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76973

Rules and Regulations

Federal Register
Vol. 78, No. 245
Friday, December 20, 2013

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.

PART 208—[AMENDED]
1. Revise the authority for 12 CFR part
208 to read as follows:

■

FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 217, and 225
Regulations H, Q, and Y
[Docket No. R–1442]
RIN 7100–AD 87

Regulatory Capital Rules: Regulatory
Capital, Implementation of Basel III,
Capital Adequacy, Transition
Provisions, Prompt Corrective Action,
Standardized Approach for RiskWeighted Assets, Market Discipline
and Disclosure Requirements,
Advanced Approaches Risk-Based
Capital Rule, and Market Risk Capital
Rule
Board of Governors of the
Federal Reserve System.
ACTION: Correction, final rule.
AGENCY:

The Board of Governors of the
Federal Reserve System published in
the Federal Register of October 11,
2013, a document adopting a final rule
that revises its risk-based and leverage
capital requirements for banking
organizations. This document adds an
acceleration clause under the capital
components and eligibility criteria for
regulatory capital instruments and
corrects an incorrect citation.
DATES: Effective Date: January 1, 2014.
FOR FURTHER INFORMATION CONTACT:
Benjamin McDonough, Senior Counsel,
(202) 452–2036; or David Alexander,
Senior Attorney, (202) 452–2877.
SUPPLEMENTARY INFORMATION: The Board
published a document in the Federal
Register of October 11, 2013, adopting
a final rule that revises its risk-based
and leverage capital requirements for
banking organizations. An allowance for
additional circumstances under which
an acceleration clause would be
permitted under the capital components
and eligibility criteria for regulatory
capital instruments was inadvertently
omitted from that notice.

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SUMMARY:

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In addition, this notice corrects an
incorrect citation to the authority for 12
CFR part 208.
In the Final Rule, FR Doc. 2013–
21653, published on October 11, 2013
(78 FR 62018), please correct the
following:

Authority: 12 U.S.C. 24, 36, 92a, 93a,
248(a), 248(c), 321–338a, 371d, 461, 481–486,
601, 611, 1814, 1816, 1818, 1820(d)(9),
1823(j), 1828(o), 1831, 1831o, 1831p–1,
1831r–1, 1831w, 1831x, 1835a, 1882, 2901–
2907, 3105, 3310, 3331–3351, 3905–3909,
and 5371; 15 U.S.C. 78b, 78I(b), 78l(i), 780–
4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w,
6801, and 6805; 31 U.S.C. 5318; 42 U.S.C.
4012a, 4104a, 4104b, 4106 and 4128.

2. In § 217.20, under amendatory
instruction 49A, revise paragraph
(d)(1)(vi) to read as follows:

■

§ 217.20 Capital components and eligibility
criteria for regulatory capital instruments.

*

*
*
*
*
(vi) The holder of the instrument must
have no contractual right to accelerate
payment of principal or interest on the
instrument, except in the event of a
receivership, insolvency, liquidation, or
similar proceeding of the state member
bank or depository institution holding
company, as applicable, or of a major
subsidiary depository institution of the
depository institution holding company.
*
*
*
*
*
By order of the Board of Governors of the
Federal Reserve System, December 11, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013–29883 Filed 12–19–13; 8:45 am]
BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM
12 CFR Part 234
[Regulation HH; Docket No. R–1455]
RIN 7100 AD–94

Financial Market Utilities
Board of Governors of the
Federal Reserve System.
ACTION: Final rulemaking.
AGENCY:

The Dodd-Frank Wall Street
Reform and Consumer Protection Act

SUMMARY:

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(the ‘‘Dodd-Frank Act’’ or ‘‘Act’’)
permits the Board of Governors of the
Federal Reserve System (the ‘‘Board’’) to
authorize a Federal Reserve Bank to
establish and maintain an account for,
and through the account provide certain
financial services to, financial market
utilities (‘‘FMUs’’) that are designated as
systemically important by the Financial
Stability Oversight Council (the
‘‘Council’’). In addition, the Dodd-Frank
Act permits a Reserve Bank to pay
interest on the balances maintained by
or on behalf of a designated FMU. The
Board is promulgating regulations to
implement these provisions of the
Dodd-Frank Act.
DATES: This final rule is effective
February 18, 2014.
FOR FURTHER INFORMATION CONTACT: Jeff
Stehm, Senior Associate Director (202)
452–2217 or Stuart Sperry, Assistant
Director (202) 452–3832, Division of
Reserve Bank Operations and Payment
Systems; Christopher W. Clubb, Special
Counsel (202) 452–3904 or Kara L.
Handzlik, Counsel (202) 452–3852,
Legal Division; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:
I. Background
A. Dodd-Frank Wall Street Reform and
Consumer Protection Act
FMUs, such as payment systems,
central securities depositories, and
central counterparties, are critical
components of the nation’s financial
system that provide the essential
infrastructure to clear and settle
payments and other financial
transactions, upon which the financial
markets and the broader economy rely
to function effectively. FMUs operate
multilateral systems in which financial
institutions, such as banks, participate
pursuant to a common set of rules and
procedures, a technical infrastructure,
and a risk-management framework.1
Title VIII of the Dodd-Frank Act,
titled the ‘‘Payment, Clearing, and
Settlement Supervision Act of 2010,’’
was enacted to mitigate systemic risk in
the financial system and to promote
1 Under section 803 of the Act, an FMU is defined
as a person that manages or operates a multilateral
system for the purpose of transferring, clearing, or
settling payments, securities, or other financial
transactions among financial institutions or
between financial institutions and the person. 12
U.S.C. 5462(6).

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financial stability, in part, through an
enhanced supervisory framework for
FMUs designated as systemically
important by the Council.2 Designation
by the Council makes an FMU subject
to the supervisory and risk reduction
framework set out in Title VIII of the
Dodd-Frank Act. This framework
includes risk management standards,
promulgated by the designated FMU’s
Supervisory Agency, that take into
consideration relevant international
standards and existing prudential
requirements, with the objectives of
promoting robust risk management and
safety and soundness of the designated
FMU, reducing systemic risks, and
supporting the stability of the broader
financial system.3 The framework also
includes ex ante review of changes to
the rules, procedures, or operations of a
designated FMU that could materially
affect the nature or level of risk
presented by the designated FMU,
enhanced annual examinations of
designated FMUs, and enhanced
enforcement and information collection
provisions.
In addition to these provisions,
section 806(a) of the Act permits the
Board to authorize a Federal Reserve
Bank (‘‘Reserve Bank’’) to establish and
maintain an account for a designated
FMU and provide to the designated
FMU the services listed in section
11A(b) of the Federal Reserve Act (12
U.S.C. 248a(b)) that the Reserve Bank is
authorized to provide to a depository
institution, subject to any applicable
rules, orders, standards, or guidelines
prescribed by the Board.4 The services
2 The Dodd-Frank Act, Public Law. 111–203, 124
Stat. 1376, was signed into law on July 21, 2010.
Section 803(9) of the Act authorizes the Council to
designate an FMU for enhanced supervision when
the Council finds, among other things, that the
failure of, or a disruption to the functioning of, an
FMU would create, or increase, the risk of
significant liquidity or credit problems spreading
among financial institutions or markets and thereby
threaten the stability of the financial system of the
United States. 12 U.S.C. 5462(3) and (9).
3 Pursuant to section 803(8) of the Act, the
‘‘Supervisory Agency’’ generally means the Federal
agency that has primary jurisdiction over a
designated FMU under Federal banking, securities,
or commodity futures law, including the Securities
and Exchange Commission (SEC) with respect to a
designated FMU that is a clearing agency registered
with the SEC, the Commodity Futures Trading
Commission (CFTC) with respect to a designated
FMU that is a derivatives clearing organization
registered with the CFTC, and the Board with
respect to a designated FMU that is an institution
subject to the Board’s jurisdiction as described in
section 3(q) of the Federal Deposit Insurance Act.
The Board is also the Supervisory Agency for any
designated FMU that is otherwise not subject to the
jurisdiction of any agency as listed in section 803(8)
of the Act.
4 Section 806(a) of the Act also permits the Board
to authorize a Reserve Bank to establish deposit
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listed in Section 11A(b) include wire
transfers, settlement, and securities
safekeeping, as well as services
regarding currency and coin, check
clearing and collection, and automated
clearing house transactions. Section
806(c) of the Dodd-Frank Act permits a
Reserve Bank to pay earnings on
balances maintained by or on behalf of
a designated FMU in the same manner
and to the same extent as the Reserve
Bank may pay earnings to a depository
institution under the Federal Reserve
Act, subject to any applicable rules,
orders, standards, or guidelines
prescribed by the Board.
On March 4, 2013, the Board
published a notice of proposed
rulemaking (‘‘NPRM’’) to amend
Regulation HH by adding two new
sections set to out the conditions and
requirements for a Reserve Bank to open
and maintain accounts for and provide
financial services to designated FMUs,
as well as to set out provisions regarding
a Reserve Bank’s payment of interest on
the balances maintained by a designated
FMU at the Reserve Banks. The public
comment period for the NPRM closed
on May 3, 2013.
II. Summary of Public Comments and
Analysis
The Board received five comment
letters on the NPRM.5 Comments were
submitted by three entities that were
designated FMUs or affiliates of
designated FMUs, one banking trade
association, and an individual at a
university-based research center. The
Board considered these comments in
developing its final rule as discussed in
more detail below.
A. Section 234.1(b)—Purpose and Scope
Proposed § 234.1(b) clarified that Part
234 also includes standards,
restrictions, and guidelines for the
establishment and maintenance of an
account at, and provision of financial
services from, a Reserve Bank for a
designated FMU. Proposed § 234.1(b)
also clarified that Part 234 confirms the
terms under which a Reserve Bank may
pay a designated FMU interest on the
designated FMU’s balances held at the
Reserve Bank. The Board did not receive
any comments regarding its proposed
amendments to § 234.1(b) and is
adopting revised § 234.1(b) as proposed.
section 13 of the Federal Reserve Act (12 U.S.C.
342).
5 The comment letters are available at http://
www.federalreserve.gov/apps/foia/
ViewComments.aspx?doc_id=R–1455&doc_ver=1.

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B. Section 234.6—Access to Reserve
Bank Accounts and Services
Generally sound financial condition.
Proposed § 234.6 set out the conditions
and requirements for a Federal Reserve
Bank to establish and maintain an
account for, and provide services to, a
designated FMU pursuant to section
806(a) of the Act. As noted in the
NPRM, the proposed terms and
conditions are designed to provide the
Federal Reserve Bank and the Board
with sufficient information to assess a
designated FMU’s ongoing condition as
it pertains to the FMU’s ability to settle
promptly and to manage its settlement
process and Reserve Bank account(s)
safely.6 Proposed § 234.6(b) required
that a Reserve Bank ensure that its
establishment and maintenance of an
account for, or provision of services to,
a designated FMU does not create
undue credit, settlement, or other risks
to the Reserve Bank and, in this regard,
sets out minimum conditions that a
designated FMU must meet, in the
Reserve Bank’s judgment, in order for
the Reserve Bank to establish and
maintain an account for, or provide
services to, a designated FMU. The
minimum requirements are set out in
proposed § 234.6(b)(1) through (4).
Proposed § 234.6(b)(1) required the
designated FMU to be in generally
sound financial condition. One
commenter supported the proposed
requirements regarding sound financial
condition. Two commenters opposed
adoption of the ‘‘generally sound
financial condition’’ standard. The
commenters opposed generally stated
that the designated FMU’s compliance
with requirements imposed by its own
supervisor regarding financial resources
and risk management should suffice for
the Board’s standard for a Reserve
Bank’s maintenance of an account for
and provision of services to the
designated FMU. In addition, the
commenters stated that the imposition
of the additional subjective ‘‘generally
sound’’ condition could cause confusion
in the market as to whether the
designated FMU will remain eligible to
rely on the Reserve Bank account and
services. Alternatively, the commenters
argued that, if the Board believes that a
6 As noted in the NPRM, unlike depository
institutions, designated FMUs do not have regular
access to discount window lending, so the Board
expects that Reserve Banks will provide accounts
and services, and designated FMUs will structure
their settlement processes and use of Reserve Bank
accounts and services, in a manner that would seek
to avoid inadvertent intraday account overdrafts
where possible. Nevertheless, there may be
instances where a designated FMU could incur an
inadvertent overdraft. In such cases, the Board
would expect a designated FMU to have the
resources to promptly rectify any such overdrafts.

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designated FMU’s eligibility to continue
to benefit from a Reserve Bank account
and services requires a financial
condition standard in addition to that
imposed by its supervisor, the Board
should provide more clarity regarding
the standard to permit the designated
FMU and its participants to evaluate the
risk that the designated FMU may lose
access to the Reserve Bank account and
services.
After considering the public
comments, the Board continues to
believe that the sound financial
condition requirement should be
retained as a minimum condition for
access to Reserve Bank accounts and
services. Such a requirement is a basic
condition similar to requirements
placed on state-member banks.7 The
condition makes clear that designated
FMUs seeking to establish or maintain
access to Reserve Bank accounts and
services, at a minimum, must be solvent
and capable of meeting their obligations
arising through their use of Reserve
Bank accounts and services. Although
the requirements imposed by a
designated FMU’s Supervisory Agency
regarding financial resources and risk
management may be a key
consideration, the design of the
Supervisory Agency’s financial
requirements may not be focused on the
impact of the designated FMU on its
settlement bank. The Board believes that
in order for the Reserve Bank to conduct
its own risk management, it is important
that the Reserve Bank have the ability to
judge the financial condition of account
holders on its balance sheet. A
designated FMU’s unexpected financial
stress could have a negative impact on
its ability to appropriately manage its
Reserve Bank account.
In response to the comments
recommending more clarity regarding
the generally sound financial condition
requirement, the Board has inserted
additional detail regarding the standard
in the final rule. For purposes of access
to Reserve Bank accounts and services
pursuant to Regulation HH, the final
rule clarifies that ‘‘generally sound
financial condition’’ includes
maintenance of sufficient working
capital and cash flow to permit the
designated FMU to continue as a going
concern and to meet its current and
projected operating expenses under a
range of scenarios. In judging whether a
designated FMU is in generally sound
financial condition, therefore, the
Reserve Bank will look to both the
7 Section 9(4) of the Federal Reserve Act (12
U.S.C. 322) requires the Board to consider the
financial condition of any State bank applying for
membership in the Federal Reserve System.

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overall balance sheet solvency of the
designated FMU as a ‘‘going concern’’ as
well as its ability to meet its general
business obligations through current
and projected cash flows to provide the
Reserve Bank with some indication that
the accountholder is operating on a
reasonably sound financial basis and
will continue as a going concern, even
in various financial stress scenarios. In
reaching this judgment, the Reserve
Bank will take into account the
designated FMU’s compliance with
relevant financial resource requirements
of its Supervisory Agency and the views
of the Supervisory Agency regarding the
overall financial condition of the
designated FMU.
Supervisory Agency requirements.
Proposed § 234.6(b)(2) required the
designated FMU to be in compliance,
based on information provided by the
Supervisory Agency, with requirements
imposed by the Supervisory Agency
regarding financial resources, liquidity,
participant default management, and
other aspects of risk management. One
commenter pointed out that proposed
§ 234.6(b) made a designated FMU’s
compliance with the minimum
conditions in proposed § 234.6(b)(1)
through (4) ‘‘in the Federal Reserve
Bank’s judgment,’’ and this could be
interpreted as the Reserve Bank
exercising its own judgment as to
whether the designated FMU was in
compliance with requirements imposed
by its Supervisory Agency. The
commenter also recommended that the
final rule require an explicit statement
from the Supervisory Agency as
evidence of compliance with its rules
and requirements instead of imposing
the judgment of the Federal Reserve
Bank in this determination.
The Board did not intend the
commenter’s interpretation of these
provisions and is revising the final rule
to provide clarity. In the final rule, the
requirement regarding compliance with
the Supervisory Agency’s requirements
regarding financial resources, liquidity,
participant default management, and
other aspects of risk management has
been moved to a separate sentence in
the text of § 234.6(b) and thus is not
subject to the phrase ‘‘in the Federal
Reserve Bank’s judgment,’’ which
covers the remaining conditions set out
in § 234.6(b)(1) through (3). In addition,
the requirement in the final rule
clarifies that the designated FMU’s
compliance with the Supervisory
Agency’s regulatory and supervisory
requirements is to be ‘‘determined by
the Supervisory Agency.’’ Compliance
with the Supervisory Agency’s
regulatory and supervisory requirements
regarding financial resources, liquidity,

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participant default management, and
other aspects of risk management is an
important consideration for a Reserve
Bank account and services, but the
Board intends for the Reserve Bank to
consult with the Supervisory Agency
only in this regard and not for the
Reserve Bank to conduct its own review
for accounts and services purposes.
Compliance with Board policies.
Proposed § 234.6(b)(3) required that a
designated FMU be in compliance with
Board orders and policies, Federal
Reserve Bank operating circulars, and
other applicable Federal Reserve
requirements regarding the
establishment and maintenance of a
Reserve Bank account and the receipt of
financial services from a Reserve Bank.
One commenter stated that it is
necessary and appropriate to require a
designated FMU to be in compliance
with these provisions. Another
commenter noted that, in some cases,
Board orders for granting certain types
of FMUs access to Reserve Bank services
may need to be tailored in a manner
different than existing provisions
applied to depository institutions, such
as permitting ongoing multiple
accounts. As noted in the NPRM, the
Board expects that Reserve Banks would
enter into account and service
agreements with designated FMUs that
are generally consistent with the
provisions of existing Reserve Bank
operating circulars for such services, but
recognizes that there may be a need for
some flexibility to tailor certain parts of
such agreements or provide for certain
restrictions because of the wide variety
of organizations, operations, and
business models presented by
designated FMUs. As set out in
proposed §§ 234.6(a) and (b)(2), the
Board’s authorization order may, as
necessary for a particular designated
FMU, include authorization for the
Reserve Bank to enter into an agreement
with the designated FMU that provides
for modification of the terms in existing
operating circulars for the approved
services and supersedes such operating
circular terms. In order to provide
clarity, the final rule states in
§ 234.6(b)(2) that a designated FMU
must be in compliance with Reserve
Bank account agreements and, as
applicable, operating circulars and other
Federal Reserve requirements.
Ongoing ability to meet account
obligations. Proposed § 234.6(b)(4)
required the Reserve Bank to determine
that the designated FMU can
demonstrate an ongoing ability,
including during periods of market
stress or a participant default, to meet
all of its obligations under its agreement
for a Reserve Bank account and services.

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One commenter suggested that it would
be useful for the Board to further clarify
the criteria and expectations that will be
used in assessing the adequacy of the
demonstration of ongoing ability to meet
account obligations and how such
assessments will be conducted. This
commenter expressed concern that
inclusion of this requirement without
further clarification presents the
possibility of a new set of standards
being established in parallel to the
existing regulatory framework and
substantially increasing regulatory
uncertainty and burden for designated
FMUs.
The Board believes that it is important
that a designated FMU seeking Reserve
Bank accounts and services demonstrate
an ability to (1) Maintain well-managed
and well-controlled settlement
operations, including the ability to
monitor and process transactions
throughout the day in a timely and
controlled manner to and from its
Reserve Bank account, (2) monitor and
maintain account balances at all times
during the day sufficient to avoid
intraday overdrafts, and (3) mobilize
liquid resources in a timely manner to
fund its account as necessary given its
intended use of the account and any
regulatory requirements for sound and
timely settlement of its transactions. In
order to support these objectives and in
response to the public comments, the
Board has included in § 234.6(b) of the
final rule additional detail regarding the
minimum condition for a designated
FMU to have an ongoing ability to meet
all of its obligations under its agreement
for a Reserve Bank account and services.
The final rule clarifies that a designated
FMU’s ongoing ability to meet its
Reserve Bank account obligations
includes maintaining (i) Sufficient
liquid resources to meet its obligations
under the account agreement; (ii) the
operational capacity to ensure that such
liquid assets are available to satisfy the
account obligations on a timely basis in
accordance with the account agreement;
and (iii) sound money settlement
processes designed to adequately
monitor its Reserve Bank account on an
intraday basis, process money transfers
through its account in an orderly
manner, and complete final money
settlement no later than the value date.
In assessing the adequacy of a
designated FMU’s ongoing ability to
meet account obligations, the Board will
look in the first instance to existing
requirements imposed by a designated
FMU’s Supervisory Agency with regard
to settlement, liquidity risk management
and default procedures as well as
operational risk management. The
Board, however, may impose additional

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conditions, such as minimum balance
requirements, restrictions on outgoing
payments that would cause a designated
FMU’s account to be overdrawn, or
limitations on receipt of securities
against payment, on a designated FMU’s
use of Reserve Bank accounts and
services if in the Board’s judgment it
believes the designated FMU’s
settlement practices introduce risk to
the Reserve Bank.
Termination of accounts or services.
Proposed § 234.6(e) stated that, in
addition to any right that a Reserve
Bank has to limit or terminate an
account or the use of a service pursuant
to an agreement, the Board may direct
the Reserve Bank to impose limits,
restrictions, or other conditions on the
availability or use of a Reserve Bank
account or service by a designated FMU,
including directing the Reserve Bank to
terminate the use of a particular service
or to close the account. One commenter
supported the termination provisions
stating that account or service
termination or restriction are consistent
with sound risk management and
supervisory oversight. Another
commenter raised concerns that a
designated FMU’s access to a Reserve
Bank account and services may be
terminated during periods in which the
accounts and services are critical and
would be difficult for the designated
FMU to replace. This commenter stated
that market stability demands a clear
statement by the Board in the final rule
that (i) Termination would be based on
clearly defined standards, (ii) a decision
to terminate will consider not only risks
of continuing to maintain the Reserve
Bank account and services, but also the
systemic effects of terminating them,
and (iii) in the event of such
termination, the Board will cooperate
with the designated FMU to provide for
a transition to private sector services
that is as smooth and seamless as is
reasonably possible.
The Board is mindful of the critical
role played by designated FMUs in the
markets they serve and that an
unanticipated termination of a
designated FMU’s access to an existing
Reserve Bank account and services
could have an adverse impact on the
designated FMU and the market. The
Board believes, however, that it must
retain broad discretion to close an
account or restrict services provided to
an accountholder when it deems it
necessary.8 In making a decision to
8 The account arrangements that the Reserve
Banks have with depository institutions also
provide the Reserve Bank with the discretion to
terminate an account without substantive
preconditions. Section 2.10 of the Reserve Banks’
Operating Circular 1 (Account Relationships)

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direct a Reserve Bank to terminate a
designated FMU’s account or services,
the Board would consider, among other
factors, the impact that termination of a
designated FMU’s account and services
would have on participants in the
designated FMU and financial markets
more broadly, as well as the risk
presented by the designated FMU’s
account to the Federal Reserve. The
Board would expect to balance the
various factors involved in the decision
before directing the Reserve Bank to
terminate the account or service. In
order to reflect this process, § 234.6(d),
the termination provision in the final
rule, includes a sentence that requires a
Reserve Bank to consult with the Board
regarding continued maintenance of an
account or provision of services if the
Reserve Bank determines that a
designated FMU no longer complies
with one or more of the minimum
conditions in § 234.6(b). A decision by
the Board to direct a Reserve Bank to
restrict or terminate an account or
service will be made only after
considering all the relevant facts and
circumstances.
C. Section 234.7—Interest on Balances
Proposed § 234.7 clarified the
authority of a Reserve Bank to pay
interest on any balance that a designated
FMU maintains in its account with that
Reserve Bank. In particular, proposed
§ 234.7(b) provides that interest paid by
a Reserve Bank on balances maintained
by a designated FMU in its Reserve
Bank account shall be at the rate paid
on balances maintained by depository
institutions or another rate determined
by the Board from time to time, not to
exceed the general level of short-term
interest rates. One commenter
supported this section as an
implementation of the statutory
provisions of section 806(c) of the Act.
The Board did not receive any
comments objecting to proposed § 234.7,
and the Board is adopting it in the final
rule as proposed.
D. Miscellaneous Issues
In addition to suggestions for
revisions in the proposed text of the
regulation as discussed above,
commenters also raised various
concerns regarding the impact of the
proposal on various aspects of a
designated FMU’s business or
operations and the financial markets
more generally. These comments are
discussed in more detail below.
permits the Reserve Bank to terminate an account
‘‘at any time by notice to the Account Holder but
will endeavor to give not less than five business
days prior notice.’’

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Protection of confidential supervisory
information. One commenter raised
concerns that the proposed rule
suggested that confidential information
regarding the designated FMU necessary
to determine compliance with the
proposed conditions would be shared
with Reserve Bank personnel
responsible for offering priced services,
such as the Fedwire Funds Transfer
service. The commenter suggested that
the Board should do its own evaluation
of a designated FMU’s compliance with
the conditions and then certify to the
Reserve Bank that the designated FMU
meets all the requirements for an
account.
Confidential information regarding a
designated FMU that a Reserve Bank
may assess to determine compliance
with the proposed conditions generally
cannot be shared with Reserve Bank
personnel responsible for offering
priced services under existing Board
policies and requirements. The Federal
Reserve has long exercised great care to
avoid actual or apparent conflict
between its role as a provider of services
and its role as a regulator, supervisor,
and lender.9 In particular, Reserve Bank
personnel involved in monetary policy,
bank supervision, or the lending
function are generally prohibited from
providing confidential information
obtained in the course of their duties to
Reserve Bank priced-service
personnel.10 For example, in opening,
maintaining, and terminating accounts
for depository institutions, the Reserve
Banks’ credit risk management
functions may review and assess certain
confidential information, including
confidential supervisory information,
regarding the condition of the
institution and risks it might pose to the
Reserve Bank. The credit risk
management function in a Reserve
Bank, however, is prohibited from
sharing such information with any
priced-service personnel and must
handle such information in accordance
with the Board’s requirements
governing confidential information and
its standards regarding price-service
activities. The Board’s policies and
requirements with regard to handling of
confidential information also apply to
the opening, maintenance, and
9 See ‘‘Standards Related to Priced-Service
Activities of the Federal Reserve Banks’’ (1984),
which can be found at http://
www.federalreserve.gov/paymentsystems/pfs_
standards.htm.
10 The policy provides an exception to this
restriction when such action fulfills an important
supervisory objective, preserves the integrity of the
payment mechanism, or protects the assets of the
Reserve Bank. In such cases, information will be
provided on a need-to-know basis and only with the
approval of senior management.

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termination of an account for a
designated FMU.
The Board also does not believe that
doing its own evaluation of a designated
FMU’s compliance with the conditions
for an account and then certifying to the
Reserve Bank that the designated FMU
meets all the requirements is the
appropriate process. Accounts reflect
deposit liabilities on the balance sheet
of a Reserve Bank and risks associated
with such accounts are borne by the
Reserve Bank as the legal entity offering
and maintaining such accounts. As
such, the credit risk management
functions in the Reserve Banks should
have access to, and be able to perform,
their own evaluation of a designated
FMU’s compliance with the conditions,
both initially and on an ongoing basis.
Reserve Bank accounts not
mandatory. One commenter stated that
payment systems and other settlement
arrangements have managed without
their own Reserve Bank accounts for
decades and designated FMUs should
not be forced to shift their current
account arrangements to Reserve Bank
accounts under the Regulation HH
framework. Title VIII of the Act allows
the Board to authorize Reserve Bank
accounts for designated FMUs, but it
does not require them. A designated
FMUs certainly may determine for
business purposes that it does not have
a need for an account offered at a
Reserve Bank under the authority of
§ 806 of the Act. The Board or the
Reserve Banks, however, may always
require alteration of existing Reserve
Bank account arrangements, even those
maintained for designated FMUs under
other authority, for legal, policy, or
other purposes.
Reserve Bank accounts covered by
protection of netting contracts. One
commenter stated that the Board should
state as part of Regulation HH that any
accounts covered by the regulation (and
the corresponding credit balance
accounts that the FMU would hold for
the participants) would be exempt from
garnishment, attachment, or similar
process because any such action would
amount to a ‘‘stay, injunction,
avoidance, moratorium, or similar
proceeding or order’’ that would ‘‘limit
or delay application of otherwise
enforceable netting contracts’’ and thus
prohibited under 12 U.S.C. 4405.
Under 12 U.S.C. 4405, the statutory
protection is applicable only with
respect to netting contracts governed by
12 U.S.C. 4403 and 4404. Moreover, the
stay in 12 U.S.C. 4405 is self-actuating
and applies as a matter of law. The
Board does not have rulemaking
authority with respect to that provision.
There may be designated FMUs with

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Reserve Bank accounts established
under the Board’s final rule that use
netting contracts protected by 12 U.S.C.
4405, as well as designated FMUs with
Reserve Bank accounts that do not have
such netting contracts. However, section
4405 does not provide the Board with
the authority to determine whether a
garnishment, attachment, or similar
process against a particular Reserve
Bank account would amount to a
violation of § 4405.
Central counterparties under the
Dodd-Frank Act regulatory regime. One
commenter raised concerns regarding
the new regulatory regime for central
counterparties under the Dodd-Frank
Act, the implications of granting these
entities ‘‘bank-like’’ privileges at the
Reserve Banks, and the possibility that
one or more FMUs will be bailed out at
taxpayer expense. The commenter
suggested that the Board undertake an
exhaustive regulatory analysis regarding
designated FMUs having access to
Reserve Bank accounts and services,
and that such analysis should include
the broader implications of the DoddFrank Act’s transformation of the
relationship between the Federal
Reserve and designated FMUs,
including Federal Reserve exposure to
losses, such as through overdrafts, and
competitive impacts. The commenter
states that providing Reserve Bank
accounts and services to designated
FMUs would ‘‘blur the line between
FMUs and banks and thus make it easier
for the Federal Reserve to provide
support to these institutions without
public notice or accountability.’’ The
commenter suggests that the Board,
before proceeding with this rulemaking,
should consider revisiting the regulatory
structure put in place by the DoddFrank Act because of the risks it causes
CCPs to take on that could ultimately be
borne by taxpayers.
The Board does not believe that the
provision of Reserve Bank accounts and
services to designated FMUs grants
these entities broad ‘‘bank-like’’
privileges or makes it easier for these
entities to receive support.11 The use of
Reserve Bank accounts and services by
designated FMUs is for the narrow
purpose of providing these critical
market infrastructures a safer and more
transparent option to collect and hold
the financial assets, such as margins,
11 As noted above and in the NPRM, the Board
expects that Reserve Banks will provide accounts
and services, and designated FMUs will structure
their settlement processes and use of Reserve Bank
accounts and services, in a manner that would seek
to avoid inadvertent intraday account overdrafts
where possible. In addition, the Board would
expect a designated FMU to have the resources to
promptly rectify any such overdrafts.

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required to cover their credit and
liquidity risks. These financial assets are
critical to the management of
participant defaults and the mitigation
of systemic risk in the financial system.
Even within these narrow purposes, the
Dodd-Frank Act provided authority to
the Board to set any additional terms,
conditions or limitations it believes
necessary when authorizing a Reserve
Bank to provide accounts and services
to a designated FMU. The proposed rule
in § 234.6(b) provides a set of minimum
conditions in this regard that are
intended to prevent any ‘‘undue credit,
settlement, or other risk to the Reserve
Bank’’ in providing accounts and
services to designated FMUs. The Board
may also set additional conditions on a
case-by-case basis under § 234.6(a). The
Board does not believe that a designated
FMU’s access to Reserve Bank accounts
and services is intended to serve as a
gateway for the FMU to offer general
banking services or engage in financial
activities unrelated to its market
clearing and settlement activities.
The Board also does not believe that
it can revisit the structure regarding
central counterparties put in place by
the Dodd-Frank Act. Rather, the Board
is adopting regulations, as authorized by
the Dodd-Frank Act, to achieve the
intended benefits of such accounts and
services, while preventing any undue
risks to the Reserve Banks.

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III. Administrative Law Matters
A. Final Regulatory Flexibility Act
Analysis
The Regulatory Flexibility Act (the
‘‘RFA’’) (5 U.S.C. 601 et seq.) generally
requires an agency to perform an initial
and a final regulatory flexibility analysis
on the impact a rule is expected to have
on small entities. However, under
section 605(b) of the RFA, the regulatory
flexibility analysis otherwise required
under section 604 of the RFA is not
required if an agency certifies, along
with a statement providing the factual
basis for such certification, that the rule
will not have a significant economic
impact on a substantial number of small
entities. In this case, the final rule may
apply to FMUs that are designated by
the Council as systemically important to
the U.S. financial system. Based on
current information, the Board believes
that the FMUs that have been and
would likely be designated by the
Council would not be ‘‘small entities’’
for purposes of the RFA, and so, the
proposed rule likely would not have a
significant economic impact on a
substantial number of small entities (5
U.S.C. 605(b)). The authority to
designate systemically important FMUs,

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however, resides with the Council,
rather than the Board, and the Board
cannot therefore be assured of the
identity of the FMUs that the Council
may designate in the future.
Accordingly, a Final Regulatory
Flexibility Analysis has been prepared
in accordance with 5 U.S.C. 603, based
on current information.
1. Statement of the need for,
objectives of, and legal basis for, the
final rule. The Board is finalizing
additional regulations to implement
certain provisions of Title VIII of the
Dodd-Frank Act. Pursuant to section
806(a) of the Act, § 234.6 sets out
conditions under which the Board
would authorize a Federal Reserve Bank
to establish and maintain an account for
a designated FMU and provide the
designated FMU services through the
account. Pursuant to section 806(c) of
the Dodd-Frank Act, § 234.7 sets out
conditions for a Reserve Bank to pay
interest on the balances maintained by
a designated FMU at the Reserve Banks.
Under section 806 of the Act, all of
these authorities are subject to any
applicable rules or regulations that the
Board may prescribe. The Board
believes that the final regulations herein
are necessary to provide guidance to the
Federal Reserve Banks in implementing
these authorities of the Act in an
appropriate and uniform manner and to
inform the affected institutions and the
public of the conditions for obtaining
Reserve Bank accounts and services.
These regulations do not address
Reserve Bank lending to designated
FMUs in unusual or exigent
circumstances pursuant to Dodd-Frank
Act section 806(b).
2. Small entities affected by the final
rule. The final rule affects FMUs that the
Council designates as systemically
important to the U.S. financial system.
The Council has designated eight FMUs
that would meet these conditions and be
affected by this final rule. Pursuant to
regulations issued by the Small
Business Administration (the ‘‘SBA’’)
(13 CFR 121.201), a ‘‘small entity’’
includes an establishment engaged in (i)
Financial transaction processing,
reserve and liquidity services, and/or
clearinghouse services with an average
revenue of $35.5 million or less (NAICS
code 522320); (ii) securities and/or
commodity exchange activities with an
average revenue of $35.5 million or less
(NAICS code 523210); and (iii) trust,
fiduciary, and/or custody activities with
an average revenue of $35.5 million or
less (NAICS code 523991). Based on
current information, the Board does not
believe that any of the FMUs that have
been or would likely be designated by

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the Council would be ‘‘small entities’’
pursuant to the SBA regulation.
3. Summary of the significant issues
raised by public comment on Board’s
initial Analysis, the Board’s assessment
of such issues, and a statement of any
changes made as a result of such
comments. The Board did not receive
any public comments regarding its
initial regulatory flexibility analysis for
this rulemaking. In addition, the Board
did not receive any comments from the
Chief Counsel for Advocacy of the Small
Business Administration in response to
the proposed rule.
4. Reporting, recordkeeping, and
other compliance requirements. The
final rule does not impose any explicit
reporting or recordkeeping
requirements, but does impose certain
other compliance requirements for a
designated FMU in order to receive the
benefits of a Reserve Bank account and
services. As noted above, section
234.6(b) establishes minimum
conditions for a designated FMU to
establish and maintain an account with
a Reserve Bank or receive financial
services from a Reserve Bank, such as
being in generally good financial
condition, being in compliance with
Federal Reserve policies and other
requirements regarding accounts and
services, and having an ongoing ability
to meet all its obligations under its
agreement for a Reserve Bank account
and services. In addition, pursuant to
Dodd-Frank Act section 806(a) and
section 234.6(a) of the final rule, the
Board may impose other limitations,
restrictions, or other requirements in its
authorization to the Reserve Bank to
establish the account for a particular
designated FMU. Finally, other
compliance requirements may be
contained in the Reserve Bank’s
agreements for the account and services,
including notice, reporting, or
recordkeeping requirements with
respect to particular designated FMU.
The types of professional skills
necessary to comply with these
requirements may include accounting,
legal, payments, and risk management.
All of these skill sets should be
available within a designated FMU’s
corporate structure.
5. Significant alternatives to the final
rule. The Board considered several
alternatives to the provisions being
adopted by this final rulemaking. As
noted above, the Board believes
promulgation of regulations is necessary
to provide guidance to the Federal
Reserve Banks in implementing sections
806(a) and (c) of the Dodd-Frank Act in
an appropriate and uniform manner and
to inform the affected institutions and
the public of the minimum conditions

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for obtaining Reserve Bank accounts and
services. The Board considered
alternatives forms of the regulations, in
particular balancing the amount of
detail included in the minimum
requirements for Reserve Bank accounts
and services to inform the designated
FMUs of the minimum conditions as
well as preserve flexibility for the
Reserve Banks in applying the
minimum conditions to designated
FMUs that vary considerably in
corporate structures, business models,
and risk profiles. As discussed above in
this notice, the Board has included more
detail regarding specific minimum
conditions in response to public
comments that requested the designated
FMUs be provided with more clarity
regarding how the requirements would
be applied. The Board believes that the
provisions in the final rule strike the
appropriate balance between these
objectives.
B. Paperwork Reduction Act Analysis
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR part 1320, Appendix A.1), the
Board reviewed the final rule under the
authority delegated to the Board by the
Office of Management and Budget. The
final rule contains no requirements
subject to the PRA.
IV. Statutory Authority
Pursuant to the authority in Title VIII
of the Dodd-Frank Act and particularly
sections 806(a) and (c) (12 U.S.C.
5465(a) and (c)), the Board proposes two
new sections to part 234 (Regulation
HH).

§ 234.6 Access to Federal Reserve Bank
accounts and services.

Text of Final Rules
List of Subjects in 12 CFR Part 234
Banks, Banking, Commodity futures,
Credit, Electronic funds transfers,
Financial market utilities, Securities.
Authority and Issuance
For the reasons set forth in the
preamble, the Board is amending 12
CFR part 234, as set forth below.
PART 234—DESIGNATED FINANCIAL
MARKET UTILITIES (REGULATION HH)
1. The authority citation for part 234
continues to read as follows:

■

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Authority: 12 U.S.C. 5461 et seq.

2. In § 234.1 revise paragraph (b) to
read as follows:

■

234.1

Authority, purpose, and scope.

*

*
*
*
*
(b) Purpose and scope. This part
establishes risk-management standards
governing the operations related to the

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payment, clearing, and settlement
activities of designated financial market
utilities. In addition, this part sets out
requirements and procedures for a
designated financial market utility that
proposes to make a change to its rules,
procedures, or operations that could
materially affect the nature or level of
risks presented by the designated
financial market utility and for which
the Board is the Supervisory Agency (as
defined below). The risk management
standards do not apply, however, to a
designated financial market utility that
is a derivatives clearing organization
registered under section 5b of the
Commodity Exchange Act (7 U.S.C. 7a–
1) or a clearing agency registered with
the Securities and Exchange
Commission under section 17A of the
Securities Exchange Act of 1934 (15
U.S.C. 78q–1), which are governed by
the risk-management standards
promulgated by the Commodity Futures
Trading Commission or the Securities
and Exchange Commission,
respectively, for which each is the
Supervisory Agency. This part also sets
out standards, restrictions, and
guidelines regarding a Federal Reserve
Bank establishing and maintaining an
account for, and providing services to,
a designated financial market utility. In
addition, this part sets forth the terms
under which a Reserve Bank may pay a
designated financial market utility
interest on the designated financial
market utility’s balances held at the
Reserve Bank.
■ 3. Add §§ 234.6 and 234.7 to read as
follows:

(a) This section applies to any
designated financial market utility for
which the Board may authorize a
Federal Reserve Bank to open an
account or provide services in
accordance with section 806(a) of the
Dodd-Frank Act. Upon receipt of Board
authorization and subject to any
limitations, restrictions, or other
requirements established by the Board,
a Federal Reserve Bank may enter into
agreements governing the details of its
accounts and services with a designated
financial market utility, consistent with
this section and any other applicable
Board direction. The agreements may
include, among other things, provisions
regarding documentation to establish
the account and receive services,
conditions imposed on the account and
services, service charges, reporting,
accounting for activity in the account,
liability and duty of care, and
termination.

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(b) A Federal Reserve Bank should
ensure that its establishment and
maintenance of an account for or
provision of services to a designated
financial market utility does not create
undue credit, settlement, or other risk to
the Reserve Bank. In order to establish
and maintain an account with a Federal
Reserve Bank or receive financial
services from a Federal Reserve Bank,
the designated financial market utility
must be in compliance with the
Supervisory Agency’s regulatory and
supervisory requirements regarding
financial resources, liquidity,
participant default management, and
other aspects of risk management, as
determined by the Supervisory Agency.
In addition, at a minimum, the
designated financial market utility must,
in the Federal Reserve Bank’s
judgment—
(1) Be in generally sound financial
condition, including maintenance of
sufficient working capital and cash flow
to permit the designated financial
market utility to continue as a going
concern and to meet its current and
projected operating expenses under a
range of scenarios;
(2) Be in compliance with Board
orders and policies, Federal Reserve
Bank account agreements and, as
applicable, operating circulars, and
other applicable Federal Reserve
requirements regarding the
establishment and maintenance of an
account at a Federal Reserve Bank and
the receipt of financial services from a
Federal Reserve Bank; and
(3) Have an ongoing ability, including
during periods of market stress or a
participant default, to meet all of its
obligations under its agreement for a
Federal Reserve Bank account and
services, including by maintaining—
(i) Sufficient liquid resources to meet
its obligations under the account
agreement;
(ii) The operational capacity to ensure
that such liquid resources are available
to satisfy the account obligations on a
timely basis in accordance with the
account agreement; and
(iv) Sound money settlement
processes designed to adequately
monitor its Federal Reserve Bank
account on an intraday basis, process
money transfers through its account in
an orderly manner, and complete final
money settlement no later than the
value date.
(c) The Board will consult with the
Supervisory Agency of a designated
financial market utility prior to
authorizing a Federal Reserve Bank to
open an account, and periodically
thereafter, to ascertain the views of the
Supervisory Agency regarding the

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designated financial market utility’s
compliance with the requirements in
paragraph (b) of this section.
(d) In addition to any right that a
Reserve Bank has to limit or terminate
an account or the use of a service
pursuant to its account agreement, the
Board may direct the Federal Reserve
Bank to impose limits, restrictions, or
other conditions on the availability or
use of a Federal Reserve Bank account
or service by a designated financial
market utility, including directing the
Reserve Bank to terminate the use of a
particular service or to close the
account. If the Reserve Bank determines
that a designated financial market utility
no longer complies with one or more of
the minimum conditions in subsection
(b), the Reserve Bank will consult with
the Board regarding continued
maintenance of the account and
provision of services.
§ 234.7

Interest on balances.

(a) A Federal Reserve Bank may pay
interest on balances maintained by a
designated financial market utility at the
Federal Reserve Bank in accordance
with this section and under such other
terms and conditions as the Board may
prescribe.
(b) Interest on balances paid under
this section shall be at the rate paid on
balances maintained by depository
institutions or another rate determined
by the Board from time to time, not to
exceed the general level of short-term
interest rates.
(c) For purposes of this section,
‘‘short-term interest rates’’ shall have
the same meaning as the meaning
provided for that term in § 204.10(b)(3)
of this chapter.
By order of the Board of Governors of the
Federal Reserve System, December 5, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013–29711 Filed 12–19–13; 8:45 am]
BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 25

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[Docket No. FAA–2013–0894; Notice No.
25–13–16–SC]

Special Conditions: Airbus, A350–900
Series Airplane; Interaction of Systems
and Structures
Federal Aviation
Administration (FAA), DOT.
ACTION: Final special conditions, request
for comments.
AGENCY:

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These special conditions are
issued for Airbus Model A350–900
series airplanes. These airplanes will
have novel or unusual design features
when compared to the state of
technology envisioned in the
airworthiness standards for transport
category airplanes. These designs
features include systems that, directly or
as a result of failure or malfunction,
affect structural performance. The
applicable airworthiness regulations do
not contain adequate or appropriate
safety standards for this design feature.
These proposed 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 December 20,
2013. We must receive your comments
by February 3, 2014.
ADDRESSES: Send comments identified
by docket number FAA–2013–0894
using any of the following methods:
• Federal eRegulations Portal: Go to
http://www.regulations.gov/ and follow
the online instructions for sending your
comments electronically.
• Mail: Send comments to Docket
Operations, M–30, U.S. Department of
Transportation (DOT), 1200 New Jersey
Avenue SE., Room W12–140, West
Building Ground Floor, Washington, DC
20590–0001.
• Hand Delivery or Courier: Take
comments to Docket Operations in
Room W12–140 of the West Building
Ground Floor at 1200 New Jersey
Avenue SE., Washington, DC, between 8
a.m. and 5 p.m., Monday through
Friday, except federal holidays.
• Fax: Fax comments to Docket
Operations at 202–493–2251.
Privacy: The FAA will post all
comments it receives, without change,
to http://www.regulations.gov/,
including any personal information the
commenter provides. Using the search
function of the docket Web site, anyone
can find and read the electronic form of
all comments received into any FAA
docket, including the name of the
individual sending the comment (or
signing the comment for an association,
business, labor union, etc.). DOT’s
complete Privacy Act Statement can be
found in the Federal Register published
on April 11, 2000 (65 FR 19477–19478),
as well as at http://DocketsInfo.dot
.gov/.
Docket: Background documents or
comments received may be read at
http://www.regulations.gov/ at any time.
Follow the online instructions for
accessing the docket or go to the Docket
SUMMARY:

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Operations in Room W12–140 of the
West Building Ground Floor at 1200
New Jersey Avenue SE., Washington,
DC, between 9 a.m. and 5 p.m., Monday
through Friday, except federal holidays.
FOR FURTHER INFORMATION CONTACT:
Todd Martin, FAA, Airframe/Cabin
Safety, ANM–115, Transport Airplane
Directorate, Aircraft Certification
Service, 1601 Lind Avenue SW.,
Renton, Washington, 98057–3356;
telephone (425) 227–1178; facsimile
(425) 227–1320.
SUPPLEMENTARY INFORMATION: The
substance of these special conditions
has been subject to the public comment
process in several prior instances with
no substantive comments received. The
FAA therefore finds that good cause
exists for making these special
conditions effective upon issuance.
Comments Invited
We invite interested people to take
part in this rulemaking by sending
written comments, data, or views. The
most helpful comments reference a
specific portion of the special
conditions, explain the reason for any
recommended change, and include
supporting data.
We will consider all comments we
receive by 45 days after publication of
these special conditions in the Federal
Register. We may change these special
conditions based on the comments we
receive.
Background
On August 25, 2008, Airbus applied
for a type certificate for their new Model
A350–900 series airplane. Later, Airbus
requested and the FAA approved an
extension to the application for FAA
type certification to June 28, 2009. The
Model A350–900 series has a
conventional layout with twin wingmounted Rolls-Royce Trent engines. It
features a twin aisle 9-abreast economy
class layout, and accommodates side-byside placement of LD–3 containers in
the cargo compartment. The basic
Model A350–900 series configuration
will accommodate 315 passengers in a
standard two-class arrangement. The
design cruise speed is Mach 0.85 with
a Maximum Take-Off Weight of 602,000
lbs. Airbus proposes the Model A350–
900 series to be certified for extended
operations (ETOPS) beyond 180 minutes
at entry into service for up to a 420minute maximum diversion time.
Special conditions have been applied
on past airplane programs in order to
require consideration of the effects of
systems on structures. The regulatory
authorities and industry developed
standardized criteria in the Aviation

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