)(1) has been
replaced with specific reference to the CRP and the WRP. In addition to
consideration of any adverse effect on the local economy, the 1996 Act
amendments require that a waiver from the county caps can only be
approved if operators in the county are having difficulties complying
with the conservation plans implemented under 16 U.S.C. 3812.
Therefore, Sec. 620.4(b)(2) has been amended to incorporate this new
criterion.
The 1996 Act amendments expanded the eligibility criteria to
require specifically that land enrolled in the program maximize
wildlife benefits. Therefore, Sec. 620.4(d) is amended to incorporate
the additional eligibility criterion.
The 1985 Act provides that pasture land established to trees under
the CRP is ineligible for enrollment in the WRP. Even though such lands
were not enrolled in the program, specific mention of this
ineligibility provision was not made in the interim rule. Section
620.4(e) is amended to incorporate specifically this statutory
provision.
Section 620.7
The 1996 Act amendments require that after October 1, 1996, to the
extent practicable, the NRCS enroll one-third of the acres through the
use of permanent easements, one-third of the acres through the use of
30-year easements, and one-third of the acres through the use of
restoration cost-share agreements. The NRCS has considered land
enrolled in the program at the time the NRCS determines that a
landowner's offer is eligible, funds are committed to acquire that
particular easement, and the landowner agrees to continue in the
program. Because the 1996 Act amendments require that the NRCS track
the total acres enrolled through the use of permanent easements, 30-
year easements, and restoration cost-share agreements, Sec. 620.7(b) is
amended to clarify that enrollment occurs at this stage in the process.
Sections 620.8 and 620.13
The 1996 Act amends 16 U.S.C. 3837a(f) to eliminate the specific
reference to lump sum payments for permanent easements only, and
further provides that annual compensation for any easement may be in
not less than 5 nor more than 30 annual payments of either equal or
unequal size. Therefore, Sec. 620.8(e) and Sec. 620.13(b)(1), which
incorporated the original statutory provisions as to payments, are
amended to reflect this specific change in law regarding easement
payments.
Section 620.9 and 620.10
To reflect that the NRCS shall enroll land into the WRP through the
use of restoration cost-share agreements, section 620.9 is amended by
adding specific reference to restoration cost-share agreements and
making associated editorial adjustments to this new type of enrollment
mechanism. Additionally, the 1996 Act amendments provide that the cost-
share rate for restoration associated with 30-year easements shall be
no less than 50 nor more than 75 percent. Section 620.9(a) incorporates
this new statutory provision.
Likewise, the requirements in Sec. 620.10, such as the granting of
an easement to the United States, are specific to enrollment into the
program through the use of an easement and not restoration cost-share
agreements. Therefore, the heading to Sec. 620.10 reflects that the
section is no longer applicable as ``Program requirements'' but now
more appropriately refers to easement enrollment requirements.
Section 620.11
The 1996 Act amendments provide that the development of the
restoration plan shall be made through the local NRCS representative,
in consultation with the State Technical Committee. The 1996 Act
amendments also removes the specific requirement that consultation with
the Department of the Interior means agreement at the local level and
consultation at the State level. Therefore, NRCS has added these
changes to Sec. 620.11 by 1) by removing the regulatory language in
paragraph (a) which required agreement with the U.S. Fish and Wildlife
Service at the local level, and 2) replacing the language with a new
paragraph (a) which now references the development of the plan by the
local NRCS representative.
Section 620.14
During the implementation of the program under the interim rule,
confusion arose regarding the language in Sec. 620.14 about
``associated'' contract. The term ``associated'' was intended to mean a
contract ``associated with the program'' other than the easement deed.
As stated, the term ``associated'' inadvertently created the mistaken
conclusion that the contract is attached to the easement deed.
Therefore, the term ``associated'' has been removed to improve the
clarity of this section.
[[Page 42141]]
Parts 620 and 1467
Because funds of the Commodity Credit Corporation shall be used for
administration of the WRP, the WRP rule is moved from Part 620 to Part
1467 of Title VII of the CFR. Furthermore, certain administrative
responsibilities may be assumed by other agencies with the Department
of Agriculture, and the rule is modified accordingly.
List of Subjects in 7 CFR Part 1467
Administrative practice and procedure, Agriculture, Soil
conservation, Wetlands.
Accordingly, the interim rule establishing 7 CFR part 620 which was
published at 60 FR 28511 on June 1, 1995, is adopted as a final rule
with the following changes:
1. In 7 CFR, chapter VI, part 620 is re-designated as chapter XIV,
part 1467, and the sections are re-designated as set forth below:
------------------------------------------------------------------------
New
Old section section
------------------------------------------------------------------------
620.1....................................................... 1467.1
620.2....................................................... 1467.3
620.3....................................................... 1467.2
620.4....................................................... 1467.4
620.5....................................................... 1467.5
620.6....................................................... 1467.6
620.7....................................................... 1467.7
620.8....................................................... 1467.8
620.9....................................................... 1467.9
620.10...................................................... 1467.10
620.11...................................................... 1467.11
620.12...................................................... 1467.12
620.13...................................................... 1467.13
620.14...................................................... 1467.14
620.15...................................................... 1467.15
620.16...................................................... 1467.16
620.17...................................................... 1467.17
620.18...................................................... 1467.18
------------------------------------------------------------------------
PART 1467--WETLANDS RESERVE PROGRAM
2. The authority citation for re-designated part 1467 continues to
read as follows:
Authority: 16 U.S.C. 590a, et seq.; and 16 U.S.C. 3837, et seq.
3. Section 1467.1 is amended by revising the heading to the section
to read as follows:
Sec. 1467.1 Applicability.
* * * * *
4. Section 1467.2 is amended by revising paragraphs (c), (f), and
(h) and amending paragraph (g) by revising the second and third
sentences to read as follows:
Sec. 1467.2 Administration.
* * * * *
(c) As determined by the Chief and the Administrator of the Farm
Service Agency, the NRCS and the Farm Service Agency will seek
agreement in establishing policies, priorities, and guidelines related
to the implementation of this part.
* * * * *
(f) The Department may enter into cooperative agreements with
Federal or State agencies, conservation districts, and private
conservation organizations to assist the NRCS with educational efforts,
easement management and monitoring, outreach efforts, and program
implementation assistance.
(g) * * * The NRCS may consult with the Forest Service, other
Federal or State agencies, conservation districts or other
organizations in program administration. No determination by the U.S.
Fish and Wildlife Service, the Forest Service, Federal or State agency,
conservation district, or other organization shall compel the NRCS to
take any action with the NRCS determines will not serve the purposes of
the program established by this part.
(h) The Chief may allocate funds for such purposes related to:
special pilot programs for wetland management and monitoring;
acquisition of wetland easements with emergency funding; cooperative
agreements with other Federal or State agencies for program
implementation; coordination of easement enrollment across State
boundaries; coordination of the development of conservation plans; or,
for other goals of the WRP found in this part. The Department may
designate areas as conservation priority areas where environmental
concerns are especially pronounced and to assist landowners in meeting
nonpoint source pollution requirements and other conservation needs.
5. Section 1467.3 is amended by removing the definitions for
``Farmed wetland'', ``Farmed wetland pasture'', and ``Prior converted
cropland''; by revising the definitions for ``Conservation District'',
``Conservation Reserve Program'', ``Contract'', ``Person'' and the
introductory text of ``Wetlands functions and values''; and by adding a
definition for ``Department'' to read as follows:
Sec. 1467.3 Definitions.
* * * * *
Conservation District is a subdivision of a State government
organized pursuant to applicable State law to promote and undertake
actions for the conservation of soil, water, and other natural
resources.
Conservation Reserve Program (CRP) means the program administered
by the Commodity Credit Corporation pursuant to 16 U.S.C. 3831-3836.
* * * * *
Contract means the document that specifies the obligations and
rights of any person who has been accepted for participation in the
program.
* * * * *
Department means the United States Department of Agriculture (USDA)
and includes the Commodity Credit Corporation or any USDA agency or
instrumentality delegated program responsibility by the Secretary of
Agriculture.
* * * * *
Person means an individual, partnership, association, corporation,
estate or trust, or other business enterprise or other legal entity
and, whenever applicable, a State, a political subdivision of a State,
or any agency thereof.
* * * * *
Wetland functions and values means the hydrological and biological
characteristics of wetlands and the socioeconomic value placed upon
these characteristics, including: * * *
* * * * *
6. Section 1467.4 is amended by revising the first sentence of
paragraph (a), and revising paragraphs (b)(1), the second sentence of
(b)(2), the introductory text of (c), paragraph (d)(2), the
introductory text of (d)(3), and paragraph (e)(2) to read as follows:
Sec. 1467.4 Program requirements.
(a) General. Under the WRP, the Department may purchase
conservation easements from, or enter into restoration cost-share
agreements with, eligible landowners who voluntarily cooperate in the
restoration and protection of wetlands and associated lands. * * *
(b) * * *
(1) Except for areas devoted to windbreaks or shelterbelts after
November 28, 1990, no more than 25 percent of the total cropland in any
county, as determined by the Farm Service Agency, may be enrolled in
the CRP and the WRP, and no more than 10 percent of the total cropland
in the county may be subject to an easement acquired under the CRP and
the WRP.
(2) * * * Such a waiver will only be approved if it will not
adversely affect the local economy, and operators in the county are
having difficulties complying with the conservation plans implemented
under 16 U.S.C. 3812.
(c) Landowner eligibility. The NRCS may determine that a person is
not eligible to participate in the WRP or receive any WRP payment
because the person did not comply with the
[[Page 42142]]
provisions of 7 CFR part 12. To be eligible to enroll an easement in
the WRP, a person must: * * *
* * * * *
(d) * * *
* * * * *
(2) Land shall only be considered eligible for enrollment in the
WRP if the NRCS determines, in consultation with the U.S. Fish and
Wildlife Service, that:
(i) Such land maximizes wildlife benefits and wetland values and
functions;
(ii) The likelihood of the successful restoration of such land and
the resultant wetland values merit inclusion of such land in the
program, taking into consideration the cost of such restoration; and
(iii) Such land meets the criteria of paragraph (d)(3) of this
section.
(3) The following land may be eligible for enrollment in the WRP,
which land may be identified by the NRCS pursuant to regulations and
implementing policies pertaining to wetland conservation found at 7 CFR
part 12, as: * * *
* * * * *
(e) * * *
(2) Land that contains timber stands established under a CRP
contract or pasture land established to trees under a CRP contract.
* * * * *
7. In Sec. 1467.6, paragraphs (a) through (c) are re-designated as
paragraphs (b) through (d), a new paragraph (a) is added to read as
follows:
Sec. 1467.6 Establishing priority for enrollment of properties in WRP.
(a) The NRCS shall place priority on the enrollment of those lands
that will maximize wildlife values (especially related to enhancing
habitat for migratory birds and other wildlife); have the least
likelihood of re-conversion and loss of these wildlife values at the
end of the WRP enrollment period; and that involve State, local, or
other partnership matching funds and participation.
* * * * *
8. Section 1467.7 is amended by revising the heading to the section
and the heading to paragraph (b) to read as follows:
Sec. 1467.7 Enrollment of easements.
* * * * *
(b) Effect of letter of intent to continue (enrollment). * * *
* * * * *
9. Section 1467.8 is amended by
(a) Revising paragraph (b)(3);
(b) Removing paragraphs (b)(4), (b)(5), and (e)(2);
(c) Re-designating paragraph (e)(3) as (e)(2);
(d) Revising re-designated paragraph (e)(2); and,
(e) Revising paragraph (h).
The revisions read as follows:
Sec. 1467.8 Compensation for easements.
* * * * *
(b) * * *
(3) Easement payments for non-permanent easements will be less than
those for permanent easements because the quality and duration of the
ecological benefits derived from a non-permanent easement are
significantly less than those derived from a permanent easement on the
same land. Additionally, the economic value of the easement interests
being acquired is less for a non-permanent easement than that
associated with a permanent easement. An easement payment for the
short-term 30-year easement shall not be less than 50 percent nor more
than 75 percent of that which would have been paid for a permanent
easement.
* * * * *
(e) * * *
(2) Annual easement payments may be made in no less than 5 annual
payments and no more than 30 annual payments of equal or unequal size.
* * * * *
(h) Payment limitation on non-permanent easements. With respect to
non-permanent easements, the annual amount of easement payments to any
person may not exceed $50,000 except for:
(1) Payments made pursuant to projects involving partnership
funding or participation; or
(2) Payment received by a State, political subdivision, or agency
thereof in connection with agreements entered into under a special
wetland and environmental enhancement program carried out by that
entity that has been approved by NRCS.
* * * * *
10. In Sec. 1467.9, the first sentence of the introductory text of
paragraph (a) and paragraph (a)(2) are revised to read as follows:
Sec. 1467.9 Cost-share payments.
(a) The Department may share the cost with landowners of restoring
the enrolled land as provided in the WRPO.* * *
* * * * *
(2) On enrolled land subject to a non-permanent easement or
restoration cost-share agreement, the Department shall offer to pay not
less than 50 percent nor more than 75 percent of such costs.
Restoration cost-share payments offered by NRCS for the short-term, 30-
year easements shall be 50 to 75 percent.
* * * * *
11. In Sec. 1467.10, the heading for the section and paragraph
(d)(5) are revised to read as follows:
Sec. 1467.10 Easement participation requirements.
* * * * *
(d) * * *
(5) Have the option to enter into an agreement with governmental or
private organizations to assist in carrying out any landowner
responsibilities on the easement area;
* * * * *
12. In Sec. 1467.11, paragraph (a) is revised and a new sentence is
added at the end of paragraph (b) to read as follows:
Sec. 1467.11 The WRPO development.
(a) The development of the WRPO shall be made through the local
NRCS representative, in consultation with the State Technical
Committee, and with consideration of site specific technical input from
the U.S. Fish and Wildlife Service and the Conservation District.
(b) * * * The WRPO shall be developed to ensure that cost-effective
restoration and maximization of wildlife benefits and wetland functions
and values will result.
13. In Sec. 1467.12, paragraph (b) is revised to read as follows:
Sec. 1467.12 Modifications.
* * * * *
(b) WRPO. Insofar as is consistent with the easement and applicable
law, the State Conservationist may approve modifications to the WRPO
that do not affect provisions of the easement in consultation with the
landowner and the State Technical Committee and following consideration
of site specific technical input from the U.S. Fish and Wildlife
Service and the Conservation District. Any WRPO modification must meet
WRP program objectives, and must result in equal or greater wildlife
benefits, wetland functions and values, ecological and economic values
to the United States. Modifications to the WRPO which are substantial
and affect provisions of the easement will require agreement from the
landowner and require execution of an amended easement.
14. Section 1467.13 is amended by revising paragraph (b)(1) to read
as follows:
Sec. 1467.13 Transfer of land.
* * * * *
(b) * * *
(1) For easements with multiple annual payments, any remaining
easement payments will be made to the original landowner unless the
[[Page 42143]]
Department receives an assignment of proceeds.
* * * * *
15. In Sec. 1467.14, remove the word ``associated'' from paragraphs
(a) and (c).
16. Section 1467.17 is amended by revising paragraph (a) to read as
follows:
Sec. 1467.17 Appeals.
(a) A person participating in the WRP may obtain a review of any
administrative determination concerning eligibility for participation
utilizing the administrative appeal regulations provided in 7 CFR part
614.
* * * * *
17. In addition to the amendments set forth above, in 7 CFR part
1467 remove the words ``Consolidated Farm Service Agency'' wherever
they appear and add, in their place, the words ``Farm Service Agency''.
18. In addition to the amendments set forth above, in 7 CFR part
1467 remove the word ``NRCS'' whenever it appears and add, in its
place, the word ``Department''.
Signed at Washington, D.C. on August 8, 1996.
Paul Johnson,
Chief, Natural Resources Conservation Service, Vice President,
Commodity Credit Corporation.
[FR Doc. 96-20623 Filed 8-13-96; 8:45 am]
BILLING CODE 3410-16-M
Complete official Federal Register PDF
FR Doc. 96-20540 Net Weight Statement for Shingle Packed Bacon
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42143-42144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20540]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Food Safety and Inspection Service
9 CFR Part 317
[Docket No. 96-005DF]
RIN 0583-AC08
Net Weight Statement for Shingle Packed Bacon
AGENCY: Food Safety and Inspection Service, USDA.
ACTION: Direct final rule; request for comments.
-----------------------------------------------------------------------
SUMMARY: The Food Safety and Inspection Service (FSIS) is amending the
Federal meat inspection regulations by removing an obsolete labeling
requirement for certain sizes of shingle packed bacon. This rule
applies the same requirements for net weight statements to all sizes of
shingle packed bacon.
DATES: This rule will be effective on October 15, 1996 unless FSIS
receives written adverse comments or written notice of intent to submit
adverse comments on or before September 13, 1996. If FSIS receives
adverse comments or notice of intent to submit adverse comments within
the scope of this rule, FSIS will withdraw this rule and publish a
proposed rule for public comment.
ADDRESSES: Send an original and two copies of written comments to: FSIS
Docket Clerk, Docket #96-005DF, Room 4352, South Agriculture Building,
Food Safety and Inspection Service, U.S. Department of Agriculture,
Washington, DC 20250.
FOR FURTHER INFORMATION CONTACT: Ms. Cheryl Wade, Director, Food
Labeling Division, Regulatory Programs, Food Safety and Inspection
Service, U.S. Department of Agriculture, Washington, DC 20250, Area
Code (202) 254-2590.
SUPPLEMENTARY INFORMATION:
Background
FSIS has been petitioned to amend the Federal meat inspection
regulations by removing an obsolete labeling requirement for certain
sizes of shingle packed bacon. (Shingle packed bacon is sliced bacon
packed in overlapping rows usually contained in a rectangular package.)
Section 317.2(h)(13) of the Federal meat inspection regulations
requires that the labeling of packages of bacon not in 8-ounce, 1-
pound, or 2-pound containers display the net quantity of the contents
(net weight statement) with the same prominence as the largest feature
of the label. In addition, the statement must be printed in a color of
ink that contrasts sharply with the label's background.
Section 317.2(h)(9)(v) provides that shingle packed bacon packed in
8-ounce, 1-pound, or 2-pound containers is exempt from the labeling
requirements regarding: (1) the placement of the net weight statement
within the bottom 30 percent of the principal display panel, and (2)
the expression of the net weight statement in terms of both pounds and
ounces, if the net weight statement appears in a conspicuous manner on
the principal display panel.
Historically, shingle packed bacon was sold in 8-ounce, 1-pound, or
2-pound packages. Over time, bacon manufacturers began packing bacon of
different weights in the same size containers used for the traditional
8-ounce, 1-pound, and 2-pound packages of bacon. For example, a 12-
ounce package of bacon was packed in the same size container as a 1-
pound package of bacon. To ensure that consumers were aware that there
was less product in the same-size container, FSIS promulgated
regulations to highlight to consumers the net weight statement on these
packages. However, with heightened consumer awareness, the use of
nutritional labeling, and the use of unit pricing at the retain level,
FSIS agrees with the petitioner that this labeling requirement is no
longer needed.
Therefore, FSIS is amending the Federal meat inspection regulations
by removing the labeling requirement for shingle packed bacon packed in
other than 8-ounce, 1-pound, or 2-pound containers in
Sec. 317.2(h)(13). FSIS is also removing the language that refers to 8-
ounce, 1-pound, and 2-pound packages of shingle packed bacon from
Sec. 317.2(h)(9)(v). This action provides the same requirements for net
weight statements for all sizes of shingle packed bacon.
Effective Date
This rule is being published without a prior proposal because this
action is viewed as noncontroversial, and FSIS does not anticipate any
adverse public comments will be received. This rule will be effective
60 days after the date of publication in the Federal Register unless
FSIS receives written adverse comments or written notice of intent to
submit adverse comments within 30 days of the date of publication of
this rule in the Federal Register.
If no adverse comments are received, FSIS will publish a notice in
the Federal Register confirming that the rule is effective on the date
indicated.
Executive Order 12866 and Effect on Small Entities
This rule is considered not significant and therefore has not been
reviewed by the Office of Management and Budget.
The Administrator, FSIS, has determined that this rule will not
have a significant impact on a substantial number of small entities.
The rule merely removes an obsolete labeling requirement for shingle
packed bacon packed in other than 8-ounce, 1-pound, or 2-pound
containers.
Executive Order 12778
This rule has been reviewed under Executive Order 12778, Civil
Justice Reform. This rule (1) preempts all State and local laws and
regulations that are inconsistent with this rule; (2) has no
retroactive effect; and (3) does not require administrative proceedings
before parties may file suit in court challenging this rule.
List of Subjects in 9 CFR Part 317
Meat inspection, Food labeling.
For the reasons discussed in the preamble, 9 CFR part 317 is
amended as follows:
[[Page 42144]]
PART 317--LABELING, MARKING DEVICES, AND CONTAINERS
1. The authority citation for part 317 continues to read as
follows:
Authority: 21 U.S.C. 601-695; 7 CFR 2.18, 2.53.
2. Section 317.2 is amended by removing paragraph (h)(13) and
revising paragraph (h)(9)(v) to read as follows:
Sec. 317.2 Labels: definition; required features.
* * * * *
(h) * * *
(9) * * *
(v) Sliced shingle packed bacon in rectangular packages is exempt
from the requirements of paragraphs (h)(3) and (h)(5) of this section
regarding the placement of the statement of the net quantity of
contents within the bottom 30 percent of the principal display panel,
and that the statement be expressed both in ounces and in pounds, if
the statement appears in a conspicuous manner on the principal display
panel.
* * * * *
Done at Washington, DC, on: August 6, 1996.
Michael R. Taylor,
Acting Under Secretary for Food Safety.
[FR Doc. 96-20540 Filed 8-13-96; 8:45 am]
BILLING CODE 3410-DM-M
Complete official Federal Register PDF
FR Doc. 96-20081 Radio Broadcasting Services; Monticello, Perry, Quincy, and Springfield, FL
[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Rules and Regulations]
[Pages 42189-42190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20081]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket No. 95-82; RM-8630 and RM-8743]
Radio Broadcasting Services; Monticello, Perry, Quincy, and
Springfield, FL
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document substitutes Channel 268C1 for Channel 268C2 at
Quincy, Florida, and modifies the license for Station WXSR(FM) to
specify operation on Channel 268C1, in response to a counterproposal
filed by Great South Broadcasting, Inc. See 60 FR 32934, June 26, 1995.
The coordinates for Channel 268C1 at Quincy are 30-10-22 and 84-26-52.
To accommodate the upgrade at Quincy, we are substituting Channel 289C3
for Channel 270C3 at Monticello, Florida, at coordinates 30-25-05 and
83-50-18, substituting Channel 221A for Channel 288A at Perry, Florida,
at coordinates 30-06-27 and 83-34-00, and substituting Channel 266A for
Channel 267A at Springfield, Florida, at coordinates 30-12-12 and 85-
36-57. With this action this proceeding is terminated.
EFFECTIVE DATE: September 16, 1996.
FOR FURTHER INFORMATION CONTACT: Kathleen Scheuerle, Mass Media Bureau,
(202) 418-2180.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Report and Order, MM Docket No. 95-82, adopted July 26, 1996, and
released August 2, 1996. The full text of this Commission decision is
available for inspection and copying during normal business hours in
the Commission's Reference Center (Room 239), 1919 M Street, NW.,
Washington, DC. The complete text of this decision may also be
purchased from the Commission's copy contractors, International
Transcription Services, Inc., 2100 M Street, NW., Suite 140,
Washington, DC 20037, (202) 857-3800.
List of Subjects in 47 CFR Part 73
Radio broadcasting.
Part 73 of title 47 of the Code of Federal Regulations is amended
as follows:
PART 73--[AMENDED]
1. The authority citation for part 73 continues to read as follows:
Authority: Secs. 303, 48 Stat., as amended, 1082; 47 U.S.C. 154,
as amended.
Sec. 73.202 [Amended]
2. Section 73.202(b), the Table of FM Allotments under Florida, is
amended by removing Channel 268C2 and adding Channel 268C1 at Quincy,
by removing Channel 270C3 and adding Channel 289C3 at Monticello, by
removing Channel 288A and adding Channel 221A at Perry and by removing
Channel 267A and adding Channel 266A at Springfield.
[[Page 42190]]
Federal Communications Commission.
John A. Karousos,
Chief, Allocations Branch, Policy and Rules Division, Mass Media
Bureau.
[FR Doc. 96-20081 Filed 8-13-96; 8:45 am]
BILLING CODE 6712-01-F
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