Federal Register / Vol. 71, No. 179 / Friday, September 15, 2006 / Rules and Regulations 54409
proposed FAA order. To adhere to the information would be inconsistent with the DEPARTMENT OF THE TREASURY
requirements of FAA Order 2150.3, provisions of this order, or would otherwise
Compliance/Enforcement Bulletin 92–2, be prohibited by public law or regulation.’’ 17 CFR Parts 400, 401 402, 403, 404
Advisory Circular 00–58 and 121–37, and to 4. Depending upon how the proposed right and 405
assure that the intent of the VDRP remains of disclosure is interpreted and put into
robust and without reservation, the practice, the following proposed provision [Docket No. BPD GSRS 06–01]
production approval holder must step up and could have a negative impact on encouraging
be accountable to ensure that immediate and RIN 1505–AB70
voluntary disclosure: ‘‘The FAA also may
long term corrective action plans developed disclose any information about a disclosure
to mitigate the circumstances of an escape are Government Securities Act
initially submitted under the VDRP that is
sound, effective, and implemented as Regulations: Applicability to Over-the-
not accepted, or accepted, but later excluded
pledged. The ‘‘regulated entity’’ does not because of the regulated entity’s failure to
Counter Derivatives Dealers
have control of information sources outside comply with the criteria of the VDRP.’’
the chain of the disclosure proper. By the AGENCY: Office of the Under Secretary
a. Comment. [The company] recommends for Domestic Finance, Treasury.
same token, the ‘‘regulated entity’’ making
that this sentence be removed from the
the disclosure actually becomes the expert ACTION: Final rule.
Proposed Order because, depending upon
and information funnel for all factual matters
how the proposed right of disclosure is
associated with the disclosure. In sum, we SUMMARY: The Department of the
consider that provisions for release of interpreted and put into practice, it could
potentially have a negative impact upon Treasury (‘‘Treasury’’ or ‘‘We’’) is
information without the counsel of the issuing this final rule to amend the
regulated entity would undermine the intent sound FAA policy encouraging voluntary
disclosure of information by certificate regulations issued under the
of the VDRP. It could allow information to be
made public that could have negative holders. For example, the local FAA office Government Securities Act of 1986
connotation for, and actually hamper, has approved [the company’s] procedure for (‘‘GSA’’), as amended. This technical
ongoing investigations and airworthiness submittal of voluntary disclosures meeting amendment makes no substantive
evaluations associated with the disclosure. the intent of AC 00–58. [The company] has changes, but adds language to state
b. The FAA response. The FAA does not various data systems to track information explicitly that we deem over-the-
concur. There are at least two situations in drawn from different databases. Such counter (‘‘OTC’’) derivatives dealers that
which the FAA cannot assure independently information drawn from multiple sources
are also government securities dealers to
obtained information relating to a voluntary could be included in a voluntary disclosure.
In that circumstance, the information and the
be in compliance with the GSA
disclosure will not be released. One such
format in which the information is provided regulations if they comply with the
situation occurs when a regulatory violation,
initially identified in a VDRP submission, is meets the intent of the VDRP, but would not applicable Securities and Exchange
not accepted by the FAA, or if accepted, is necessarily strictly comply with every Commission (‘‘SEC’’) OTC derivatives
later excluded by the FAA, because of the technical requirement of AC 00–58, where dealer rules and other SEC rules
regulated entity’s failure to comply with the the VDRP criteria is contained. As noted applicable to them.
requirements of the VDRP. In such situations above, the local FAA office has approved a DATES: Effective Date: September 15,
the FAA will conduct an independent [company] procedure for submittal of 2006.
investigation of the event, and if warranted, voluntary disclosures that meets the intent of
the resulting enforcement record based on AC 00–58. However, if this sentence remains ADDRESSES: You may download this
the information independently obtained by in the Proposed Order, then the FAA could final rule from the Bureau of the Public
the FAA is subject to disclosure under FOIA. decide to disclose information submitted in Debt’s Web site at http://
No change in that policy is deemed necessary connection with a voluntary disclosure www.treasurydirect.gov or from the
or appropriate. Another circumstance under because of a technical deviation from the Electronic Code of Federal Regulations
which independently obtained information criteria in AC 00–58. If this occurs, certificate (e-CFR) Web site at http://
relating to an event reported under the VDRP holders could potentially be disincentivized
may not be fully protected by the FAA occurs www.gpoaccess.gov/ecfr. It is also
[sic] from providing the FAA with
when an outside party has observed and available for public inspection and
information because of the possibility of
reported a regulatory violation to the FAA. In disclosure absent discussion and consensus. copying at the Treasury Department
such situations, the FAA must be permitted [The company] believes a better practice Library, Room 1428, Main Treasury
to assure the reporting party that the FAA has would be to permit local FAA offices to Building, 1500 Pennsylvania Avenue,
responded to their report(s) and that action maintain flexibility to work with certificate NW., Washington, DC 20220. To visit
has been taken to prevent recurrence of the holders relating to the format in which the library, call (202) 622–0990 for an
violation. Such action is necessary to information voluntarily disclosed is received. appointment.
maintain public confidence. The comment b. The FAA Response. The FAA does not
expresses concern about the release of concur. Nothing in this order changes the
FOR FURTHER INFORMATION CONTACT: Lori
information from another source beyond the discretionary authority of a local FAA office Santamorena (Executive Director) or
control, and outside of the chain of Chuck Andreatta (Associate Director),
to accept or reject a voluntary disclosure.
command, of the regulated entity. Clearly the Bureau of the Public Debt, Government
Information contained in an accepted
FAA also has no control over the submission Securities Regulations Staff, (202) 504–
voluntary disclosure will be protected in
to the FAA of information related to the
accordance with the provisions of this order 3632 or e-mail us at
voluntary disclosure by a source outside the
control or chain of command of the regulated
and 14 CFR part 193, regardless of its format. govsecreg@bpd.treas.gov.
The FAA acknowledges industry concerns
entity. The FAA does not believe that such SUPPLEMENTARY INFORMATION:
independently obtained information would regarding sensitive information. This FAA
ordinarily qualify for protection from public order will establish explicit protections Background
release under this order and part 193. concerning disclosure of such information
when it is provided in conjunction with an In 1998, the SEC adopted various
However, in order to accommodate a
hypothetical situation in which protection accepted VDRP submission. rules and rule amendments (the
from release is warranted, paragraph 6e of Issued in Washington, DC, on August 17, ‘‘OTCDD Rules’’ 1) under the Securities
this order now states: ‘‘The FAA may 2006. Exchange Act of 1934 (‘‘the Exchange
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disclose independently obtained information James J. Ballough, Act’’) that define and regulate ‘‘OTC
relating to any event disclosed in a VDRP Director, Flight Standards Service. derivatives dealers (OTCDDs),’’ a
report, unless the FAA determines that in the
case of an accepted VDRP submission, [FR Doc. E6–15257 Filed 9–14–06; 8:45 am] 1 The OTCDD Rules are commonly referred to as
release of such independently obtained BILLING CODE 4910–13–P the ‘‘Broker-Dealer Lite’’ rules.
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54410 Federal Register / Vol. 71, No. 179 / Friday, September 15, 2006 / Rules and Regulations
category of registered broker-dealers that duplicative regulation.7 Treasury’s GSA 17 CFR Part 401
engage in certain over-the-counter rules therefore generally provide that Banks, Banking, Brokers, Government
derivatives activities, but not the full compliance by registered brokers and securities.
range of securities activities dealers with certain applicable SEC
traditionally associated with full- rules constitutes compliance with the 17 CFR Part 402
purpose broker-dealers.2 The OTCDD GSA rules. Brokers, Government securities.
Rules created a flexible regulatory Moreover, Treasury has concluded
framework under which U.S. securities 17 CFR Part 403
and wishes to affirm that the SEC rules
firms could establish separately issued in 1998 for registered brokers and Banks, Banking, Brokers, Government
capitalized OTCDDs within the United dealers that are OTCDDs are sufficient securities.
States that will engage in dealer and appropriate for government
activities in both securities and non- 17 CFR Part 404
securities brokers and dealers. Thus, for
securities OTC-derivative instruments OTCDDs that write options on Banks, Banking, Brokers, Government
and be able to ‘‘compete more government securities, compliance with securities, Reporting and recordkeeping
effectively with banks and foreign SEC rules constitutes compliance with requirements.
dealers in global OTC derivatives the GSA rules. This is the result under 17 CFR Part 405
markets, while also maintaining the current GSA rules. However, in
standards necessary to ensure investor Brokers, Government securities,
response to recent questions we have
protection.’’ 3 Reporting and recordkeeping
received, and recognizing that the
Certain securities derivatives requirements.
current GSA rules require the reader to
transactions in which an OTCDD may refer to other, separate SEC rules, we are I For the reasons set forth in the
engage include options on particular amending the GSA rules to be more preamble, the Department of the
government securities. Such unlisted transparent and explicitly cover Treasury amends 17 CFR parts 400, 401,
options constitute ‘‘government OTCDDs. These amendments make no 402, 403, 404, and 405 as follows:
securities’’ for purposes of Section 15C substantive change, but merely add
of the Exchange Act.4 If OTCDDs act as PART 400—RULES OF GENERAL
specific references to OTCDDs as a APPLICATION
‘‘dealers’’ in OTC derivative instruments category of registered broker or dealer so
that are ‘‘government securities,’’ they that it will be clearer that OTCDDs are I 1. The authority citation for part 400
are also subject to regulation as treated the same way as other registered continues to read as follows:
‘‘government securities dealers’’ under brokers and dealers under the GSA
Section 15C of the Exchange Act and the Authority: 15 U.S.C. 78o–5.
rules. These changes appear in one
GSA regulations.5 general provision and four specific I 2. Section 400.1 is amended by
The GSA required the Secretary of the revising paragraph (a) to read as follows:
provisions of the GSA rules addressing
Treasury to adopt rules with respect to
financial responsibility, customer
transactions in government securities § 400.1 Scope of regulations.
protection, recordkeeping, and
effected by government securities (a) Title I of the Government
reporting, respectively.
brokers and dealers in the areas of Securities Act of 1986 (Pub. L. 99–571,
financial responsibility, protection of We have consulted with the staff of 100 Stat. 3208) amends the Securities
investor securities and funds, the SEC in developing this amendment. Exchange Act of 1934 (48 Stat. 881–905;
recordkeeping, reporting and audit. The Special Analysis 15 U.S.C. chapter 2B) (‘‘Act’’) by adding
regulatory framework established by the section 15C, authorizing the Secretary of
GSA required the Secretary in Because this rule makes no the Treasury to promulgate regulations
promulgating these rules to ‘‘consider substantive change to the existing rules, concerning the financial responsibility,
the sufficiency and appropriateness of and imposes no additional requirements protection of customer securities and
then existing law and rules applicable’’ on OTCDDs that are government balances, recordkeeping and reporting
to government securities brokers and securities brokers or dealers, we find of brokers and dealers in government
dealers.6 In issuing the final GSA rules under 5 U.S.C. 553(b)(B) and (d)(3) that securities. Those regulations constitute
in 1987, Treasury considered already there is good cause that notice and subchapter A of this chapter. Unless
existing regulation with a view toward public procedures are unnecessary, and otherwise explicitly provided, all
preventing overly burdensome and that the rule can be issued in direct final regulations in this subchapter apply to
form and made effective immediately. all government securities brokers or
2 Exchange Act Release No. 40594 (October 23,
The final rule is not a ‘‘significant dealers, including registered brokers or
1998), 63 FR 59362 (November 3, 1998). regulatory action’’ for the purposes of dealers and financial institutions.
3 Id. at 59364.
4 For purposes of section 78o–5, a ‘‘government
Executive Order 12866. Registered brokers or dealers include
security’’ includes an option on a government Because no notice of proposed OTC derivatives dealers.
security other than an option (i) that is traded on rulemaking is required, the provisions * * * * *
one or more national securities exchanges; or (ii) for
which quotations are disseminated through an of the Regulatory Flexibility Act (5
§ 400.2 [Amended]
automated quotation system operated by a U.S.C. 601 et seq.) do not apply.
registered securities association. 15 U.S.C. I 3. Amend § 400.2 as follows:
78c(42)(D). List of Subjects I A. In paragraph (c)(3)(vi), remove the
5 63 FR 59362. Under 15 U.S.C. 78o–5(a)(1)(B)(1),
17 CFR Part 400 reference ‘‘Room 553, 999 E Street
a broker or dealer effecting, inducing, or attempting
to induce the purchase or sale of a government
NW.,’’ and add in its place ‘‘9th Floor,
security must file with the appropriate regulatory Administrative practice and 799 9th Street NW.,’’.
I B. In paragraph (c)(7)(i), remove the
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agency written notice that it is a government procedure, Banks, Banking, Brokers,
securities broker or dealer. Thus, an OTC Government securities, Reporting and reference ‘‘Room 5030,’’ and add it is
derivatives dealer that engages in government place ‘‘Room 1318,’’.
securities transactions must also file notice of such
recordkeeping requirements.
activities with the SEC on Form BD. I 4. Section 400.3 is amended by
6 15 U.S.C. 78o–5(b)(5)(C). 7 52 FR 27910 (July 24, 1987). removing the alphabetical paragraph
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Federal Register / Vol. 71, No. 179 / Friday, September 15, 2006 / Rules and Regulations 54411
designations and adding a new under the ‘‘Columns 3 and 4’’ PART 405–REPORTS AND AUDITS
definition in alphabetical order for paragraph, remove the reference ‘‘17
‘‘OTC derivatives dealer’’ to read as CFR 400.3(m)’’ and add in its place ‘‘17 I 16. The authority citation for part 405
follows: CFR 400.3’’. continues to read as follows:
Authority: 15 U.S.C. 78o–5 (b)(1)(B),
§ 400.3 Definitions. PART 403—PROTECTION OF (b)(1)(C), (b)(2), (b)(4).
* * * * * CUSTOMER SECURITIES AND
OTC derivatives dealer has the same BALANCES I 17. Section 405.1 is amended by
meaning set out in 17 CFR 240.3b–12. revising paragraph (a) to read as follows:
* * * * * I 11. The authority citation for part 403 § 405.1 Application of part to registered
continues to read as follows: brokers and dealers and to financial
PART 401—EXEMPTIONS institutions; transition rule.
Authority: Sec. 101, Pub. L. 99–571, 100
I 5. The authority citation for part 401 Stat. 3209; sec. 4(b), Pub. L. 101–432, 104 (a) Compliance by registered brokers
continues to read as follows: Stat. 963; sec. 102, sec. 106, Pub. L. 103–202, or dealers with §§ 240.17a–5, 240.17a–8,
107 Stat. 2344 (15 U.S.C. 78o–5(a)(5), and 240.17a–11 of this title
Authority: Sec. 101, Pub. L. 99–571, 100 (b)(1)(A), (b)(4).
Stat. 3209 (15 U.S.C. 78o–5(a)(4)).
(Commission Rules 17a–5, 17a–8 and
17a–11), including provisions of those
§ 401.3 [Amended]
I 12. Section 403.1 is revised to read as rules relating to OTC derivatives
follows: dealers, constitutes compliance with
I 6. In paragraphs (a)(2)(ii)(B) and
(a)(2)(ii)(C), remove the reference § 403.1 Application of part to registered this part.
‘‘§ 400.3(c)’’ and add in its place brokers and dealers. * * * * *
‘‘§ 400.3’’. With respect to their activities in Dated: September 8, 2006.
§ 401.9 [Amended] government securities, compliance by Randal K. Quarles,
registered brokers or dealers with Under Secretary, Domestic Finance.
I 7. Amend § 401.9 as follows: § 240.8c–1 of this title (SEC Rule 8c–1), [FR Doc. E6–15231 Filed 9–14–06; 8:45 am]
I A. In paragraph (b), remove the as modified by § 403.2 (a), (b) and (c), BILLING CODE 4810–39–P
reference ‘‘§ 400.3(m)’’ and add in its with § 240.15c2–1 of this title (SEC Rule
place ‘‘§ 400.3’’. 15c2–1), with § 240.15c3–2 of this title
I B. In paragraph (i), remove the
(SEC Rule 15c3–2), as modified by DEPARTMENT OF HEALTH AND
reference ‘‘§§ 400.3 (k) and (l)’’ and add § 403.3, and with § 240.15c3–3 of this
in its place ‘‘§ 400.3’’. HUMAN SERVICES
title (SEC Rule 15c3–3), as modified by
I C. In paragraph (n), remove the
§ 403.4 (a) through (d), (f)(2) through (3), Food and Drug Administration
reference ‘‘§ 400.3(o)’’ and add in its
(g) through (j), and (m), including
place ‘‘§ 400.3’’.
provisions in those rules relating to OTC 21 CFR Part 73
I D. In paragraph (o), remove the
derivatives dealers, constitutes
reference ‘‘§ 400.3(j)’’ and add in its [Docket No. 1998C–0790] (formerly 98C–
compliance with this part.
place ‘‘§ 400.3’’. 0790)
I E. In paragraph (p), remove the
PART 404–RECORDKEEPING AND
reference ‘‘§ 400.3(b)’’ and add in its Listing of Color Additives Exempt
PRESERVATION OF RECORDS
place ‘‘§ 400.3’’. From Certification; Mica-Based
Pearlescent Pigments; Confirmation of
PART 402—FINANCIAL I 13. The authority citation for part 404 Effective Date
RESPONSIBILITY continues to read as follows:
Authority: 15 U.S.C. 78o–5 (b)(1)(B), AGENCY: Food and Drug Administration,
I 8. The authority citation for part 402 (b)(1)(C), (b)(2), (b)(4). HHS.
continues to read as follows: ACTION: Final rule; confirmation of
Authority: 15 U.S.C. 78o–5(b)(1)(A), (b)(4). I 14. Section 404.1 is revised to read as effective date.
follows:
I 9. Section 402.1 is amended by SUMMARY: The Food and Drug
revising paragraph (b) to read as follows: § 404.1 Application of part to registered Administration (FDA) is confirming the
brokers and dealers. effective date of July 5, 2006, for the
§ 402.1 Application of part to registered
Compliance by a registered broker or final rule that appeared in the Federal
brokers and dealers and financial
institutions; special rules for futures dealer with § 240.17a–3 of this title Register of June 2, 2006 (71 FR 31927).
commission merchants and government (pertaining to records to be made), The final rule amended the color
securities interdealer brokers; effective § 240.17a–4 of this title (pertaining to additive regulations to provide for the
date. preservation of records), § 240.17a–13 of safe use of titanium dioxide coated
* * * * * this title (pertaining to quarterly mica-based pearlescent pigments as
(b) Registered brokers or dealers. This securities counts) and § 240.17a–7 of color additives in the following foods:
part does not apply to a registered this title (pertaining to records of non- Cereals, confections and frostings,
broker or dealer (including an OTC resident brokers or dealers), including gelatin desserts, hard and soft candies
derivatives dealer) that is subject to provisions in those rules relating to OTC (including lozenges), nutritional
§ 240.15c3–1 of this title (SEC Rule derivatives dealers, constitutes supplement tablets and gelatin capsules,
15c3–1). compliance with this part. and chewing gum.
DATES: Effective date confirmed: July 5,
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* * * * * § 404.4 [Amended] 2006.
§ 402.2a [Amended] I 15. In paragraph (a)(3)(i)(B), remove FOR FURTHER INFORMATION CONTACT: Paul
I 10. In paragraph (c), under the the reference ‘‘§ 400.3(c)’’ and add in its C. DeLeo, Center for Food Safety and
heading for Schedule B, in paragraph (1) place ‘‘§ 400.3’’. Applied Nutrition (HFS–265), Food and
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