issue-1996-01-08•Federal Register proposed rules — 1996-01-08
Federal Register proposed rules — 1996-01-08
issue-1996-01-08Federal Register proposed rules — 1996-01-08Proposed Regulation
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. 96-224 Proposed Establishment of Class E Airspace; Richlands, VA
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 551-552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-224]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR part 71
[Airspace Docket No. 95-AEA-14]
Proposed Establishment of Class E Airspace; Richlands, VA
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would establish Class E Airspace at
Richlands, VA. A standard instrument approach procedure (SIAP), based
on the Global Positioning System (GPS), has been developed for Runway
(RWY) 25 at Tazewell County Airport, Richlands, VA. The intended effect
of this proposal is to provide adequate controlled airspace for
Instrument Flight Rules (IFR) operations to the airport. The area would
be depicted on aeronautical charts for pilot reference.
DATES: Comments must be received on or before March 25, 1996.
ADDRESSES: Send comments on the proposed rule in triplicate to:
Manager, System Management Branch, AEA-530, Docket No. 95-AEA-14 F.A.A.
Eastern Region, Federal Building #111, John F. Kennedy Int'l Airport,
Jamaica, NY 11430.
The official docket may be examined in the Office of the Assistant
Chief Counsel, AEA-7, F.A.A. Eastern Region, Federal Building #111,
John F. Kennedy International Airport, Jamaica, New York 11430.
An informal docket may also be examined during normal business
hours in the System Management Branch, AEA-530, F.A.A. Eastern Region,
Federal Building #111, John F. Kennedy International Airport, Jamaica,
NY 11430
FOR FURTHER INFORMATION CONTACT: Mr. Francis T. Jordan, Jr., Airspace
Specialist, System Management Branch, AEA-530, F.A.A. Eastern Region,
Federal Building #111, John F. Kennedy International Airport, Jamaica,
New York 11430; telephone (718) 553-4521.
SUPPLEMENTARY INFORMATION:
Comments Invited
Interesed parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments as they
may desire.
[[Page 552]]
Comments that provide the factual basis supporting the views and
suggestions presented are particularly helpful in developing reasoned
regulatory decisions on the proposal. Comments are specifically invited
on the overall regulatory, aeronautical, economic, environmental, and
energy-related aspects of the proposal. Communications should identify
the airspace docket number and be submitted in triplicate to the
address listed above. Commenters wishing the FAA to acknowledge receipt
of their comments on this notice must submit with those comments a
self-addressed, stamped postcard on which the following statement is
made: ``Comments to Airspace Docket No. 95-AEA-14''. The postcard will
be date/time stamped and returned to the commenter.
All communications received before the specified closing date for
comments will be considered before taking action on the proposed rule.
The proposal contained in this notice may be changed in the light of
comments received. All comments submitted will be available for
examination in the Rules Docket both before and after the closing date
for comments. A report summarizing each substantive public contact with
the FAA personnel concerned with this rulemaking will be filed in the
docket.
Availability of NPRMs
Any person may obtain a copy of this Notice of Proposed Rulemaking
(NPRM) by submitting a request to the Office of the Assistant Chief
Counsel, AEA-7, F.A.A. Eastern Region, Federal Building #111, John F.
Kennedy International Airport, Jamaica, NY 11430. Communications must
identify the notice number of this NPRM. Persons interested in being
placed on a mailing list for future NPRM's should also request a copy
of Advisory Circular No. 11-2A, which describes the application
procedure.
The Proposal
The FAA is considering an amendment to Part 71 of the Federal
Aviation Regulations (14 CFR part 71) to establish Class E airspace
extending upward from 700 feet above the surface at Richlands, VA. A
GPS RWY 25 SIAP has been developed for Tazewell County Airport.
Additional controlled airspace extending upward from 700 feet above the
surface is needed to accommodate this SIAP and for IFR operations at
the airport. The area would be depicted on appropriate aeronautical
charts. Class E airspace designations for airspace extending upward
from 700 feet above the surface 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 Class E airspace
designation listed in this document would be published subsequently in
the Order.
The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this proposed regulation--(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 11034; 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 would only affect air traffic procedures
and air navigation, it is certified that this proposed rule would 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).
The Proposed Amendment
In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 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.
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9C, dated August 17, 1995, and
effective September 16, 1995, is proposed to be amended as follows:
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth
* * * * *
AEA VA E5 Richlands, VA
Tazewell County Airport, VA
(lat. 37 deg.03'49'' N, long. 81 deg.47'54''W)
That airspace extending upward from 700 feet above the surface
within a 6-mile radius of Tazewell County Airport.
* * * * *
Issued in Jamaica, New York, on December 15, 1995.
John S. Walker,
Manager, Air Traffic Division.
[FR Doc. 96-224 Filed 1-5-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-223 Proposed Amendment of Class E Airspace; Montague, CA
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 550-551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-223]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 95-AWP-44]
Proposed Amendment of Class E Airspace; Montague, CA
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This notice proposes to amend the Class E airspace area at
Montague, CA. The intended effect of this proposal is to provide
adequate controlled airspace for Instrument Flight Rules (IFR)
operations at Siskiyou County Airport, Montague, CA.
DATES: Comments must be received on or before February 15, 1996.
ADDRESSES: Send comments on the proposal in triplicate to: Federal
Aviation Administration, Attn: Manager, System Management Branch, AWP-
530, Docket No. 95-AWP-44, Air Traffic Division, P.O. Box 92007,
Worldway Postal Center, Los Angeles, California 90009.
The official docket may be examined in the Office of the Assistant
Chief Counsel, Western Pacific Region, Federal Aviation Administration,
Room 6007, 15000 Aviation Boulevard, Lawndale, California 90261.
An informal docket may also be examined during normal business at
the Office of the Manager, System Management Branch, Air Traffic
Division at the above address.
FOR FURTHER INFORMATION CONTACT:
Scott Speer, Airspace Specialist, System Management Branch, AWP-530,
Air Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6533.
SUPPLEMENTARY INFORMATION:
Comments Invited
Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments as they
may desire. Comments that provide the factual basis supporting the
views and suggestions presented are particularly helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
Communications should identify the airspace docket number and be
submitted in triplicate to the address listed above. Commenters wishing
the FAA to acknowledge receipt of their comments on this notice must
submit
[[Page 551]]
with the comments a self-addressed, stamped postcard on which the
following statement is made: ``Comments to Airspace Docket No. 95-AWP-
44.'' The postcard will be date/time stamped and returned to the
commenter. All communications received on or before the specified
closing date for comments will be considered before taking action on
the proposed rule. The proposal contained in this notice may be changed
in light of comments received. All comments submitted will be available
for examination in the System Management Branch, Air Traffic Division,
at 15000 Aviation Boulevard, Lawndale, California 90261, both before
and after the closing date for comments. A report summarizing each
substantive public contact with FAA personnel concerned with this
rulemaking will be filed in the docket.
Availability of NPRM
Any person may obtain a copy of this Notice of Proposed Rulemaking
(NPRM) by submitting a request to the Federal Aviation Administration,
System Management Branch, P.O. Box 92007, Worldway Postal Center, Los
Angeles, California 90009. Communications must identify the notice
number of this NPRM. Persons interested in being placed on a mailing
list for future NPRM's should also request a copy of Advisory Circular
No. 11-2A, which describes the application procedures.
The Proposal
The FAA is considering an amendment to part 71 of the Federal
Aviation Regulations (14 CFR part 71) to amend the Class E airspace
area at Montague, CA. The development of a runway 35 departure
procedure at Siskiyou County Airport has made this proposal necessary.
The intended effect of this proposal is to provide adequate Class E
airspace for aircraft departing the Siskiyou County Airport, Montague,
CA. Class E airspace designations for airspace areas extending upward
from 700 feet or more above the surface of the earth 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 Class E airspace designation listed in this document
would be published subsequently in this Order.
The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this proposed regulation--(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 11034; 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 would only affect air traffic procedures
and air navigation, it is certified that this proposed rule would 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).
The Proposed Amendment
In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 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. 40103, 40113, 40120; E.O. 10854, 24 FR
9565, 3 CFR, 1959-1963 Comp., p. 389; 49 U.S.C. 106(g); 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 CA E5 Montague, CA [Revised]
Montague, Siskiyou County Airport, CA
(lat. 41 deg.46'53''N, long. 122 deg.28'05''W)
Montague NDB
(lat. 41 deg.43'38''N, long. 122 deg.28'55''W)
That airspace extending upward from 700 feet above the surface
within a 6.1-mile radius of Siskiyou County Airport. That airspace
extending upward from 1,200 feet above the surface within 9 miles
east and 7 miles west of the 352 deg. bearings from the Montague
NDB, extending from the Montague NDB to 32 miles north of the
Montague NDB and within 8.3 miles east and 5.2 miles west of the
180 deg. bearing from the Montague NDB, extending from the Montague
NDB to 16.5 miles south of the Montague NDB.
* * * * *
Issued in Los Angeles, California, on December 11, 1995,
Richard R. Lien,
Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 96-223 Filed 1-5-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-222 Proposed Establishment of Class E Airspace; Hollister, CA
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 549-550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-222]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 95-AWP-13]
Proposed Establishment of Class E Airspace; Hollister, CA
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This notice proposes to establish a Class E airspace area at
Hollister, CA. The development of a Global Positioning System (GPS)
Standard Instrument Approach Procedure (SIAP) to Runway (RWY) 31 has
made this proposal necessary. The intended effect of this proposal is
to provide adequate controlled airspace for Instrument Flight Rules
(IFR) operations at Hollister Municipal Airport, Hollister, CA.
DATES: Comments must be received on or before February 15, 1996.
ADDRESSES: Send comments on the proposal in triplicate to: Federal
Aviation Administration, Attn: Manager, System Management Branch, AWP-
530, Docket No. 95-AWP-13, Air Traffic Division, P.O. Box 92007,
Worldway Postal Center, Los Angeles, California 90009.
The official docket may be examined in the Office of the Assistant
Chief Counsel, Western Pacific Region, Federal Aviation Administration,
Room 6007, 15000 Aviation Boulevard, Lawndale, California 90261.
An informal docket may also be examined during normal business at
the Office of the Manager, System Management Branch, Air Traffic
Division at the above address.
FOR FURTHER INFORMATION CONTACT:
Scott Speer, Airspace Specialist, System Management Branch, AWP-530,
Air Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6533.
SUPPLEMENTARY INFORMATION:
Comments Invited
Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments as they
may desire. Comments that provide the factual basis supporting the
views and suggestions presented are particularly helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
Communications should identify the airspace docket number and be
submitted in triplicate to the address listed above. Commenters wishing
the FAA to acknowledge receipt of their comments on this notice must
submit with the comments a self-addressed, stamped postcard on which
the following statement is made: ``Comments to Airspace Docket No. 95-
AWP-13.'' The postcard will be date/
[[Page 550]]
time stamped and returned to the commenter. All communications received
on or before the specified closing date for comments will be considered
before taking action on the proposed rule. The proposal contained in
this notice may be changed in light of comments received. All comments
submitted will be available for examination in the System Management
Branch, Air Traffic Division, at 15000 Aviation Boulevard, Lawndale,
California 90261, both before and after the closing date for comments.
A report summarizing each substantive public contact with FAA personnel
concerned with this rulemaking will be filed in the docket.
Availability of NPRM
Any person may obtain a copy of this Notice of Proposed Rulemaking
(NPRM) by submitting a request to the Federal Aviation Administration,
System Management Branch, P.O. Box 92007, Worldway Postal Center, Los
Angeles, California 90009. Communications must identify the notice
number of this NPRM. Persons interested in being placed on a mailing
list for future NPRM's should also request a copy of Advisory Circular
No. 11-2A, which describes the application procedures.
The Proposal
The FAA is considering an amendment to part 71 of the Federal
Aviation Regulations (14 CFR part 71) to establish a Class E airspace
area at Hollister, CA. The development of AGPS SIAP at Hollister
Municipal Airport has made this proposal necessary. The intended effect
of this proposal is to provide adequate Class E airspace for aircraft
executing the GPS RWY 31 SIAP at Hollister Municipal Airport,
Hollister, CA. Class E airspace designations for airspace areas
extending upward from 700 feet or more above the surface of the earth
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 Class E airspace designation listed in
this document would be published subsequently in this Order.
The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this proposed regulation--(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 11034; 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 would only affect air traffic procedures
and air navigation, it is certified that this proposed rule would 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).
The Proposed Amendment
In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 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 CA E5 Hollister, CA [New]
Hollister Municipal Airport, CA
(lat. 36 deg.53'36'' N, long. 121 deg.24'37'' W)
That airspace extending upward from 700 feet above the surface
within a 4.2-mile radius of Hollister Municipal Airport and within 2
miles each side of the 142 deg. bearing from the Hollister Municipal
Airport extending from the 4.2-mile radius to 10 miles southeast of
the Hollister Municipal Airport.
* * * * *
Issued in Los Angeles, California, on December 13, 1995.
Richard R. Lien,
Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 96-222 Filed 1-5-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-221 Proposed Amendment of Class E Airspace; Hanford, CA
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 548-549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-221]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Airspace Docket No. 95-AWP-45]
Proposed Amendment of Class E Airspace; Hanford, CA
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This notice proposes to amend the Class E airspace area at
Hanford, CA. The development of a Global Positioning System (GPS)
Standard Instrument Approach Procedure (SIAP) to Runway (RWY) 32 has
made this proposal necessary. The intended effect of this proposal is
to provide adequate controlled airspace for Instrument Flight Rules
(IFR) operations at Hanford Municipal Airport, Hanford, CA.
DATES: Comments must be received on or before February 15, 1996.
ADDRESSES: Send comments on the proposal in triplicate to: Federal
Aviation Administration, Attn: Manager, System Management Branch, AWP-
530, Docket No. 95-AWP-45, Air Traffic Division, P.O. Box 92007,
Worldway Postal Center, Los Angeles, California 90009.
The official docket may be examined in the Office of the Assistant
Chief Counsel, Western Pacific Region, Federal Aviation Administration,
Room 6007, 15000 Aviation Boulevard, Lawndale, California 90261.
An informal docket may also be examined during normal business at
the Office of the Manager, System Management Branch, Air Traffic
Division at the above address.
FOR FURTHER INFORMATION CONTACT:
Scott Speer, Airspace Specialist, System Management Branch, AWP-530,
Air Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6533.
SUPPLEMENTARY INFORMATION:
Comments Invited
Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments as they
may desire. Comments that provide the factual basis supporting the
views and suggestions presented are presently helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
Communications should identify the airspace docket number and be
submitted in triplicate to the address listed above. Commenters wishing
the FAA to acknowledge receipt of their comments on this notice must
submit with the comments a self-addressed, stamped postcard on which
the following statement is made:
[[Page 549]]
``Comments to Airspace Docket No. 95-AWP-45.'' The postcard will be
date/time stamped and returned to the commenter. All communications
received on or before the specified closing date for comments will be
considered before taking action on the proposed rule. The proposal
contained in this notice may be changed in light of comments received.
All comments submitted will be available for examination in the System
Management Branch, Air Traffic Division, at 15000 Aviation Boulevard,
Lawndale, California 90261, both before and after the closing date for
comments. A report summarizing each substantive public contact with FAA
personnel concerned with this rulemaking will be filed in the docket.
Availability of NPRM
Any person may obtain a copy of this Notice of Proposed Rulemaking
(NPRM) by submitting a request to the Federal Aviation Administration,
System Management Branch, P.O. Box 92007, Worldway Postal Center, Los
Angeles, California 90009. Communications must identify the notice
number of this NPRM. Persons interested in being placed on a mailing
list for future NPRM's should also request a copy of Advisory Circular
No. 11-2A, which describes the application procedures.
The Proposal
The FAA is considering an amendment to part 71 of the Federal
Aviation Regulations (14 CFR part 71) by amending the Class E airspace
area at Hanford, CA. The development of GPS SIAP at Hanford Municipal
Airport has made this proposal necessary. The intended effect of this
proposal is to provide adequate Class E airspace for aircraft executing
the GPS RWY 32 SIAP at Hanford Municipal Airport, Hanford, CA. Class E
airspace designations for airspace areas extending upward from 700 feet
or more above the surface of the earth 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 Class E
airspace designation listed in this document would be published
subsequently in this Order.
The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep from operationally current.
Therefore, this proposed regulation--(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 11034; 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 would only affect air traffic procedures
and air navigation, it is certified that this proposed rule would 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).
The Proposed Amendment
In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 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 Hanford, CA [Revised]
Hanford Municipal Airport, CA
(lat. 36 deg.19'07'' N, long. 119 deg.37'44'' W)
That airspace extending upward from 700 feet above the surface
within a 5-mile radius of Hanford Municipal Airport.
* * * * *
Issued in Los Angeles, California, on December 11, 1995.
Richard R. Lien,
Manager, Air Traffic Division, Western-Pacific Region.
FR Doc. 96-221 Filed 1-5-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-218 Qualification of Drivers; Vision and Diabetes; Limited Exemptions
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 606-611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-218]
[[Page 605]]
_______________________________________________________________________
Part III
Department of Transportation
_______________________________________________________________________
Federal Highway Administration
_______________________________________________________________________
49 CFR Part 391
Qualifications of Drivers, Vision and Diabetes; Proposed Rule
Federal Register / Vol. 61, No. 5 / Monday, January 8, 1996 /
Proposed Rules
[[Page 606]]
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
49 CFR Part 391
[FHWA Docket No. MC-96-2]
RIN 2125-AD73
Qualification of Drivers; Vision and Diabetes; Limited Exemptions
AGENCY: Federal Highway Administration (FHWA), DOT.
ACTION: Notice of proposed rulemaking (NPRM); request for comments.
-----------------------------------------------------------------------
SUMMARY: The FHWA announces a proposal to allow those drivers currently
holding valid waivers from both the vision and diabetes standards
contained in the Federal Motor Carrier Safety Regulations (FMCSRs) to
continue to operate in interstate commerce after March 31, 1996. This
action is directed solely at those drivers who have been granted
temporary waivers to participate in either the Federal vision waiver
study, who numbered 2240, or in the Federal diabetes waiver study, who
number 119 as of November 1, 1995. The FHWA believes that allowing this
special group of drivers to continue to drive after March 31, 1996, is
consistent with the public interest and safe operation of commercial
motor vehicles (CMV). This action is necessary because the waiver
program termination date of March 31, 1996, has been established, and
without this action, the drivers will no longer be qualified to operate
in interstate commerce after that date. The FHWA proposes to allow
these drivers to continue operations, subject to certain operating
conditions. The proposal also includes a technical amendment to
relocate an existing provision so that all limited exemptions from
driver qualification standards can be found in the same subpart.
DATES: Comments must be received on or before February 7, 1996.
ADDRESSES: Submit written, signed comments to FHWA Docket No. MC-96-2,
Room 4232, HCC-10, Office of the Chief Counsel, Federal Highway
Administration, 400 Seventh Street, SW., Washington, DC 20590. All
comments received will be available for examination at the above
address from 8:30 a.m. to 3:30 p.m., e.t., Monday through Friday,
except Federal holidays. Those desiring notification of receipt of
comments must include a self-addressed envelope. Comments received
after the comment closing date will be filed in the docket and will be
considered to the extent practicable. The FHWA may issue a final
determination and rule on this matter at any time after the close of
the comment period.
FOR FURTHER INFORMATION CONTACT: The FHWA has established a special
telephone number to receive inquiries regarding this action. The number
is 1-800-832-5660. Office hours are from 7:45 a.m. to 4:15 p.m., e.t.,
Monday through Friday, except Federal holidays.
SUPPLEMENTARY INFORMATION: Section 206(f) of the Motor Carrier Safety
Act of 1984 (MCSA), Pub. L. No. 98-554, 98 Stat. 2835 (codified at 49
U.S.C. 31136(e), formerly 49 U.S.C. App. 2505(f)) allows the Secretary
of Transportation to issue waivers from the Federal Motor Carrier
Safety Regulations only after a determination that such waivers are not
contrary to the public interest and are consistent with the safe
operation of CMVs. Historically, the FHWA has issued limited waivers
and does not intend to enter into any large scale program of
exemptions. The safety performance data collected under the vision and
diabetes waiver programs would be used as the basis for this
determination; however, separate research proceedings would form the
basis for any future adjustments, if warranted, to the current vision
and diabetes standards. The FHWA has decided on a 30 day comment period
in order to give adequate notice to waived drivers of their status at
the conclusion of the waiver program on March 31, 1996. Prior notices
on the waiver program have established the issues facing the FHWA in
deciding the disposition of these drivers; therefore, these issues are
well known to potential commenters on this notice. See 59 FR 50887
(October 6, 1994) and 59 FR 59386 (November 17, 1994).
Vision Waiver Program Background
On February 28, 1992, the FHWA published a notice of proposed
rulemaking (NPRM), 57 FR 6793, requesting comments on the need, if any,
to amend its driver physical qualification requirements relating to
vision. On March 25, 1992, the FHWA published a notice of intent to
issue waivers from the vision requirement, 57 FR 10295. The notice
indicated that applications would be processed as quickly as possible
and waivers would be issued for a period of three years or until the
current rulemaking addressing the Federal vision requirement is
completed, whichever occurred first. The notice imposed certain
conditions and reporting requirements on applicants, among them that
applicants for a waiver submit medical certification that the vision in
their better eye is at least 20/40 acuity, corrected or uncorrected.\1\
\1\ The current Federal vision standard for CMV drivers
requires: distant visual acuity of at least 20/40 (Snellen) in each
eye without corrective lenses or visual acuity separately corrected
to 20/40 (Snellen) or better with corrective lenses, distant
binocular acuity of at least 20/40 (Snellen) in both eyes with or
without corrective lenses, field of vision of at least 70 degrees in
the horizontal meridian in each eye, and the ability to recognize
the colors of traffic signals and devices showing standard red,
green, and amber. 49 CFR 391.41(b)(10).
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The FHWA published a subsequent notice, 57 FR 23370, on June 3,
1992, announcing the receipt of applications by drivers for waiver of
the FHWA's vision requirements and seeking comments on its intent to
waive its vision requirements for drivers who met certain conditions.
The notice explained that the proposed waiver program would enable the
FHWA to conduct a study comparing a group of experienced drivers with a
visual deficit in one eye with a control group of experienced drivers
who meet the Federal vision requirements. The FHWA believed that the
study would provide the empirical data that a previous study did not.
In its Notice of Final Disposition, 57 FR 31458, published on July
16, 1992, the FHWA instituted the waiver program, making temporary
waivers available to drivers who met the announced conditions. The FHWA
determined that the waiver is not contrary to the public interest. The
program is consistent with the national policy, as expressed in the
Rehabilitation Act of 1973 and the Americans with Disabilities Act, to
facilitate the employment of qualified individuals with disabilities.
Moreover, the FHWA found that the waiver program was consistent with
the safe operation of CMVs because the program's requirements would
effectively screen out unsafe drivers.
These safeguards required waiver applicants to be otherwise
qualified under 49 CFR Part 391, and hold a valid commercial driver's
license to operate a CMV issued after April 1, 1990. The applicant must
also have had three years' recent experience driving a CMV without (1)
license suspension or revocation; (2) involvement in a reportable
accident in which the applicant received a citation for a moving
violation; (3) conviction for driving a CMV while intoxicated, leaving
the scene of an accident involving a CMV, commission of a felony or
more than one serious traffic violation involving a CMV; or (4) more
than two convictions for any other moving violation in a CMV. Finally,
the applicant had to present proof from an
[[Page 607]]
optometrist or ophthalmologist certifying that the applicant's visual
deficiency has not worsened since his or her last examination, that
vision in one eye is at least 20/40 acuity, corrected or uncorrected,
and that the applicant is able to perform the driving tasks required to
operate a CMV.
In addition, the applicant had to comply with the following
requirements: (1) report all citations for moving violations involving
a CMV; (2) report the disposition of the charge; (3) report any
accident involvement whatsoever while operating a CMV; (4) submit
documentation of an annual examination by an ophthalmologist or
optometrist; and (5) submit reports of vehicle miles traveled monthly
in a CMV.
Court Decision
On August 2, 1994, the U.S. Court of Appeals for the D.C. Circuit
found that the agency's ``determination that the waiver program will
not adversely affect the safe operation of CMVs is devoid of empirical
support in the record'' and that ``the FHWA has failed to meet the
exacting requirements of section 2505(f) (now 49 U.S.C. 31136(e)).''
Advocates for Highway and Auto Safety v. FHWA, 28 F.3d 1288, 1294.
Consequently, the Court concluded that the FHWA's adoption of the
waiver program was contrary to law, and vacated and remanded the rule
to the agency.
On October 6, 1994, the FHWA published a Notice of Determination,
Request for comments, 59 FR 50887, extending the validity of the vision
waivers for a thirty-day period. The notice also proposed to allow the
waiver program to continue until its original March 31, 1996,
termination date based on the additional empirical evidence presented
in the notice. On the same day, an emergency motion was filed in the
D.C. Circuit requesting that the court issue and enforce the mandate in
Advocates, thereby halting the waiver program. The court issued its
mandate on October 21, 1994, and on October 24, 1994, the court denied
the Advocates' emergency motion.
On November 17, 1994, the FHWA published a Notice of Final
Determination (59 FR 59386) that continued the vision waiver program
through March 31, 1996. The FHWA's decision was based, in part, on data
collected on the group of waived drivers indicating that they had
performed and continued to perform more safely than drivers in the
general population of commercial drivers. The notice announced that the
FHWA would develop and impose more stringent performance conditions to
further reduce the safety risks to the waived drivers and highway
users. This task was accomplished by separate mailings to vision waiver
drivers on February 8, 1995. The notice also announced that the FHWA
would convene a public meeting regarding its research plans with
respect to defining the appropriate vision standard.
Diabetes Waiver Program Background
The FHWA has considered various amendments to its diabetes
requirement since 1977. See 55 FR 41028 (October 5, 1990) (notice of
proposed rulemaking) and 52 FR 45204 (November 25, 1987) (advance
notice of proposed rulemaking) with FHWA docket number MC-87-17. Please
refer to these notices for a complete background discussion of the
FHWA's efforts in this area. Copies can be found in the docket.
The FHWA published in the Federal Register a Notice of Intent to
Initiate a Waiver Program for certain insulin-using diabetic drivers of
CMVs from the absolute prohibition contained in the FMCSRs. See 57 FR
48011 (October 21, 1992). The intent of the proposed waiver program was
to collect data on the driving experience of a group of insulin-using
drivers and use that information to support amending, if warranted, the
current diabetes requirement.2
\2\ The current Federal diabetes standard for CMV drivers
requires no established medical history or clinical diagnosis of
diabetes mellitus currently requiring insulin for control. 49 CFR
391.41(b)(3).
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On July 29, 1993, the FHWA published in the Federal Register a
Notice of Final Disposition allowing certain insulin-using diabetic
drivers to operate a CMV in interstate commerce for a 3-year period.
Stringent conditions were established to satisfy the mandate that this
action be consistent with the safe operation of CMVs. These conditions
included at least three years of experience driving a CMV while the
individual had been using insulin to control his or her diabetes, a
good driving record (as in the vision waiver condition) and
certification from an endocrinologist that the diabetic condition will
not adversely impact on the applicant's ability to operate a CMV. In
addition, participants were required to monitor their blood glucose
levels using portable glucose monitoring devices and maintain accurate
logs, submit monthly driving activity reports to the FHWA, notify the
FHWA of any involvement in an accident and undergo biannual
examinations by an endocrinologist. Approximately 140 drivers were
accepted into the diabetes waiver program. For a complete description
of the diabetes waiver program, see 58 FR 40690, July 29, 1993.
The August 2, 1994, court decision in Advocates called into
question the FHWA's ability to issue waivers to insulin-treated
diabetic drivers because of the similar approach used to pre-qualify
drivers for participation in the diabetes waiver program.
Accordingly, the FHWA notified the diabetes waiver drivers, in
separate mailings on March 28, 1995, of the court's decision and
changes to the Vision and Diabetes Waiver Programs that allowed both
programs to continue until March 31, 1996. The FHWA established
stricter performance conditions for all participants, and enhanced the
FHWA's monitoring of the performance of the waived drivers in order to
ensure compliance with the statutory test as construed by the court.
Proposed Action
The FHWA now proposes that the waived drivers in the vision and
diabetes programs should be allowed to continue driving in interstate
commerce after March 31, 1996. The underlying basis for this proposal
is that the FHWA has significant data to show that the continued
operation of both waived groups of drivers, who total 2359 as of
November 1, 1995, would be consistent with the safe operation of CMVs.
Prior to being admitted into the study the waiver applicants had to
demonstrate a three-year period of accident-free driving performance,
coupled with an absence of serious traffic violations. Since the
program began, the data have shown that the driving performance of this
group of waived drivers was and continues to be better than the driving
performance of all CMV drivers collectively, based on data obtained
from the General Estimates Service (GES) as discussed more fully
below.3 Moreover, each driver in the waiver programs has been
closely monitored, in many cases for three years or more. Coupled with
their 3-year good driving record preceding the waivers, the drivers
have individually merited partial exemption from Secs. 391.41(b)(10) or
391.41(b)(3).
\3\ The GES is a national survey conducted by the National
Highway Traffic Safety Administration and was selected for use as
the best measure of the prevailing national norm relative to large
truck accidents.
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Consequently, the FHWA proposes to amend part 391 of the FMCSRs to
grant grandfather rights to all drivers holding a valid Federal vision
or diabetes waiver on March 31, 1996. By proposing the grandfather
provision, the FHWA intends to allow only those drivers who have been
granted temporary waivers to
[[Page 608]]
participate in the Federal vision and diabetes waiver programs,
numbering 2359 as of November 1, 1995, to continue to operate in
interstate commerce beyond March 31, 1996, subject to certain operating
conditions. This action would provide relief to these drivers who
otherwise would not be permitted to operate a CMV in interstate
commerce. These grandfather provisions would also be conditional in
order to further reduce any possible risk associated with those
drivers. In addition to the conditions regarding medical requirements
discussed below, the FHWA proposes to continue monitoring the
performance of these drivers through periodic checks.
Medical Requirements for Operating Under This Grandfather Provision
The FHWA recognizes that any person's medical or physical condition
may deteriorate in a short period of time. The FHWA proposes to require
an annual physical examination pursuant to Sec. 391.43, instead of
every 2 years as is required of other drivers, as an extra precaution
to ensure the continued safe operation of these drivers. Under this
provision, these drivers, as all other interstate drivers, must be
otherwise physically qualified pursuant to Sec. 391.41 of the FMCSRs.
In addition, the FHWA proposes that vision impaired drivers who
would be grandfathered as a result of this action be required to obtain
an annual vision examination by an ophthalmologist or optometrist
indicating that they have been examined within the past two months and
that the vision in the better eye is at least 20/40 acuity, corrected
or uncorrected. This information would be submitted to the medical
examiner at the time of the individual's annual physical qualification
examination under part 391 of the FMCSRs. Accordingly, the FHWA
proposes to amend part 391 to incorporate these conditions.
Similarly, diabetic drivers proposed to be grandfathered as a
result of this proposal would be required to obtain an annual
examination by a board certified/eligible endocrinologist who must
certify that the driver (1) has been examined within the past two
months; (2) is free of insulin reactions; (3) has the ability and has
demonstrated willingness to properly monitor and manage his/her
diabetes; and (4) does not have a diabetic condition that would
adversely affect his or her ability to operate a CMV. One is free of
insulin reactions if that individual has experienced less than one
documented, symptomatic hypoglycemic reaction per month. These drivers
would be required to carry a source of rapidly absorbable glucose and
continue to monitor their blood glucose using a portable glucose
monitoring device equipped with a computerized memory one hour prior to
and approximately every four hours while driving. Upon request, the
driver would submit his or her blood glucose logs to the
endocrinologist and/or the medical examiner or when otherwise directed
by an authorized agent of the FHWA. A copy of the endocrinologist's
report would be submitted to the medical examiner at the time of the
annual physical qualification examination under part 391 of the FMCSRs.
The FHWA proposes to require this group of drivers to carry a
medical examiners certificate stating: ``Medically qualified by
operation of 49 CFR 391.64.'' Drivers who do not provide a copy of the
required information from the ophthalmologist/optometrist or the
endocrinologist to the medical examiner at the time of their annual
physical qualification examinations cannot be recertified to continue
driving a CMV in interstate commerce under this proposed grandfather
provision.
Analysis
The FHWA's proposed action is supported by the findings in an
assessment prepared for the FHWA to determine the risk associated with
the exposure to the public that is represented by allowing waivered
drivers to continue driving after March 31, 1996. A copy of this
assessment is contained in the docket for public inspection.
Since the inception of the waiver programs, drivers with waivers
have been monitored continuously. The monitoring has involved comparing
the accident rates of the waivered drivers to rates of a reference
group, GES, that represent the safety level for drivers of large trucks
(10,000 lbs. or larger) in the United States. The overall accident
rates of the waivered group represent the cumulative number of
accidents for drivers still in the program at the time of the report.
To determine if the waivered drivers in the vision program posed an
excessive threat to public safety, the monitoring process used the 90
percent confidence intervals associated with each cumulative accident
rate and if the lower limit of that confidence interval did not exceed
the national accident rate, the drivers in the program were considered
not to be a threat to public safety.
To determine if the waivered drivers in the diabetes program posed
an excessive threat to public safety, it was decided that sampling
error and confidence intervals would play no role in the decision
process. This was done because the small sample of drivers who received
diabetes waivers would lead to wide confidence intervals. Rather, in
the event that the accident rate of the diabetes waiver group would
become larger than the national rate, notification would be made that
there could be a threat to public safety. In this case, the national
rate is treated as a constant since it is frequently expressed as an
official rate without a confidence interval.
Additional monitoring and more stringent conditions were
implemented in early 1995 in response to the Advocates decision and the
concerns raised by the safety community. In addition to the group
assessment, the waivered drivers were now subject to a day-by-day
individual assessment relative to program compliance, violations and
accidents. Drivers in violation of program conditions were identified
and removed if warranted; thereby identifying, in a timely fashion,
aspects of the program that could compromise public safety.\4\
Therefore in both cases, data presented below will represent drivers
who are still in the program as of this notice.
\4\ Vision: At the end of October, 1995, 2240 drivers remained
in the vision waiver program. A total of 317 drivers had their
waivers revoked. Two hundred and thirty one were revoked for failure
to submit monthly mileage reports. Twelve were revoked because of
convictions for serious traffic or disqualifying offenses. Sixty-
five were revoked for failure to submit a medical exam. Seven
waivers were canceled for medical reasons. Diabetes: At the end of
October, 1995, 119 drivers remained in the diabetes waiver program.
A total of seven drivers had their waivers revoked. Three were
revoked for failure to submit monthly mileage reports. One driver
had his waiver revoked because of a disqualifying offense. Three
were revoked for failing to submit a medical exam. Nine waivers were
canceled for medical reasons.
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Drivers With Vision Waivers
The FHWA examined the vision waiver data in terms of how the waiver
group performed in relation to the national population of large truck
drivers and the future risk of these drivers from their behavior across
time. An examination of the cumulative accident rates of the vision
waivered drivers has shown a steady decline, and by June 1995, the
cumulative accident rate (1.63) was significantly lower than the most
recent national rate (2.422).
An assessment of the trend in accident rates for this group was
performed since the future driving behavior of this group is important
to the disposition of the program. Findings from the evaluation of
accident data occurring in six-month periods indicate that there is a
decline in the total
[[Page 609]]
accident rates across the periods. This significant negative trend
suggests that these drivers are becoming increasingly careful in the
operation of CMVs.
Some accidents that are the fault of these drivers can be clearly
identified by virtue of an associated moving violation issued to a
waivered driver. All waivered drivers are required to report any
accident involvement whatsoever while operating a CMV and all accident
information is verified through each driver's State motor vehicle
record (MVR). Accidents associated with moving violations were examined
for six-month periods between July 1992 and June 1995. The accident
rates decreased across time with the exception of the period between
January 1994 and June 1994. One explanation for this anomaly could be
the severe winter weather that occurred in that period. The negative
trend for accidents associated with moving violations was not as
pronounced as the negative trend for total accidents for the waivered
group.
This evaluation of the performance data and assessment of risk
indicates that the drivers who received vision waivers and are
presently in the program will present no additional risk if they are
allowed to continue to drive after March 1996. This group of drivers
had accident rates initially (July 1992 to June 1993) that were
comparable to the general population of large truck drivers. Following
that period, their accident rates were consistently lower than the
national rate. That performance, coupled with a three-year period of
safe driving performance prior to being admitted into the program,
suggests that this group of drivers exhibits behavior which presents no
additional risk to the public.
With respect to future risk to the public, the data show a
decreasing trend in total accident rates over equal time periods across
driver participation in the waiver program. Accidents associated with a
moving violation also show a decreasing trend, though not as pronounced
as total accidents. This, combined with accident rates that are lower
than the national rate, shows that these drivers will be less of a
threat to public safety than the general population of CMV drivers.
Moreover, each driver's performance was individually assessed to the
extent that such driver met the requirements of the strengthened
conditions and closer monitoring in effect since February 1995.
Drivers With Waivers for Diabetes
Overall monitoring of this group is performed on a quarterly basis
in relation to the national accident rate for large trucks. As
previously mentioned, the national rate is treated as a constant and
any time the accident rate of the waivered group is larger than the
national rate, notification is made to the FHWA that there could be a
threat to public safety. From September 1993 to May 1995, 11 accidents
were reported and, during this same period, waivered drivers reported a
total of 3.83 million vehicle miles traveled (VMT). The accident rate
of the waivered drivers for this period is 2.872 accidents per million
VMT. This is larger than the 1993 national rate, 2.390 accidents per
million VMT. The property damage only accident rate for the waivered
drivers (2.089) is also larger than the comparable national rate
(1.782) as is the case for the fatal accidents (.261 for waiver group
versus .027 for the national rate).
Because of the warning systems, these accidents were analyzed on an
individual basis before decisions were made to continue the program. Of
the eleven accidents reported, only one was shown to be the fault of a
driver in the program. Although this driver was not initially charged
in this accident, the accident did involve a fatality and the waivered
driver was subsequently charged and convicted of involuntary
manslaughter. Consistent with the conditions, this driver's waiver has
been revoked and the driver has been dropped from the program.
In none of the other ten accidents was the waivered driver found to
be at fault. Most involved only incidental contact with another
vehicle. In fact, only three of the ten accidents would have been
reportable or recordable under applicable regulations due to injury or
damage. These three, plus the one involving a fatality, are the only
accidents which are actually comparable to the national data. Accidents
are not included in the national data unless there is a police report
and one of the involved vehicles is towed from the accident scene. This
is not the case for the waiver programs where all accidents are
included, regardless of how minor they are. If the same criteria were
to be applied to the waivered group, then only three of the eleven
accidents would be comparable to the national data and the resulting
accident rate for the drivers with waivers for diabetes would be .783
per million VMT. This rate is considerably below the national rate of
2.390. Based on this performance data and the demonstrated three-year
period of safe driving by this group prior to being admitted into the
waiver program, it is reasonable to conclude that these drivers are not
a high risk group.
Notwithstanding the good driving performance of these drivers, the
FHWA proposes to require the continued monitoring of the physical
conditions that have caused these drivers to be unqualified pursuant to
Sec. 391.41(b)(10) and Sec. 391.41(b)(3) of the FMCSRs. Therefore, the
FHWA is requiring annual medical examinations to evaluate the
disqualifying conditions in addition to the annual physical
qualification examinations pursuant to part 391 of the FMCSRs.
Notice of Determination
The FHWA believes that its proposed actions in this document are
consistent with the public interest and consistent with the safe
operation of commercial motor vehicles. Based on the performance data
gathered to date and the risk analysis performed on this data, the FHWA
proposes that the drivers who currently hold waivers from the Federal
vision and diabetes requirements should be allowed to continue to
operate CMVs in interstate commerce after March 31, 1996. The
statistics that have been gathered from these groups of waived drivers
indicate that these drivers have performed and continue to perform more
safely than those drivers in the general population of commercial
drivers. In addition to their good driving performance, the continued
monitoring of their physical condition and safety performance will
further ensure the continued safe operation of these CMV drivers. The
performance data collected under the vision and diabetes waiver
programs would be used as the basis for this proposal; however,
separate research proceedings would form the basis for any future
adjustments, if warranted, to the current vision and diabetes
standards.
Additionally, the proposal to permit these grandfathered drivers to
continue to work in their chosen field of occupation is consistent with
the public interest policy of employing persons with disabilities,
which is evidenced in both the Rehabilitation Act of 1973, Pub. L. 93-
112, 87 Stat. 355, as amended, and the Americans With Disabilities Act
of 1990, Pub. L. 101-336, 104 Stat. 327, as amended. Therefore, the
FHWA proposes to amend part 391 of the FMCSRs to incorporate these
grandfather provisions for these groups of drivers.
Technical Amendment
The FHWA is also proposing to relocate the provision in Part 391
providing limited exemptions for intra-
[[Page 610]]
city zone drivers. The current provision, required under the Motor
Carrier Act of 1988 (49 U.S.C. 31136(f)), is codified as paragraph (d)
of 49 CFR 391.2, General Exemptions. This action would redesignate the
provision, without any substantive change, as Sec. 391.62, where it is
more properly included in subpart G, Limited Exemptions.
Executive Order 12866 (Regulatory Planning and Review) and DOT
Regulatory Policies and Procedures
The FHWA has determined that the proposed action, if implemented,
would not be a significant regulatory action under Executive Order
12866 or under the regulatory policies and procedures of the DOT. It is
anticipated that the economic impact of this proposed rule would be
minimal because of its limited application and the small number of
affected drivers. Moreover, the action proposed herein would not have
any permanent effect on any existing safety standard. It would merely
continue the status quo by grandfathering some 2,300 drivers who have
been operating safely for substantial periods of time. Therefore, a
full regulatory evaluation is not required.
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act, 5 U.S.C. 601-
612, the FHWA has evaluated the effects of this proposal on small
entities. The FHWA believes that this proposed action would not have a
significant economic impact on a substantial number of small entities
because this proposal is directed solely at a limited number and
narrowly defined population of CMV drivers operating in interstate
commerce. This proposal would not cause a major increase in costs or
prices and, therefore, would not have a significant effect on the
nation's economy. The FHWA intends to further evaluate the economic
consequences of this proposal on small entities in light of the
comments received in response to this notice.
Executive Order 12612 (Federalism Assessment)
This proposed rulemaking, if promulgated, would amend Part 391 of
the FMCSRs pertaining to the qualification of drivers. This action
would allow drivers who currently hold waivers from the Federal vision
and diabetes requirements to continue operating in interstate commerce
after March 31, 1996. This proposal has been analyzed in accordance
with the principles and criteria contained in Executive Order 12612.
Nothing in this proposal would directly preempt any State law or
regulation. This proposal would not limit the policymaking discretion
of the States. Therefore, the FHWA has determined that this proposal
does not have sufficient federalism implications to warrant the
preparation of a separate Federalism Assessment.
Executive Order 12372 (Intergovernmental Review)
Catalog of Federal Domestic Assistance Program Number 20.217, Motor
Carrier Safety. The regulations implementing Executive Order 12372
regarding intergovernmental consultation on Federal programs and
activities apply to this program.
Paperwork Reduction Act
This program does not contain a collection of information
requirement for purposes of the Paperwork Reduction Act of 1980, 44
U.S.C. 3501-3520.
Regulation Identification Number
A regulation identification number (RIN) is assigned to each
regulatory action listed in the Unified Agenda of Federal Regulations.
The Regulatory Information Service Center publishes the Unified Agenda
in April and October of each year. The RIN contained in the heading of
this document can be used to cross reference this action with the
Unified Agenda.
List of Subjects in 49 CFR Part 391
Driver qualifications, Highways and roads, Highway safety, Motor
carriers, Motor vehicle safety.
Issued on: December 21, 1995.
Rodney E. Slater,
Federal Highway Administrator.
In consideration of the foregoing, the FHWA proposes to amend 49
CFR, subchapter B, chapter III, part 391 as set forth below:
PART 391--QUALIFICATIONS OF DRIVERS [REVISED]
1. The authority citation for part 391 continues to read as
follows:
Authority: 49 U.S.C. 504, 31133, 31136, and 31502; and 49 CFR
1.48.
Sec. 391.2 [Redesignated]
2. Part 391 is amended by redesignating Sec. 391.2, as Sec. 391.62,
and revising the section to read as follows:
Sec. 391.62 Limited exemptions for intra-city zone drivers.
The provisions of Secs. 391.11 (b)(1) and 391.41 (b)(1) through
(b)(11) do not apply to a person who:
(a) Was otherwise qualified to operate and operated a commercial
motor vehicle in a municipality or exempt intracity zone thereof
throughout the one-year period ending November 18, 1988;
(b) Meets all the other requirements of this section;
(c) Operates wholly within the exempt intracity zone (as defined in
Sec. 390.5);
(d) Does not operate a vehicle used in the transportation of
hazardous materials in a quantity requiring placarding under
regulations issued by the Secretary under 49 U.S.C. chapter 51; and
(e)(1) Was not yet 21 years of age on July 1, 1988; or
(2) Has a medical or physical condition which:
(i) Would have prevented such person from operating a commercial
motor vehicle under the Federal Motor Carrier Safety Regulations
contained in this subchapter;
(ii) Existed on July 1, 1988, or at the time of the first required
physical examination after that date; and
(iii) The examining physician has determined has not substantially
worsened since July 1, 1988, or at the time of the first required
physical examination after that date.
2. A new Sec. 391.64 is added to read as follows:
Sec. 391.64 Grandfathering for certain drivers participating in vision
and diabetes waiver studies.
(a) The provisions of Sec. 391.41(b)(3) do not apply to a driver
who was a participant in good standing on March 31, 1996, in a study
concerning the operation of commercial motor vehicles by insulin-
controlled diabetic drivers, provided:
(1) The driver is physically examined every year, including an
examination by a board-certified/eligible endocrinologist attesting to
the fact the driver is:
(i) Otherwise qualified under Sec. 391.41;
(ii) Free of insulin reactions (one is free of insulin reactions if
that individual has experienced less than one documented, symptomatic
hypoglycemic reaction per month);
(iii) Able to and has demonstrated willingness to properly monitor
and manage his/her diabetes; and
(iv) Not likely to suffer any diminution in driving ability due to
his/her diabetic condition.
(2) The driver agrees to and complies with the following
conditions:
(i) A source of rapidly absorbable glucose will be carried at all
times while driving;
(ii) Blood glucose levels are to be self-monitored one hour prior
to driving and
[[Page 611]]
at least once every four hours while driving or on duty prior to
driving using a portable glucose monitoring device equipped with a
computerized memory;
(iii) Blood glucose logs will be submitted to the endocrinologist
or medical examiner at the annual examination or when otherwise
directed by an authorized agent of the FHWA; and
(iv) A copy of the endocrinologist's report will be provided to the
medical examiner at the time of the annual medical examination; and
(v) A copy of the annual medical certification will be provided to
the employer for retention in the driver's qualification file and a
copy of the certification will be retained on his/her person while
driving for presentation to a duly authorized federal, state or local
enforcement official.
(b) The provisions of Sec. 391.41(b)(10) do not apply to a driver
who was a participant in good standing on March 31, 1996, in a study
concerning the operation of commercial motor vehicles by drivers with
visual impairment in one eye, provided:
(1) The driver is physically examined every year, including an
examination by an ophthalmologist or optometrist attesting to the fact
the driver
(i) Is otherwise qualified under Sec. 391.41; and
(ii) Continues to measure at least 20/40 (Snellen) in the better
eye.
(2) The driver provides a copy of the ophthalmologist or
optometrist report to the medical examiner at the time of the annual
medical examination.
(3) The driver provides a copy of the annual medical certification
to the employer for retention in the driver's qualification file and
retains a copy of the certification on his/her person while driving for
presentation to a duly authorized Federal, State or local enforcement
official.
3. Section 391.43 is amended by redesignating paragraphs (e), (f)
and (g) as paragraphs (f), (g) and (h), respectively and by adding a
new paragraph (e) to read as follows:
Sec. 391.43 Medical examination; certificate of physical examination.
* * * * *
(e) Any driver operating under a limited exemption authorized by
Sec. 391.64 of this part shall furnish the medical examiner with a copy
of the annual medical findings of the endocrinologist, ophthalmologist
or optometrist, as required under that section. If the medical examiner
finds the driver qualified under the limited exemption in Sec. 391.64,
such fact shall be noted on the Medical Examiner's Certificate.
* * * * *
4. Section 391.43 is further amended by inserting in the form
following newly designated paragraph (h), a new entry reading ``____
Qualified by operation of 49 CFR 391.64'' immediately following the
entry ``____ Medically unqualified unless driving within an exempt
intracity zone''.
Sec. 319.45 [Amended]
5. Section 391.45 is amended by revising ``Sec. 391.2(d)'' in
paragraph (b)(2) to read ``391.62, or only by operation of the
exemption in Sec. 391.64,''.
[FR Doc. 96-218 Filed 1-5-96; 8:45 am]
BILLING CODE 4910-22-P
Complete official Federal Register PDF
FR Doc. 96-214 Agency Funding for Federal Employment Information
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 546-548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-214]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 61, No. 5 / Monday, January 8, 1996 /
Proposed Rules
[[Page 546]]
OFFICE OF PERSONNEL MANAGEMENT
5 CFR Parts 330, 333, and 335
RIN 3206-AH25
Agency Funding for Federal Employment Information
AGENCY: Office of Personnel Management.
ACTION: Proposed rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: The Office of Personnel Management (OPM) is issuing proposed
regulations requiring each agency to pay a fee for its share of the
cost of providing employment information through OPM to Federal
employees and the public. The regulations implement a permanent
statutory provision of Public Law 104-52, which authorizes OPM to
charge fees to agencies to pay the cost of providing Federal employment
information and related services.
DATES: Written comments will be considered if received on or before
February 7, 1996.
ADDRESSES: Send or deliver written comments to Leonard R. Klein,
Associate Director for Employment, Office of Personnel Management, Room
6F08, 1900 E Street, NW., Washington, DC 20415 (FAX 202-606-5049).
FOR FURTHER INFORMATION CONTACT: Richard Whitford on 202-606-2525, TDD
202-606-0591, or FAX 202-606-5049.
SUPPLEMENTARY INFORMATION: The Treasury, Postal Service, and General
Government Appropriations Act, 1996 (Public Law 104-52, November 19,
1995) shifts the funding for the Federal employment information
function from OPM appropriations to a combination of OPM appropriations
and fees for services to be paid by agencies into OPM's revolving fund.
Each subsequent year Congress will decide how much money to appropriate
directly to OPM for this function. This new financial obligation of
agencies is contained in section 4 of the OPM general provisions, title
IV, of Public Law 104-52.
Providing Employment Information
Agencies are subject to two statutory requirements that require
public notice for competitive examinations and vacancies in the
competitive service and Senior Executive Service. Under both laws, OPM
is responsible for collecting and disseminating the information.
Under 5 U.S.C. 3327, agencies must notify OPM of (1) competitive
examinations and (2) vacancies in the competitive service and Senior
Executive Service for which the agency will consider applicants from
outside the Federal service. OPM's implementing regulations for the
competitive service are in 5 CFR 330.102 and 333.102 and the Senior
Executive Service, in Sec. 317.501(b).
Section 3327 requires OPM to make information available to State
Employment Service offices regarding competitive examinations conducted
by OPM or agencies under delegated examining authority. It also
authorizes OPM to issue regulations under which agencies shall notify
the State Employment Service of vacancies for which the agency seeks
applications from persons outside the Federal service. Since 1989, OPM
has met these statutory requirements through regular electronic reports
of job listings in the Federal Employment Information System to
America's Job Bank, a Department of Labor funded organization that
disseminates vacancy information to State Employment Service offices.
Agencies need take no further action.
Under 5 U.S.C. 3330, agencies must notify OPM of competitive
service job announcements open to applicants outside an agency's own
workforce. OPM is required to make this information available to the
public. (This requirement was previously in 5 U.S.C. 3329, which was
redesignated as section 3330 by Public Law 104-52.) OPM's implementing
regulations are in 5 CFR 335.105.
Agencies also are required by the Interagency Career Transition
Assistance Plan for Displaced Employees in 5 CFR part 330 to notify OPM
of vacancies open to candidates outside an agency's workforce. OPM
makes this information available to assist displaced employees in
finding employment. The Plan implemented, in part, the President's
memorandum of September 12, 1995, entitled ``Career Transition
Assistance for Federal Employees.''
In addition to carrying out the obligations discussed above, OPM
provides employment information to support outplacement services
provided by agency career transition centers. OPM also responds to a
large volume of inquiries from the public, Federal employees,
Congressional offices, and others on a broad range of employment
topics.
Funding Job Information
Previously, Congress provided direct funding to OPM to carry out
employment information functions. However, during deliberations on
OPM's FY 96 appropriations, Congress concluded that individual agencies
should fund these functions. Congress reduced OPM's FY 96 funding of
the employment information function to only 32 percent of what it was
in FY 95. Public Law 104-52 adds the following new subsection to
redesignated 5 U.S.C. 3330:
``(f) The Office may, to the extent it determines appropriate,
charge such fees to agencies for services provided under this section
and for related Federal employment information. The Office shall retain
such fees to pay the costs of providing such services and
information.''
These regulations implement the new subsection (f). For the future,
OPM will establish a working group of the Interagency Advisory Group,
consisting of officials from representative agencies and OPM, to review
the level, quality and costs of information services provided and make
recommendations for improving efficiency and effectiveness. All
agencies will have the opportunity, through the Interagency Advisory
Group, to discuss and comment on recommendations of the working group
prior to implementation.
OPM will regularly report to agencies the information it collects
regarding customer satisfaction and complaints. OPM also will notify
each agency annually of the costs of the services, its obligation and
of payment procedures.
These regulations also consolidate the public notice requirements
for competitive service positions in parts 330, 333, and 335. OPM will
notify agencies directly of the information regarding specific
announcements to be
[[Page 547]]
reported. The requirement in parts 330 and 333 that individual agencies
notify the State Employment Service of vacancies is eliminated since
OPM provides this report on behalf of agencies. Furthermore, to better
serve displaced employees and the public, OPM recently asked agencies
to provide electronic files of vacancy announcements to OPM. OPM will
make these available directly to job seekers, minimizing the number of
inquiries to agencies, and thus reducing personnel office workload.
Computation of Agency Fees for FY 96
The Federal Employment Information System is a dynamic data base of
job listings and vacancy announcements as well as general employment
information for students, veterans, disabled persons, and others. To
minimize the financial impact of the new law on agencies, OPM has
already reduced or eliminated several services previously provided.
These included live operator telephone service and face-to-face counter
service at Federal Employment Information Centers, as well as
customized responses to written inquiries. Available services now
include access to three automated data bases:
the Career America Connection--a nationwide phone system
with access points at OPM Service Centers and the OPM Staffing Service
Center in Macon, GA.
the Federal Job Opportunities Board--an electronic
bulletin board with access for individuals, career transition centers,
and college placement offices through modems or Internet.
touchscreen computers located in OPM offices, Federal
office buildings, and other locations.
Job seekers can read or download job listings, vacancy
announcements, and application materials, or they can request that such
materials be mailed or faxed to them. The system is accessible to the
hearing impaired, and OPM provides large print or Braille versions for
the visually impaired. OPM also provides limited live operator service
on its Career America Connection lines into the Macon, GA, Staffing
Service Center.
This level of employment information is the minimum we must provide
to fulfill our statutory obligations. This minimum level of employment
information service will cost $5.3 million in FY 96 in operating and
maintenance costs. OPM has already borne the costs of developing the
system and installing the technology.
Congress directed that OPM share the operating and maintenance
costs necessary to provide this service. OPM has been appropriated $2.5
million for this purpose in FY 96. The balance is $2.8 million, which
we propose to charge to agencies as authorized by Pub. L. 104-52.
To determine a fair fee structure, we considered all who benefit
from this service. Clearly we all do.
The system enables OPM and agencies to meet the public
notice requirements of an open, competitive merit system as required by
law.
The system attracts quality candidates for those agencies
that are recruiting, and provides a mechanism to assist agencies in
achieving a diverse workforce. It provides a vital link to students at
colleges and universities, as well as to counsellors who assist
veterans and the disabled.
The system helps surplus and displaced employees. The
system provides the framework for the career transition programs that
will replace the Interagency Placement Program.
The system handles over 6.5 million inquiries a year,
inquiries that would otherwise go to individual agency personnel
offices.
Because all agencies benefit from this service whether or not they
are actively recruiting, OPM has proposed to agencies that the FY 96
fee for employment information services be based on each agency's
proportionate share of the Federal competitive service workforce. The
employment figures would be taken from OPM's Central Personnel Data
File (CPDF) as of March 31, 1995, and would include all permanent and
nonpermanent competitive service employees.
OPM proposed to include nonpermanent employees because use of
temporary and term employment has increased as agencies adjust to
reduced funding levels, and job announcements for nonpermanent as well
as permanent employment must be reported to OPM.
We proposed to count employment as of March 31st because employment
on that date is available in time to allow for agency planning and
budgeting.
After considering comments on this proposal, OPM will issue final
regulations. At that time, we will begin to collect fees for FY 96.
Although OPM recommends that agencies be billed at the agency level to
minimize billing and accounting, OPM will accommodate agencies as much
as possible, such as billing at the sub-component level if an agency
prefers.
Regulatory Flexibility Act
I certify that this regulation will not have a significant economic
impact on a substantial number of small entities because it pertains
only to Federal agencies.
Executive Order 12866, Regulatory Review
This rule has been reviewed by the Office of Management and Budget
in accordance with Executive Order 12866.
List of Subjects
5 CFR Part 330
Armed forces reserves, Government employees.
5 CFR Parts 333 and 335
Government employees.
U.S. Office of Personnel Management.
James B. King,
Director.
Accordingly, OPM proposes to amend 5 CFR parts 330, 333, and 335,
as follows:
PART 330--RECRUITMENT, SELECTION, AND PLACEMENT (GENERAL)
1. The authority citation for part 330 is revised to read as
follows:
Authority: 5 U.S.C. 1302, 3301, 3302; E.O. 10577, 3 CFR, 1954-58
Comp., p. 218.
Section 330.102 also issued under 5 U.S.C. 3327 and 3330.
Subpart B also issued under 5 U.S.C. 3315 and 8151.
Section 330.401 also issued under 5 U.S.C. 3310.
Subpart H also issued under 5 U.S.C. 8337(h) and 8457(b).
Subpart I also issued under sec. 4432 of Pub. Law 102-484, 106
Stat 2720, 5 U.S.C. 3301 note.
2. Section 330.102 is revised, to read as follows:
Sec. 330.102 Federal employment information.
(a) Vacancies open to the public.
(1) Notice required. (i) Under 5 U.S.C. 3327, Federal agencies must
notify OPM promptly of:
(A) Open competitive examinations;
(B) Vacancies in the competitive service to be filled under direct
hire procedures or part 333 of this chapter; and
(C) Vacancies in the Senior Executive Service for which the agency
seeks applications from persons outside the Federal service. Also, in
accordance with Sec. 317.501(b)(2) of this chapter, agencies must
notify OPM of all Senior Executive Service vacancies to be filled by
initial career appointment.
(ii) OPM will provide this information to the employment offices of
the United States Employment Service.
(2) Agencies covered. Paragraph (a)(1) of this section applies to:
[[Page 548]]
(i) The executive departments listed at 5 U.S.C. 101;
(ii) The military departments listed at 5 U.S.C. 102;
(iii) Government owned corporations in the executive branch as
described at 5 U.S.C. 103;
(iv) Independent establishments in the executive branch as
described at 5 U.S.C. 104, including the Nuclear Regulatory Commission;
and
(v) Government Printing Office.
(b) All other vacancies.
(1) Notice required. Under 5 U.S.C. 3330, OPM must maintain, and
make available to the public, a list of agency vacancy announcements
for positions in the competitive service. Under Sec. 330.706 of this
chapter, agencies must notify OPM of competitive service vacancies for
which an agency will accept applications from outside an agency's
workforce. Therefore, agencies must notify OPM promptly of competitive
service vacancies to be filled for more than 90 days from among current
career and career-conditional employees, reinstatement eligibles, and/
or candidates with noncompetitive appointment eligibility, when the
agency will accept applications from individuals outside the agency's
own work force.
(2) Agencies covered. Except for any executive agency or unit
thereof whose principal function is the conduct of foreign intelligence
or counterintelligence activities, as determined by the President,
paragraph (b)(1) of this section applies to:
(i) The executive departments listed at 5 U.S.C. 101;
(ii) The military departments listed at 5 U.S.C. 102;
(iii) Government corporations in the executive branch as described
at 5 U.S.C. 103; and
(iv) Independent establishments in the executive branch as
described at 5 U.S.C. 104.
(c) Content. Notice to OPM of job announcements must include the
position title, tenure, location, pay plan and grade (or pay rate) of
the vacant position; application deadline; and other information
specified by OPM. In addition, agencies shall provide OPM with an
electronic file of the complete vacancy announcement or recruiting
bulletin, which must include the qualifications required, equal
opportunity provisions and, when applicable, veterans' preference
provisions.
(d) Funding. Under 5 U.S.C. 3330(f), OPM is authorized to charge
fees to agencies for their share of the cost of providing employment
information to the public and to Federal employees. OPM will work with
agencies to review the effectiveness and efficiency of the Federal
Employment Information System in meeting Federal agency and pubic needs
and identify improvements to the system, consistent with the minimum
level of service and statutory requirements. Subsequently, OPM will
annually compute the cost of providing employment information and
notify each agency of its share, along with a full accounting of the
costs, and payment procedures.
PART 333--RECRUITMENT AND SELECTION FOR TEMPORARY AND TERM
APPOINTMENTS OUTSIDE THE REGISTER
3. The authority citation for 333 is revised to read as follows:
Authority: 5 U.S.C. 1302, 3301, 3302, 3327, 3330; E.O. 10577, 3
CFR 1954-58 Comp., p. 218; Sec. 333.203 also issued under 5 U.S.C.
1104.
4. Section 333.102 is revised to read as follows:
Sec. 333.102 Notice of job announcements to OPM.
Under 5 U.S.C. 3327 and 3330, agencies are required to report job
announcements to OPM when recruiting outside the register. This
requirement is implemented through Sec. 330.102 of this chapter.
PART 335--PROMOTION AND INTERNAL PLACEMENT
5. The authority citation for part 335 is revised to read as
follows:
Authority: 5 U.S.C. 3301, 3302, 3330; E.O. 10577, 3 CFR 1954-58
Comp., p. 218.
6. Section 335.105 is revised to read as follows:
Sec. 335.105 Notice of job announcements to OPM.
Under 5 U.S.C. 3330, agencies are required to report job
announcements to OPM. This requirement is implemented through
Sec. 330.102 of this chapter.
[FR Doc. 96-214 Filed 1-5-96; 8:45 am]
BILLING CODE 6325-01-M
Complete official Federal Register PDF
FR Doc. 96-165 Retirement Bonds
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Page 552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-165]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[EE-148-81]
Retirement Bonds
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Withdrawal of proposed regulations.
-----------------------------------------------------------------------
SUMMARY: This document withdraws proposed regulations relating to
retirement bonds as part of the President's Regulatory Reinvention
Initiative.
DATES: The proposed regulations are withdrawn January 8, 1996.
FOR FURTHER INFORMATION CONTACT: Philip Bennet, (202) 622-3926.
SUPPLEMENTARY INFORMATION:
Background
As part of the President's Regulatory Reinvention Initiative, the
Treasury Department and the IRS identified obsolete regulations that
relate to prior law, provide elections for prior years, or are
otherwise outdated due to changes in the underlying statutory
provisions.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Withdrawal of Proposed Amendments to the Regulations
Accordingly, under the authority of 26 U.S.C. 7805, proposed
regulations Sec. 1.409-1(b)(2)(i) that were published in the Federal
Register on January 23, 1984 (49 FR 2794) are withdrawn.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 96-165 Filed 1-5-96; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-161 Payments Under Judgments And Private Relief Acts
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 552-553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-161]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 256
RIN 1510-AA52
Payments Under Judgments And Private Relief Acts
AGENCY: Financial Management Service, Fiscal Service, Treasury.
[[Page 553]]
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This action proposes to revise the regulations which govern
the procedures for payments under Judgments and Private Relief Acts. It
specifically addresses the procedures for applying for payments, and
clarifies the payment process. These revisions are intended to provide
greater clarity and understanding by replacing obsolete references and
unnecessary requirements with current references and requirements.
DATES: Comments must be submitted on or before February 7, 1996.
ADDRESSES: Comments may be addressed to Charles F. Schwan III,
Director, Funds Management Division, Financial Management Service, Room
620D, 3700 East-West Highway, Hyattsville, MD 20782 or by FAX to the
attention of Charles Schwan on (202) 874-8372.
FOR FURTHER INFORMATION CONTACT: Charles F. Schwan III, (202) 874-8380,
Director, Funds Management Division; or Bernice Mays, (202) 874-8652,
Accountant, Credit Accounting Branch.
SUPPLEMENTARY INFORMATION:
Background
The proposed revision will update the procedure for making claims.
This will benefit claimants by reducing the requirements that must be
followed in order to receive payment on judgments against the United
States. This regulation currently sets a threshold for judgment claims
greater than $100,000 and judgment claims equal to or less than
$100,000. The change would eliminate the $100,000 threshold distinction
for processing a claim.
Rulemaking Analysis
It has been determined that this regulation is not a significant
regulatory action as defined in Executive Order 12866. Accordingly, a
regulatory assessment is not required. It is hereby certified that this
revision will not have a significant economic impact on a substantial
number of small entities. Accordingly, a regulatory flexibility
analysis is not required. This change will clarify the regulation.
List of Subjects in 31 CFR Part 256
Claims, Administrative practices and procedures.
For the reasons set forth in the preamble, 31 CFR part 256 is
proposed to be revised to read as follows:
PART 256--PAYMENTS UNDER JUDGMENTS AND PRIVATE RELIEF ACTS
Sec.
256.1 Judgments against the United States.
256.2 Payment of sums appropriated in private relief acts.
Authority: 28 U.S.C. 2414; 31 U.S.C. 1304.
Sec. 256.1 Judgments against the United States.
(a) Persons securing money judgments against the United States in
the U.S. Court of Federal Claims are required to file original
transcripts of such judgments with the Comptroller General of the U.S.
General Accounting Office (GAO) in order to secure payment. In
addition, the U.S. Department of Justice submits a voucher for payment
with supporting documents to the GAO on behalf of the claimants. The
GAO certifies payment on a Certificate of Settlement to the U.S.
Treasury Department, Financial Management Service (FMS).
(b) For persons securing money judgments against the United States
in the U.S. district courts, the same procedures as described in
paragraph (a) of this section apply, except that all of the necessary
paperwork is forwarded directly to the GAO by the U.S. Department of
Justice. Neither a filing nor a request for payment is required from
the claimant securing a judgment. The GAO verifies that the voucher is
proper for payment from the Judgment fund and transmits a certified
award to FMS.
(c) Payment is made to the claimant in accordance with the
instructions as stated in the certified award.
Sec. 256.2 Payment of sums appropriated in private relief acts.
Persons entitled to payment of sums appropriated in private relief
acts should make application for payment to the Credit Accounting
Branch, Financial Management Service, Treasury Department, Hyattsville,
MD 20782. Upon receipt of an application, bearing the signature and
mailing address of the beneficiary, the Credit Accounting Branch will
initiate the necessary review of the applicable private law and will
effect payment in accordance with the private law.
Dated: November 22, 1995.
Russell D. Morris,
Commissioner.
[FR Doc. 96-161 Filed 1-5-96; 8:45 am]
BILLING CODE 4810-35-U
Complete official Federal Register PDF
FR Doc. 96-130 Proposed Amendments to Require Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Qualitative and Quantitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments
[Federal Register Volume 61, Number 5 (Monday, January 8, 1996)]
[Proposed Rules]
[Pages 578-603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-130]
[[Page 577]]
_______________________________________________________________________
Part II
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Parts 210, 228, et al.
Securities: Disclosure of Accounting Policies for Derivative Financial
Instruments, etc.; Proposed Rule
Federal Register / Vol. 61, No. 5 / Monday, January 8, 1996 /
Proposed Rules
[[Page 578]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 228, 229, 239, 240, and 249
[Release Nos. 33-7250; 34-36643; IC-21625; File No. S7-35-95].
RIN 3235-AG42
Proposed Amendments to Require Disclosure of Accounting Policies
for Derivative Financial Instruments and Derivative Commodity
Instruments and Disclosure of Qualitative and Quantitative Information
About Market Risk Inherent in Derivative Financial Instruments, Other
Financial Instruments, and Derivative Commodity Instruments
AGENCY: Securities and Exchange Commission.
ACTION: Proposed amendments.
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SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') today is soliciting comment on proposed amendments to
Regulation S-X, Regulation S-K, and various forms, including Form 20-F.
The proposed amendments are intended to clarify and expand existing
requirements for financial statement footnote disclosures about
registrants' accounting policies for derivative financial instruments,
as defined, and derivative commodity instruments, as defined. In
addition, the proposed amendments require disclosure outside the
financial statements of qualitative and quantitative information about
market risk inherent in derivative financial instruments, other
financial instruments, as defined, and derivative commodity
instruments. Also, the release reminds registrants that when they
provide disclosure about financial instruments, commodity positions,
firm commitments, and other anticipated transactions (``reported
items''), such disclosure must include disclosures about derivatives
that affect directly or indirectly such reported items, to the extent
the effects of such information are material and necessary to prevent
the disclosure about the reported item from being misleading. In sum,
these proposals are designed to make information about derivative
financial instruments, other financial instruments, and derivative
commodity instruments more useful to investors seeking to assess the
market risk inherent in these instruments.
DATES: Comments on the proposed amendments should be received on or
before May 7, 1996.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. Comment letters should refer to File No.
S7-35-95. All comments received will be available for public inspection
and copying in the Commission's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549.
FOR FURTHER INFORMATION CONTACT: Cathy J. Cole, Thomas J. Linsmeier,
Russell B. Mallett, III, or Stephen M. Swad, at (202) 942-4400, Office
of the Chief Accountant, Securities and Exchange Commission, 450 Fifth
Street, N.W., Mail Stop 11-3, Washington, D.C. 20549, or Kurt R. Hohl,
at (202) 942-2960, Division of Corporation Finance, Securities and
Exchange Commission, 450 Fifth Street, N.W., Mail Stop 3-13,
Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to amend Rule 4-
08 of Regulation S-X 1 and to add new Item 305 to Regulation S-
K.2 Additionally, the Commission is proposing amendments to Forms
S-1, S-2, S-4, S-11, and F-4 3 under the Securities Act of
1933,4 and Rule 14a-3,5 Schedule 14A,6 and Forms 10, 20-
F, 10-Q, and 10-K 7 under the Securities Exchange Act of
1934.8
\1\ 17 CFR 210.4-08. Item 310 of Regulation S-B, CFR 228.310,
also would be amended to incorporate the changes to Item 4-08 of
Regulation S-X.
\2\ 17 CFR Part 229.
\3\ 17 CFR 239.11, 12, 25, 18, and 34.
\4\ 15 U.S.C. 77a et seq.
\5\ 17 CFR 240.14a-3.
\6\ 17 CFR 240.14a-101.
\7\ 17 CFR 249.210, 220f, 308a, and 310.
\8\ 15 U.S.C. 78a et seq.
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I. Executive Summary
During the last several years, there has been substantial growth
9 in the use of derivative financial instruments, other financial
instruments, and derivative commodity instruments.10 The
Commission recognizes that these instruments can be effective tools for
managing registrants' exposures to market risk.11 During 1994,
however, some registrants experienced significant, and sometimes
unexpected, losses in market risk sensitive instruments due to, among
other things, changes in interest rates, foreign currency exchange
rates, and commodity prices. In light of these losses and the
substantial growth in the use of market risk sensitive instruments,
public disclosure about these instruments has emerged as an important
issue in financial markets.
\9\ The worldwide notional/contract amounts for derivative
financial instruments and derivative commodity instruments increased
from $7.1 trillion in 1989 to $62.1 trillion in 1994. These notional
amounts, while one way to measure derivative activities, do not
represent a precise measure of the risk associated with these
instruments. In many instances, the amount at risk is much smaller
than the notional amount. See Financial Derivatives: Actions Needed
to Protect the Financial System, United States General Accounting
Office Report to Congressional Requesters (May 1994), and Public
Disclosure of the Trading and Derivatives Activities of Banks and
Securities Firms, Basle Committee on Banking Supervision (``Basle
Committee'') and the Technical Committee of the International
Organization of Securities Commissions (``IOSCO'') (November 1995).
\10\ See section IV C, infra, for complete definitions of the
terms derivative financial instruments, other financial instruments,
and derivative commodity instruments. In brief, for purposes of this
release: (1) derivative financial instruments include futures,
forwards, swaps, options, and other financial instruments with
similar characteristics, (2) other financial instruments include,
for example, investments, loans, structured notes, mortgage-backed
securities, indexed debt instruments, interest-only and principal-
only obligations, deposits, and other debt obligations, and (3)
derivative commodity instruments include, to the extent such
instruments are not derivative financial instruments, commodity
futures, commodity forwards, commodity swaps, commodity options, and
other commodity instruments with similar characteristics that are
reasonably possible to be settled in cash or with another financial
instrument. In addition, for purposes of this release, the terms (1)
``derivatives'' refer to derivative financial instruments and
derivative commodity instruments, together, and (2) ``market risk
sensitive instruments'' refer to derivative financial instruments,
other financial instruments, and derivative commodity instruments,
collectively.
\11\ Market risk is the risk of loss arising from adverse
changes in market rates and prices, such as interest rates, foreign
currency exchange rates, commodity prices, and similar market rate
or price changes (e.g., equity prices). See Group of Thirty,
``Derivatives: Practices and Principles'' (July 1993), and Financial
Accounting Standards Board (``FASB''), Statement of Financial
Accounting Standards No. 105, ``Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk'' (``FAS 105'')
(March 1990), for similar definitions of market risk.
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During 1994 and 1995, to understand better this emerging issue and
to assess current disclosure practice, the SEC staff reviewed annual
reports filed with the Commission by approximately 500 registrants. The
primary purposes of these reviews were to (i) assess the quality of
disclosures pertaining to market risk sensitive instruments and (ii)
determine what, if any, additional information is needed to improve
disclosures about these instruments. The SEC staff observed that while
disclosures reviewed in 1995 were more informative than those reviewed
in 1994, in part, because of improved guidance by the FASB,12
three
[[Page 579]]
significant disclosure issues remain. Today, to address those
disclosure issues: 13
\12\ In October 1994, the FASB issued Statement of Financial
Accounting Standards No. 119, ``Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments''
(``FAS 119'') (October 1994), which requires disclosures about
derivative financial instruments. FAS 119 is effective for fiscal
years ending after December 15, 1994, except for entities with less
than $150 million in total assets. For those entities, FAS 119 is
effective for financial statements issued for fiscal years ending
after December 15, 1995.
\13\ The FASB currently is working on a project to improve
accounting recognition and measurement of derivatives. This release
does not address accounting recognition and measurement of
derivatives, but focuses solely on disclosure issues related to
derivatives and other financial instruments.
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1. The Commission proposes amendments to Regulation S-X requiring
enhanced descriptions in the footnotes to the financial statements of
accounting policies for derivative financial instruments and derivative
commodity instruments.14 These disclosures would be required
unless the registrant's derivative activities are not material. For
this proposal, the materiality of derivatives activities would be
measured by the fair values 15 of derivative financial instruments
and derivative commodity instruments at the end of each reporting
period and the fair value of those instruments during each reporting
period.
\14\ These disclosure requirements do not relate to, for
example, other financial instruments. Accounting policy disclosure
requirements for these other instruments are prescribed by existing
generally accepted accounting principles and Commission guidance
(see, e.g., Accounting Principles Board Opinion No. 22, ``Disclosure
of Accounting Policies'' (``APB 22'') (April 1972).
\15\ For purposes of this release, the term ``fair value'' has
the same meaning as defined by generally accepted accounting
principles (see, e.g., FASB, Statement of Financial Accounting
Standards No. 107, ``Disclosures about Fair Value of Financial
Instruments'' (``FAS 107'') (December 1991), paragraph 5).
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2. The Commission proposes amendments creating a new Item 305 of
Regulation S-K requiring disclosure outside the financial statements
16 of qualitative and quantitative information about derivative
financial instruments, other financial instruments, and derivative
commodity instruments. These disclosures would be required if any of
the following items are material: (i) the fair values of market risk
sensitive instruments outstanding at the end of the current reporting
period or (ii) the potential loss in future earnings, fair values, or
cash flows of market risk sensitive instruments from reasonably
possible market movements.17
\16\ See section III B3b, infra, for a discussion about where,
outside the financial statements, these disclosures would appear.
\17\ The proposed amendments regarding disclosure of qualitative
and quantitative information about market risk do not relate solely
to derivatives, but also to investments in other financial
instruments. These disclosures would be required for registrants
that have material investments in other financial instruments, even
though they have no investments in derivatives.
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a. In complying with the proposed amendments requiring disclosure
of quantitative information about market risk, registrants would be
permitted to select any one of the following three disclosure
alternatives:
i. Tabular presentation of expected future cash flow amounts and
related contract terms categorized by expected maturity dates;
ii. Sensitivity analysis expressing the possible loss in earnings,
fair values, or cash flows of market risk sensitive instruments from
selected hypothetical changes in market rates and prices; or
iii. Value at risk disclosures expressing the potential loss in
earnings, fair values, or cash flows of market risk sensitive
instruments from market movements over a selected period of time with a
selected likelihood of occurrence.
b. The proposed qualitative information about market risk would
include a narrative discussion of (i) a registrant's primary market
risk exposures \18\ and (ii) how the registrant manages those exposures
(e.g., a description of the objectives, general strategies, and
instruments, if any, used to manage those exposures).
\18\ See note 63, infra, for a definition specifying how the
term ``primary market risk exposures'' is used in this release.
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3. The Commission is reminding registrants that when they provide
disclosure about financial instruments, commodity positions, firm
commitments, and other anticipated transactions \19\ (``reported
items''), such disclosure must include information about derivatives
that affect directly or indirectly such reported items, to the extent
the effects of such information are material and necessary to prevent
the disclosure about the reported item from being misleading. For
example, when information is required to be disclosed in the footnotes
to the financial statements about interest rates and repricing
characteristics of debt obligations, registrants should include, when
material, disclosure of the effects of derivatives. Similarly, summary
information and disclosures in Management's Discussion and Analysis
(``MD&A'') about the cost of debt obligations should include, when
material, disclosure of the effects of derivatives.
\19\ For purposes of this release, ``anticipated transactions''
means transactions (other than transactions involving existing
assets or liabilities or transactions necessitated by existing firm
commitments) an enterprise expects, but is not obligated, to carry
out in the normal course of business (see, e.g., para. 9 of
Statement of Financial Accounting Standards No. 80, ``Accounting for
Futures Contracts'' (``FAS 80'') (August 1984)).
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Congress recently adopted the Private Securities Litigation Reform
Act of 1995 that, among other things, amends the Securities Act and
Securities Exchange Act to include a safe harbor for forward looking
information. It is the Commission's intention that forward looking
disclosures made pursuant to proposed Item 305 of Regulation S-K and
Item 9A of Form 20-F be subject to an appropriate safe harbor. The
Commission's staff is continuing to consider how best to craft an
appropriate safe harbor in light of this recent legislation, and the
Commission intends to issue a release shortly that would propose that
the disclosures to be required by new Items 305 and 9A be made subject
to safe harbor provisions.
The proposed amendments pertaining to qualitative and quantitative
information about market risk would not apply to registered investment
companies \20\ and small business issuers.\21\ However, to the extent
market risk represents a material known trend, event, or uncertainty,
small business issuers, like other registrants, would be required to
discuss the impact of market risk on past and future financial
condition and results of operations, pursuant to Commission rules
relating to MD&A.\22\
\20\ The Commission currently is considering comments and
suggestions on how to improve the descriptions of risk provided to
investors by mutual funds and other investment companies. See
``Improving Descriptions of Risk by Mutual Funds and Other
Investment Companies,'' Securities Act Release No. 7153, 60 FR 17172
(April 4, 1995).
\21\ The proposed amendments relating to accounting policies
disclosures, however, would apply to both registered investment
companies and small business issuers.
\22\ See, e.g., Item 303 of Regulation S-B, 17 CFR 228.303, and
Item 303 of Regulation S-K, 17 CFR 229.303.
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The proposed amendments are designed to make disclosures about
market risk sensitive instruments more useful to investors. They
represent one step by the Commission to improve registrants'
disclosures about market risk sensitive instruments. The Commission
recognizes the evolving nature of market risk sensitive instruments and
intends to continue considering how best to address disclosure issues
relating to these instruments. In this regard, if the proposals in this
release are adopted, the Commission would anticipate reconsidering the
effectiveness of those rules, as well as the need for additional
proposals, after a period of five years.
II. Initiatives Regarding Disclosures About Derivatives
Certain private sector entities have highlighted problems
associated with
[[Page 580]]
disclosures about market risk sensitive instruments, as identified by
users of financial reports. For example, the Association for Investment
Management and Research (``AIMR''), an organization of financial
analysts, noted that users ``are confounded by the . . . complexity of
financial instruments.'' \23\ In addition, after considerable
investigation into the needs of investors and creditors, the American
Institute of Certified Public Accountant's (``AICPA'') Special
Committee on Financial Reporting stated: \24\
\23\ See AIMR, Financial Reporting in the 1990s and Beyond, page
30 (1993).
\24\ See AICPA Special Committee on Financial Reporting,
Improving Business Reporting--A Customer Focus: Meeting the
Information Needs of Investors and Creditors (1994).
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Users are confused. They complain that business reporting is not
answering important questions, such as: . . . What [innovative
financial] instruments has the company entered into, and what are
their terms? How has the company accounted for those instruments,
and how has that accounting affected the financial statements? What
risks has the company transferred or taken on? [page 76]
Other organizations recently have made recommendations on how to
improve such disclosures about market risk sensitive instruments. These
organizations include regulators, such as the Group of 10 Central
Bankers,\25\ the Federal Reserve Bank of New York,\26\ the Basle
Committee and the Technical Committee of IOSCO,\27\ and private sector
bodies, such as the Group of Thirty \28\ and a task force of the
Financial Executives Institute (``FEI'').\29\
\25\ See Bank for International Settlements, A Discussion Paper
on Public Disclosure of Market and Credit Risks by Financial
Intermediaries, prepared by working group of the Euro-currency
Standing Committee of the Central Banks of the Group of Ten
Countries (September 1994).
\26\ See Federal Reserve Bank of New York, Public Disclosure of
Risks Related to Market Activity: A Discussion Paper (November
1994).
\27\ See Basle Committee and the Technical Committee of IOSCO,
Framework for Supervisory Information about the Derivatives
Activities of Banks and Securities Firms (May 1995). See also Basle
Committee and the Technical Committee of IOSCO, Public Disclosure of
the Trading and Derivatives Activities of Banks and Securities Firms
(November 1995).
\28\ See Group of Thirty, Derivatives: Practices and Principles
(July 1993).
\29\ See FEI, Derivative Financial Instruments Accounting and
Disclosure Issues, (``FEI Report'') prepared by FEI CCF/CCR
Derivatives Disclosure Task Force (August 1994).
---------------------------------------------------------------------------
In general, these organizations have stressed the need to make more
understandable the risks inherent in market risk sensitive instruments.
In particular, they have called for additional quantitative and
qualitative disclosures about market risk. For example, the Federal
Reserve Bank of New York recommended a new financial statement
providing quantitative information about the overall market risk of an
entity.\30\ In addition, the FEI task force recommended that companies
``disclose some type of information which conveys overall exposure to
market risk.'' \31\ In this regard, the FEI task force suggests two
distinct approaches. One approach is to provide a high-level summary of
relevant statistics about outstanding activity at period end. The
second approach is to communicate the potential loss which could occur
under specified conditions using either a value at risk or another
comprehensive model to measure market risk.\32\
\30\ See note 26, supra.
\31\ See Attachment A, page 1 of FEI Report.
\32\ See Attachment B, pages 5 and 6 of FEI Report.
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In October 1994, the FASB, responding in part to calls for improved
disclosure, issued Statement of Financial Accounting Standards No. 119,
``Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments'' (``FAS 119'') (October 1994).\33\ FAS 119
prescribes, among other things, disclosures in the financial statements
about the policies used to account for derivative financial instruments
and a discussion of the nature, terms, and cash requirements of
derivative financial instruments. FAS 119 also encourages, but does not
require, disclosure of quantitative information about an entity's
overall market risk.\34\
\33\ Similar standards were recently adopted or proposed by the
International Accounting Standards Committee, the Canadian Institute
of Chartered Accountants, and the Australian Accounting Standards
Board. See International Accounting Standards No. 32, ``Financial
Instruments: Disclosure and Presentation'' (``IAS 32'') (March
1995), Section 3860 of the Handbook of the Canadian Institute of
Chartered Accountants, and the Australian Accounting Standards
Board's exposure draft entitled, ``Presentation and Disclosure of
Financial Instruments'' (June 1995), respectively.
\34\ See FAS 119 para. 12.
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During 1994, in response, in part, to the concerns of investors,
regulators, and private sector entities, the SEC staff reviewed the
annual reports of approximately 500 registrants. In addition, during
1995, more recent annual reports were reviewed by the SEC staff to
assess the effect of FAS 119 on disclosures about market risk sensitive
instruments. As a result of these reviews, the SEC staff observed that
FAS 119 had a positive effect on the quality of disclosures about
derivative financial instruments. However, the SEC staff also concluded
there was a need to improve disclosures about derivative financial
instruments, other financial instruments, and derivative commodity
instruments. In particular, the SEC staff identified the following
three primary disclosure issues.
1. Footnote disclosures of accounting policies for derivatives
often are too general to convey adequately the diversity in
accounting that exists for derivatives. Thus, it often is difficult
to determine the impact of derivatives on registrants' statements of
financial position, cash flows, and results of operations;
2. Disclosures often focus on derivatives and other financial
instruments in isolation. Thus, it may be difficult to assess
whether these instruments increase or decrease the net market risk
exposure of a registrant; and
3. Disclosure about financial instruments, commodity positions,
firm commitments, and other anticipated transactions (``reported
items'') in the footnotes to the financial statements, MD&A,
schedules, and selected financial data may not reflect adequately
the effect of derivatives on such reported items. Thus, without
disclosure about the effects of derivatives, information about the
reported items may be incomplete or perhaps misleading.
The proposals in this release are designed to address these issues.
They reflect a significant amount of learning by the Commission and its
staff over the past year and a half about (i) derivatives and related
risk management activities, and (ii) alternative disclosure approaches
to make those activities more understandable to investors. In addition,
during this period, the Commission and its staff developed the
following guiding principles, which provided the foundation for the
proposed amendments described in this release:
Disclosures should allow investors to understand better
how derivatives affect a registrant's statements of financial position,
cash flows, and results of operations;
Disclosures should provide information about market risk;
Disclosures should allow the investor to understand how
market risk sensitive instruments are used in the context of the
registrant's business;
Disclosures about market risk should not focus on
derivatives in isolation, but rather should reflect the risk of loss
inherent in all market risk sensitive instruments;
Disclosure requirements about market risk should be
flexible enough to accommodate different types of registrants,
different degrees of market risk exposure, and alternative ways of
measuring market risk;
Disclosures about market risk should highlight, where
appropriate, special risks relating to leverage, option, or prepayment
features; and
New disclosure requirements should build on existing
disclosure
[[Page 581]]
requirements, where possible, to minimize compliance costs of
registrants.
III. Discussion of Proposed Amendments
A. Disclosure of Accounting Policies for Derivatives
1. Background
During the last several years, a significant number of issues
relating to the accounting for derivatives have been raised. Although
the FASB is working on a project that would address comprehensively the
accounting for derivatives, currently there is very little
authoritative literature on the accounting for options and complex
derivatives, many of which are used frequently by registrants.35
\35\ The authoritative accounting literature for options and
complex derivatives generally is limited to a few consensuses from
the FASB Emerging Issues Task Force (``EITF''), which by their
nature address the accounting for very specific transactions. See,
e.g., EITF Issues 88-8, ``Mortgage Swaps,'' and 90-17, ``Hedging
Foreign Currency Risks with Purchased Options.''
---------------------------------------------------------------------------
In the absence of comprehensive literature, registrants are
developing accounting practices for options and complex derivatives by
analogy to the limited amount of literature that does exist. These
analogies are complicated because existing derivative literature refers
to at least three distinctly different methods of accounting for
derivatives (e.g., fair value accounting, deferral accounting, and
accrual accounting) 36 and the underlying concepts and criteria
used in determining the applicability of these accounting methods are
not consistent.37 As a result, during its 1994 and 1995 reviews of
filings, the SEC staff observed that registrants may account for the
same type of derivative in many different ways.38 Thus, it was
difficult to compare the financial statement effects of derivatives
across registrants.
\36\ Under the fair value method, derivatives are carried on the
balance sheet at fair value with changes in that value recognized in
earnings or stockholders' equity (see, e.g., Statement of Financial
Accounting Standards No. 52, ``Foreign Currency Translation'' (``FAS
52'') (December 1981), and FAS 80. Under the deferral method, gains
and losses from derivatives are deferred on the balance sheet and
recognized in earnings in conjunction with earnings of designated
items (see, e.g., FAS 52 and FAS 80). Under the accrual method, each
net payment/receipt due or owed under the derivative is recognized
in earnings during the period to which the payment/receipt relates;
there is no recognition on the balance sheet for changes in the
derivative's fair value (see, e.g., EITF Issue 84-36, ``Interest
Rate Swap Transactions'').
\37\ For example, the risk reduction criterion in FAS 52 is
different from the risk reduction criterion in FAS 80. FAS 52
specifies risk reduction on a transaction basis, while FAS 80
specifies risk reduction on an enterprise basis. In addition, FAS 80
permits the use of deferral accounting for futures contracts used to
hedge probable, but not firmly committed, anticipated transactions,
while FAS 52 prohibits deferral accounting for foreign currency
forward exchange contracts used to hedge those same types of
anticipated transactions.
\38\ The Commission does not mean to imply by this statement
that registrants may justify the use of any method of accounting for
derivatives. Rather registrants must select appropriate accounting
methods that are consistent with generally accepted accounting
principles. In particular, generally accepted accounting principles
require registrants using derivatives for trading, dealing, or
speculative purposes to recognize those instruments on the balance
sheet at fair value with changes in that value recognized
immediately in earnings (see, e.g., FAS 80 para. 3).
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In order to provide a better understanding of the accounting for
derivative financial instruments, paragraph 8 of FAS 119 requires
disclosure of the policies used to account for such instruments,
pursuant to the requirements of APB 22.39 Specifically, FAS 119
emphasizes the disclosure of ``policies for recognizing (or not
recognizing) and measuring derivative financial instruments . . . and
when recognized, where those instruments and related gains and losses
are reported in the statements of financial position and income.''
40 However, notwithstanding its helpful guidance, FAS 119 does not
provide an explicit indication of what must be disclosed in accounting
policies footnotes to make more understandable the effects of
derivatives on the statements of financial position, cash flows, and
results of operations, and it does not address disclosure of accounting
policies for derivative commodity instruments. Thus, to facilitate a
more informed assessment of the effects of derivatives on financial
statements, the proposed amendments make explicit the items to be
disclosed in the accounting policies footnotes for derivative financial
instruments and derivative commodity instruments.
\39\ APB 22 para. 12 states:
Disclosure of accounting policies should identify and describe
the accounting policies followed by the reporting entity and the
methods of applying those principles that materially affect the
determination of financial position, cash flows or results of
operations. In general, the disclosure should encompass important
judgments as to the appropriateness of principles relating to
recognition of revenue and allocation of asset costs to current and
future periods; in particular, it should encompass those accounting
principles and methods that involve . . . a selection from existing
acceptable alternatives.
The Accounting Principles Board was the predecessor to the FASB.
Unless superseded by FASB Statements, APB Opinions continue to be
regarded as the highest level of generally accepted accounting
principles followed by the accounting profession. See generally
AICPA, Statements on Auditing Standards No. 69, ``The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles in the Independent Auditor's Report,'' para. 5 (March
1992); AU Sec. 411.05.
\40\ See FAS 119 para. 60.
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2. Proposed Disclosure Rule
The proposed amendments pertaining to accounting policies would add
a new paragraph (n) to Rule 4-08 of Regulation S-X to require
disclosure in the footnotes to the financial statements of (i) each
method used to account for derivatives, (ii) types of derivatives
accounted for under each method, (iii) the criteria required to be met
for each accounting method used (e.g., the manner in which risk
reduction, correlation, designation, and/or effectiveness tests are
applied), (iv) the accounting method used if the specified criteria are
not met, (v) the accounting for the termination of derivatives
designated as hedges or used to affect directly or indirectly the
terms, fair values, or cash flows of a designated item, (vi) the
accounting for derivatives if the designated item matures, or is sold,
extinguished, terminated, or, if related to an anticipated transaction,
is no longer likely to occur, and (vii) where and when derivatives and
their related gains and losses are reported in the statements of
financial position, cash flows, and results of operations.41
\41\ FAS 119 para. 11(b) also requires a description of where
gains and losses from derivative financial instruments held or
issued for purposes other than trading are reported in the
statements of financial position and income.
---------------------------------------------------------------------------
The proposed amendments would require registrants to distinguish
between accounting policies used for derivatives entered into for
trading purposes from those that are entered into for purposes other
than trading.42 Disclosure of accounting policies for derivatives
would be required unless the registrant's derivative activities are not
material. For this proposal, the materiality of derivatives activities
would be measured by the fair values of derivative financial
instruments and derivative commodity instruments at the end of each
reporting period and the fair value of those instruments during each
reporting period.
\42\ For purposes of this release, the term ``trading purposes''
has the same meaning as defined by generally accepted accounting
principles (see, e.g., FAS 119 para. 9a).
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In essence, the proposed amendments clarify the application of the
accounting policy disclosure requirements set forth in FAS 119 for
derivative financial instruments. They also extend those requirements
to address the disclosure of accounting policies for derivative
commodity instruments.43
\43\See note 14, supra.
[[Page 582]]
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3. Requests for Comment
1. The proposed amendments requiring disclosure of accounting
policies for derivatives are designed to make it easier for investors
to assess the financial statement effects of derivative financial
instruments and derivative commodity instruments. Would the proposed
disclosures accomplish this objective? If not, are there specific
disclosures about accounting policies that should be added or deleted?
2. The proposed amendments relating to disclosures of accounting
policies are limited to derivative financial instruments and derivative
commodity instruments. These proposed disclosure requirements do not
add to the accounting policies disclosure requirements for other
financial instruments, which are addressed by generally accepted
accounting principles (e.g., APB 22). Is the scope of instruments
covered by the proposed amendments requiring additional accounting
policies disclosures appropriate? If not, which instruments should be
included or excluded?
3. Under the proposed amendments, disclosure of accounting policies
would be required unless the registrant's derivative activities are not
material. For this proposal, the materiality of derivatives activities
would be measured by the fair values of derivative financial
instruments and derivative commodity instruments at the end of each
reporting period and the fair value of those instruments during each
reporting period. Is this disclosure threshold appropriate? If not,
what other threshold could be specified to require disclosure of all
information a reasonable investor would consider important to decision-
making (e.g., would it be more appropriate to use a disclosure
threshold similar to the threshold for quantitative and qualitative
disclosures about market risk proposed in section III B3a of this
release)?
B. Disclosures of Quantitative and Qualitative Information About Market
Risk
1. Quantitative Information About Market Risk
a. Background
Market risk is inherent in both derivative and non-derivative
instruments, including:
Derivative financial instruments--futures, forwards,
swaps, options, and other financial instruments with similar
characteristics;
Other financial instruments--non-derivative financial
instruments, such as investments, loans, structured notes, mortgage-
backed securities, indexed debt instruments, interest-only and
principal-only obligations, deposits, and other debt obligations;
Derivative commodity instruments that are reasonably
possible 44 to be settled in cash or with another financial
instrument--commodity futures, commodity forwards, commodity swaps,
commodity options, and other commodity instruments with similar
characteristics, to the extent such instruments are not derivative
financial instruments.
\44\ See note 65, infra, for a definition specifying how the
term ``reasonably possible'' is used in this release.
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Generally accepted accounting principles and Commission rules
require disclosure of certain quantitative information pertaining to
some of these derivative financial instruments. For example,
registrants currently are required to disclose notional amounts of
derivative financial instruments and the nature and terms of debt
obligations.45 However, this information (i) often is abbreviated,
(ii) is presented piecemeal in different parts of the financial
statements, and (iii) does not apply to all market risk sensitive
instruments. Thus, investors often are unable to assess whether or how
particular financial and commodity instruments affect a registrant's
net market risk exposure.
\45\ See, e.g., FAS 119 para. 8b and Rule 5-02 of Regulation S-
X, 17 CFR 210.5-02.
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FAS 119 encourages, but does not require, disclosure of
quantitative information about the overall market risk inherent in
derivative financial instruments and other instruments subject to
market risk.46 However, the SEC staff has observed that
registrants often do not make these disclosures.
\46\ In particular, FAS 119 para. 12 lists five possible
quantitative methods of measuring and disclosing market risk. They
are: (i) details about current positions and perhaps activity during
the period, (ii) the hypothetical effects on equity, or on annual
income, of several possible changes in market price, (iii) a gap
analysis of interest rate repricing or maturity dates, (iv) the
duration of the financial instruments, and (v) the entity's value at
risk from derivative financial instruments and from other positions
at the end of the reporting period and the average value at risk
during the year.
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b. Proposed Disclosure Rule
To allow investors to assess more easily overall market risk, the
proposed amendments would create a new Item 305(a), which would require
disclosure, outside the financial statements,47 of quantitative
market risk information for derivative financial instruments, other
financial instruments, and derivative commodity instruments, to the
extent it is material. This information would be furnished using one of
the following three ways, at the election of the registrant.48
\47\ See section III B3b, infra, for a discussion about where,
outside the financial statements, these disclosures would appear.
\48\ At the current time, the Commission is not proposing to
prescribe standardized methods and procedures specifying how to
comply with each of these disclosure alternatives. To the extent
registrants use one of these methods internally, they would be
permitted, but not required, to report quantitative measures of
market risk using the same method externally. To facilitate
comparison across registrants, the Commission proposes, below, that
registrants provide descriptions of the model and assumptions used
to prepare quantitative market risk disclosures.
---------------------------------------------------------------------------
(i) Tabular Presentation
The first quantitative market risk disclosure alternative would
permit registrants to provide a tabular presentation of terms and
information related to derivative financial instruments, other
financial instruments, and derivative commodity instruments. Such
information would include, but is not limited to, fair values of
instruments, expected principal or transaction cash flows, weighted
average effective rates or prices, and other relevant market risk
related information. These data are common inputs to market risk
measurement methods and, therefore, may be useful in understanding a
registrant's exposure to market risk.
This tabular information would be summarized by risk exposure
category (i.e., interest rate risk, foreign currency exchange rate
risk, commodity price risk, and other similar price risks, such as
equity price risk) and, within the foreign currency exchange rate risk
category, by functional currency 49 (e.g., U.S. dollar, Japanese
yen). Within each of these risk exposure categories, instruments would
be grouped based on common characteristics. At a minimum, instruments
would be distinguished by the following characteristics: (i) Fixed rate
or variable rate assets or liabilities, (ii) long or short forwards or
futures, (iii) written or purchased put or call options, (iv) receive
fixed or receive variable interest rate swaps, and (v) the currency in
which the instruments' cash flows are denominated. Thus, for example,
within the interest rate risk exposure category, a registrant might
present the following list of instruments: fixed rate Mexican peso
investments, variable rate U.S. dollar
[[Page 583]]
debt obligations, long U.S. Treasury futures, and Mexican peso receive
variable interest rate swaps. Derivatives used to manage risks inherent
in anticipated transactions also would be disclosed separately.
\49\ For purposes of this release, functional currency means the
currency of the primary economic environment in which the entity
operates; normally, that is the currency of the environment in which
an entity primarily generates and expends cash. This definition is
the same as the definition of functional currency in FAS 52,
Appendix E.
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For each instrument in the table, expected principal or transaction
cash flow information would be presented separately for each of the
next five years, with the remaining expected cash flows presented as an
aggregate amount. The proposed amendments also would require disclosure
of information on assumptions necessary to an understanding of a
registrant's tabular market risk disclosures. In this regard,
registrants would describe, at a minimum, the differing numbers
reported in the table for various categories of instruments (e.g.,
principal cash flows for debt, notional amounts for swaps, contract
amounts for options and futures) and key prepayment and/or reinvestment
assumptions relating to the timing of reported cash flow amounts. See
the Appendix to the text of the proposed amendments for a sample
disclosure.
(ii) Sensitivity Analysis
The second quantitative market risk disclosure alternative would
permit registrants to provide disclosure of sensitivity analyses
expressing the hypothetical loss in future earnings, fair values, or
cash flows of market risk sensitive instruments over the next reporting
period due to hypothetical changes in interest rates, currency exchange
rates, commodity prices, and other similar market price changes (e.g.,
equity prices).50 For example, these disclosures may be similar to
the interest rate ``sensitivity'' measures already required to be
calculated for regulatory purposes for thrift institutions.51
Under the proposed amendments, earnings, fair values, or cash flows
sensitivity disclosures would be presented separately for interest rate
sensitive instruments, currency exchange rate sensitive instruments,
certain commodity price sensitive instruments, and other types of
market risk sensitive instruments (e.g., equity instruments).
\50\ The term ``sensitivity analysis,'' as used in this release,
describes a general class of models that assesses the risk of loss
in market risk sensitive instruments based on hypothetical changes
in market rates or prices. The term sensitivity analysis is not
meant to refer to any one model for quantifying market risk.
\51\ See Office of Thrift Supervision, Regulatory Capital:
Interest Rate Risk Component, 12 CFR 567.5(c)(4) (August 1993).
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The proposed amendments also would require disclosure of the
assumptions and parameters underlying the registrant's sensitivity
analysis model that are necessary to an understanding of the
registrant's market risk disclosure. In this regard, registrants would
specify, at a minimum, (i) how loss is defined by the model (e.g., loss
in earnings, fair values, or cash flows), (ii) a general description of
the modeling technique (e.g., change in net present values arising from
parallel shifts in market rates or prices and how optionality is
addressed by the model), (iii) the general types of instruments covered
by the model (e.g., derivative financial instruments, other financial
instruments, derivative commodity instruments, and whether other
instruments are included voluntarily in the model by the registrant,
such as certain commodity instruments and positions, cash flows from
anticipated transactions, and operating cash flows from non-financial
and non-commodity instruments), and (iv) other relevant information on
model parameters (e.g., the magnitudes of parallel shifts in market
rates or prices used for each category of market risk exposure, the
method by which discount rates are determined, and key prepayment and/
or reinvestment assumptions).
(iii) Value at Risk
The third quantitative disclosure alternative would permit
registrants to provide value at risk disclosures expressing the
potential entity-wide loss in fair values, earnings, or cash flows of
market risk sensitive instruments that might arise from adverse market
movements with a selected likelihood of occurrence over a selected time
interval.52 Additional separate value at risk disclosures would be
required for interest rate sensitive instruments, currency exchange
rate sensitive instruments, certain commodity price sensitive
instruments, and other similar market risk sensitive instruments (e.g.,
equities). In addition, to help place reported value at risk amounts in
context, registrants would be required to report either (i) the average
or range in value at risk amounts for the current reporting period,
(ii) the average or range in actual changes in fair values, earnings,
or cash flows from market risk sensitive instruments occurring during
the current reporting period, or (iii) the percentage of actual changes
in fair values, earnings, or cash flows from market risk sensitive
instruments that exceeded the reported value at risk amounts during the
current reporting period.
\52\ The term ``value at risk,'' as used in this release,
describes a general class of models that provide a probabilistic
assessment of the risk of loss in market risk sensitive instruments.
The term value at risk is not meant to refer to any one model for
quantifying market risk. Value at risk models can be adapted to non-
trading activities as well as trading activities and to non-
financial institutions as well as financial institutions, depending
on the model and assumptions selected by the registrant.
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The proposed amendments also would require disclosure of the model
assumptions and parameters underlying the registrant's value at risk
model that are necessary to an understanding of the registrant's market
risk disclosure. In this regard, registrants would specify, at a
minimum, (i) how loss is defined by the model (e.g., loss in fair
values, earnings, or cash flows), (ii) a general description of the
modeling technique (e.g., variance/covariance, historical simulation,
Monte Carlo simulation, and how optionality is addressed by the model),
(iii) the general types of instruments covered by the model (e.g.,
derivative financial instruments, other financial instruments,
derivative commodity instruments, and whether other instruments are
included voluntarily in the model by the registrant, such as certain
commodity instruments and positions, cash flows from anticipated
transactions, and operating cash flows from non-financial and non-
commodity instruments), and (iv) other material information on model
parameters (e.g., holding period, confidence interval, and the method
used for aggregating value at risk amounts across market risk exposure
categories, such as by assuming perfect positive correlation,
independence, or by using actual observed correlations).53
\53\ The primary differences between the value at risk and
sensitivity analysis disclosure alternatives are (i) value at risk
analysis reports the potential loss arising from equally likely
market movements across instruments, while sensitivity analysis
reports the potential loss arising from hypothetical market
movements with differing likelihoods of occurrence across
instruments and (ii) value at risk explicitly adjusts the potential
loss to reflect correlations between market movements, while
sensitivity analysis is not designed explicitly to make such
adjustments.
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(iv) Other Disclosure Requirements
The proposed amendments would require presentation of quantitative
information about market risk at the end of the most recent fiscal year
or at the end of the most recent reporting period for which a full set
of financial statements is filed with the Commission. Under the
proposed amendments, registrants would be required to provide
separately quantitative information for market risk sensitive
instruments that are entered into for trading purposes 54 and
those
[[Page 584]]
that are entered into for purposes other than trading. In addition, in
order to enable an investor to assess material changes in market risk
information, the proposed amendments would require registrants to
provide summarized information as of the end of the preceding fiscal
year or comparable preceding period. Registrants also would be required
to discuss the reasons for material changes in quantitative information
about market risk when compared to the information reported in the
previous period.55 Registrants would be allowed to change methods
of disclosing quantitative information about market risk (e.g.,
changing from tabular presentation to value at risk). However, if they
change methods, registrants would be required to (i) disclose the
reasons for any such change and (ii) provide summarized comparable
information, under the new disclosure method, as of the end of the
period preceding the current reporting period.
\54\ See note 42, supra, for a definition specifying how the
term ``trading purposes'' is used in this release.
\55\ For transition purposes, the Commission is proposing that
quantitative disclosures about market risk provided in the initial
period after the rule is adopted would not contain comparable
summarized information for the preceding period. Similarly, in the
initial year after the rule is adopted, a discussion of the reasons
for material changes in reported amounts as compared to the
preceding period would not be necessary.
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(v) Encouraged Disclosures
In essence, the proposed amendments primarily are designed to make
disclosures about market risk more comprehensive by requiring
disclosure of quantitative information about market risk that are
encouraged to be disclosed by FAS 119. The proposals apply to
derivative financial instruments, other financial instruments, and
derivative commodity instruments.56
\56\ These disclosures would be required for other financial
instruments, even if a registrant does not enter into derivatives.
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The Commission recognizes that market risk exposures may exist in
instruments, positions, and transactions other than in those derivative
financial instruments, other financial instruments, and derivative
commodity instruments that specifically would be subject to the
proposed amendments. In particular, market risk, in its broadest view,
also may be inherent in the following items:
Derivative commodity instruments not reasonably possible
to be settled in cash or with another financial instrument--such as a
commodity forward contract that must be settled in the commodity;
Commodity positions--such as investments in corn, wheat,
oil, gas, lumber, silver, gold, and other commodity inventory
positions;
Cash flows from anticipated transactions 57--such as
cash flows from anticipated purchases and sales of inventory; and
\57\ See note 19, supra.
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Operating cash flows from non-financial and non-commodity
instruments-- such as cash flows generated by manufacturing activities.
The Commission also recognizes, however, that the amount and timing
of the cash flows inherent in such instruments, positions, and
transactions often are difficult to estimate. In addition, most risk
measurement systems currently do not include such instruments,
positions, and transactions in their quantitative assessments of market
risk. For these practical reasons, the Commission is not proposing at
this time to require that these items be included in the proposed
quantitative disclosures about market risk. However, registrants are
encouraged, when practical, to include voluntarily these items in their
quantitative market risk disclosures. If these instruments, positions,
and transactions are not included voluntarily, registrants,
nonetheless, should consider whether they must address this issue in
their disclosures identifying limitations of the quantitative
information, discussed below.58
\58\ In addition, registrants should review the requirements of
Item 303 of Regulation S-K, 17 CFR 229.303, to ensure that
disclosures are sufficient to inform readers of material risks to
which a registrant is exposed. Thus, MD&A would need to discuss the
risks relating to, for example, anticipated transactions or
commodity positions, to the extent these transactions or positions
have, or are reasonably likely to have, a material effect on the
registrant's liquidity, capital resources, and results of
operations.
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(vi) Limitations
The proposed amendments would require that registrants discuss
limitations that may cause the quantitative information about market
risk not to reflect fully the overall market risk of the entity. This
discussion would include (i) a description of each limitation and (ii)
if applicable, a description of the instruments' features that are not
reflected fully within the selected quantitative market risk disclosure
alternative.
Two illustrative examples are provided. First, as just stated, the
Commission is allowing certain instruments, positions, and transactions
to be excluded from quantitative disclosures about market risk. The
failure of a registrant to include such items in its disclosures, while
permitted, is a limitation of the quantitative information provided.
This limitation must be described if the registrant has material
investments in these instruments, positions, and transactions that
cause its disclosures not to portray fully the overall market risk of
the entity.
Second, each of the quantitative disclosure alternatives may not
alert investors of the degree of market risk inherent in instruments
with leverage, option, or prepayment features (e.g., structured notes,
collateralized mortgage obligations, leveraged swaps, and swaps with
embedded written options). Tabular information on expected future cash
flows normally would not indicate that instruments have such features.
Value at risk and sensitivity analysis models generally do not reflect
the potential loss arising from all changes in market rates or prices.
Thus, if leverage, option, or prepayment features are triggered by
changes in market rates or prices outside those reflected in the value
at risk and sensitivity analysis disclosures, the potential loss in
these instruments may be significantly larger than would be implied by
a simple linear extrapolation of the reported numbers. Thus, to make
investors fully aware of the market risk inherent in instruments with
such features, the proposed amendments would require a (i) discussion
of this limitation of the quantitative disclosures and (ii) description
of the leverage, option, or prepayment features of the instruments
causing the limitation.
c. Requests for Comment
1. The proposed amendments are designed specifically to elicit
disclosure of quantitative information to assist investors and others
in making an overall assessment of market risk. The Commission
recognizes that some investors may be unfamiliar with certain of the
proposed quantitative disclosure methods. Thus, the Commission requests
comment (a) on whether the proposed quantitative information is
expected to improve investors' understanding of the market risk
associated with business activities of a registrant and (b) on the
extent to which investors will benefit from and understand the proposed
quantitative market risk alternatives.
2. The proposed amendments relating to disclosure of quantitative
information about market risk are limited to derivative financial
instruments, other financial instruments, and derivative commodity
instruments. In addition, when preparing these disclosures, registrants
are encouraged to present information about all instruments,
[[Page 585]]
positions, and cash flows subject to market risk. Is the scope of
instruments covered by these proposed amendments sufficient? For
example, should commodity positions with readily available market
prices be required to be included in the quantitative disclosures? In
addition, are there other instruments and positions that should be
included or excluded?
3. The Commission is proposing to allow registrants to choose one
of three alternatives to present quantitative information about market
risk (i.e., tabular presentation of expected future cash flows and
terms, sensitivity analysis, or value at risk). Are these the most
appropriate alternatives? If not, should some alternatives be added or
deleted? For example, although the Commission has not proposed use of
interest gap analysis and duration because these market risk
measurement methods commonly are not used to describe the market risk
inherent in non-interest rate sensitive instruments and non-fixed
income instruments, respectively, should these methods also be allowed?
4. In this release, the Commission proposes amendments designed to
allow investors to evaluate quantitatively the overall market risk
inherent in derivative financial instruments, other financial
instruments, and derivative commodity instruments. Although the
proposals permit registrants to select one of three alternative
quantitative disclosure methods, they require that the same general
disclosure alternative (i.e., tabular presentation of expected future
cash flows and terms, sensitivity analysis, or value at risk) be used
to describe quantitatively the market risk inherent (i) in each market
risk exposure category (e.g., interest rates, foreign currency exchange
rates, and commodity prices) and (ii) in instruments entered into for
trading and other than trading purposes. Is this approach practical?
Should the Commission permit registrants to use different alternatives
to report the market risk inherent (i) in different categories of
market risk exposure and/or (ii) in instruments entered into for
trading and other than trading purposes? If so, how will this affect
the ability of investors to assess the overall market risk inherent in
market risk sensitive instruments? Please explain.
5. The Commission recognizes that risk management methods are
evolving, and no method is dominant in practice. The proposed
amendments, therefore, do not require the use of a single measure or
standardized procedures or assumptions for preparing quantitative
market risk disclosures. As a result, quantitative information about
market risk is not likely to be prepared in a uniform manner across
registrants. However, to facilitate the analysis and comparison of
quantitative market risk information among registrants, the Commission
is proposing disclosure of the model and assumptions used to comply
with the quantitative market risk amendments. Will the proposed
disclosures about the model and key assumptions provide sufficient
information for investors to compare market risk across registrants?
Are there additional disclosures that might further investors' analysis
and comparison? Is there a better approach to enhancing the
comparability of the proposed disclosures? For example, despite the
evolving risk management practices, should standardized procedures be
developed for preparing disclosures across registrants? Alternatively,
should minimum acceptable standards be set prescribing model parameters
and assumptions?
6. The Commission recognizes that quantitative disclosures about
market risk may be viewed as more meaningful for certain registrants
than others. For example, because market risk is one of the primary
business risks for financial institutions, quantitative information
about market risk may be more meaningful when applied to financial
institutions than the same information presented for registrants whose
primary risks are not related to market risk.
In this regard, the Commission has proposed that registrants have
the ability to choose among three disclosure alternatives. These
alternatives reflect different degrees of sophistication in risk
measurement methods, thereby permitting registrants flexibility to
select a disclosure method which corresponds most closely to the degree
of market risk inherent in their business activities. Are there better
ways to address how information about market risk should be presented
for the different types of registrants that file with the Commission?
In particular, should financial institutions, such as bank holding
companies, thrift holding companies, finance companies, investment
banks, mortgage banks, broker-dealers, insurance companies, and similar
types of registrants have a different set of disclosure requirements
than other companies? If so, should financial institutions have more
rigorous disclosure requirements than those proposed in this release or
should non-financial institutions be exempted from certain of the
proposed disclosures specified in this release?
7. In regard to the presentation of tabular information on the
terms, cash flow amounts, and fair values of market risk sensitive
instruments, the Commission has specified that information be
disaggregated by risk exposure category and grouped further based on
certain common instrument characteristics. Sample disclosures have been
provided in the Appendix to the text of the proposed amendments to
illustrate compliance with these requirements. Is the level of
disaggregation specified in the requirements adequate? Is there a
better way to present such information?
8. The proposed amendments requiring disclosure of quantitative
information about market risk generally are designed to indicate the
degree of market risk from normal market movements. The proposed
disclosure alternatives do not specifically require estimates of the
market risk inherent in unusual markets reflecting worst-case
scenarios. Should the proposed amendments address specifically market
risk in worst-case scenarios? If so, what would be a useful standard
for determining and disclosing a worst-case scenario?
9. To help place the reported value at risk numbers in context, the
proposed amendments require that registrants report either (i) the
average or range in value at risk amounts for the current reporting
period, (ii) the average or range in actual changes in fair values,
earnings, or cash flows from market risk sensitive instruments during
the current reporting period, or (iii) the percentage of actual changes
in fair values, earnings, or cash flows from market risk sensitive
instruments that exceeded the reported value at risk amounts during the
current reporting period. Will this information be useful to investors
and others? Since similar disclosures cannot be developed easily for
the other disclosure alternatives for presenting quantitative
information about market risk (i.e. tabular presentation of expected
cash flows and terms and sensitivity analysis), should these
disclosures be encouraged, rather than required?
10. To enable investors to assess material changes in market risk,
the proposed amendments would require registrants to provide summarized
quantitative information about market risk for the preceding fiscal
year. In addition, registrants would be required to discuss the reasons
for material changes in quantitative information about market risk when
compared to the information reported in the previous period. Is this
information necessary to an understanding of the current period market
risk disclosures? If not, are there other types of information that
would be
[[Page 586]]
helpful to investors in assessing material changes in market risk?
11. Under the proposed amendments, registrants would be allowed to
change methods of presenting quantitative information about market risk
provided they (i) explain the reasons for the change and (ii) provide
summarized comparable information under the new disclosure method for
the period preceding the current reporting period. Should registrants
be required to present comparable information for the period preceding
the current reporting period when they change methods of presenting
quantitative information about market risk?
12. The proposed amendments are focused on providing investors with
improved disclosures about market risk sensitive instruments and the
impact of market risk on a registrant's financial condition and results
of operations. Other regulators and private sector entities have set
forth proposals and made recommendations that would require disclosures
about derivatives and similar instruments that go beyond the
disclosures proposed under these proposed amendments.59 Such
recommendations relate to the disclosure of credit risk, liquidity
risk, legal risk, and operational risk inherent in market risk
sensitive instruments. The Commission notes that existing generally
accepted accounting principles (e.g., FAS 105) and Commission
Regulations (e.g., Items 101 and 303 of Regulation S-K, 17 CFR 229.101
and 229.303, respectively) already require some disclosures relating to
these risks. Thus, at this time the Commission does not intend to
propose additional disclosure requirements about these other risks
inherent in market risk sensitive instruments. Is this decision
appropriate?
\59\ See notes 25 and 27, supra.
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13. Would any of the proposed amendments regarding quantitative
disclosures about market risk require disclosure of information
considered highly proprietary by registrants? Are there other methods
of quantifying and disclosing market risk that would be useful to
investors and present fewer proprietary concerns?
2. Qualitative Information About Market Risk
a. Background
A qualitative discussion of a registrant's market risk exposures
and how those exposures are managed is important to an understanding of
a registrant's market risk. Such qualitative disclosures help place
market risk management activities in the context of the business and,
therefore, are a useful complement to quantitative information about
market risk.
FAS 119 requires that certain qualitative disclosures be provided
about market risk management activities associated with derivative
financial instruments held or issued for purposes other than trading.
In particular, FAS 119 requires disclosure of ``the entity's objectives
for holding or issuing the derivative financial instruments, the
context needed to understand those objectives, and its general
strategies for achieving those objectives.'' 60 In addition, FAS
119 requires separate disclosures about derivative financial
instruments used as hedges of anticipated transactions.61 As
indicated above, these requirements of FAS 119 only apply to certain
derivatives held or issued for purposes other than trading.
\60\ See FAS 119 para. 11a. Footnote 4 of FAS 119 illustrates
the qualitative disclosures required by para. 11a. That footnote
states:
If an entity's objective for a derivative position is to keep a
risk from the entity's non-derivative assets below a specified
level, the context would be a description of those assets and their
risks, and a strategy might be purchasing put options in a specified
proportion to the assets at risk.
\61\ See FAS 119 para. 11c.
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b. Proposed Disclosure Rule
In essence, the proposed qualitative disclosure requirements would
create a new Item 305(b) of Regulation S-K, which would expand certain
FAS 119 disclosures to (i) encompass derivative commodity instruments,
other financial instruments, and derivative financial instruments
entered into for trading purposes and (ii) require registrants to
evaluate and describe material changes in their primary risk exposures
and material changes in how those exposures are managed. In particular,
the proposed amendments would require narrative disclosure outside the
financial statements 62 of (i) a registrant's primary market risk
exposures 63 and (ii) how those exposures are managed (e.g., a
description of the objectives, general strategies, and instruments, if
any, used to manage those exposures).
\62\ See section III B3b, infra.
\63\ For purposes of this release, primary market risk exposures
mean (i) the following categories of market risk: interest rate
risk, foreign currency exchange rate risk, commodity price risk, and
other similar market rate or price risks (e.g., equity prices) and
(ii) within each of these categories, the particular markets that
present the primary risks of loss to the registrant. For example, if
a registrant (i) has a material exposure to foreign currency
exchange rate risk and (ii) is most vulnerable to changes in dollar/
yen, dollar/pound, and dollar/peso exchange rates within this
category of market risk, it would disclose these exposures.
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In preparing the proposed qualitative disclosures about market
risk, the Commission expects that registrants would describe their
primary market risk exposures as they exist at the end of the current
reporting period and how those risks currently are being managed.
Registrants also would be required to describe material changes in
their primary market risk exposures and material changes in how these
risks are managed as compared to what was in effect during the most
recent reporting period and what is known or expected to be in effect
in future reporting periods.
These proposed qualitative disclosure requirements would apply to
derivative financial instruments, other financial instruments, and
derivative commodity instruments. As in the case with respect to the
quantitative disclosures about market risk, the qualitative disclosures
should be presented separately for market risk sensitive instruments
that are entered into for trading purposes and those that are entered
into for purposes other than trading. In addition, qualitative
information about market risk should be presented separately for those
instruments used to manage risks inherent in
FR Doc. 96-130 Proposed Amendments to Require Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Qualitative and Quantitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments
anticipated transactions.
Finally, to help make disclosures about market risk more
comprehensive, as is the case with the quantitative disclosures about
market risk, the Commission also is proposing to encourage registrants
to disclose qualitative information about market risk relating to other
items, such as derivative commodity instruments not reasonably possible
to be settled in cash or with another financial instrument, commodity
positions, cash flows from anticipated transactions, and operating cash
flows from non-financial and non-commodity instruments (e.g., cash
flows generated by manufacturing activities).64
\64\ See section III B1b(v), supra, for a discussion as to why
these instruments are encouraged, but not required, to be included
in disclosures about market risk.
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c. Requests for Comment
1. The proposed amendments regarding qualitative disclosure about
market risk are designed to put market risk management activities into
the context of a registrant's overall business. Does this qualitative
information allow investors to understand better the management of
market risk inherent in the business activities of a registrant? If
not, are there other disclosure alternatives that would be more
effective?
[[Page 587]]
2. Would any of the proposed amendments regarding qualitative
disclosures about market risk require the disclosure of information
considered highly proprietary in nature? Are there other disclosures
that would be useful to investors and present fewer proprietary
concerns?
3. The proposed amendments relating to disclosure of qualitative
information about market risk are limited to derivative financial
instruments, other financial instruments, and derivative commodity
instruments. In addition, when preparing these disclosures, registrants
are encouraged, but not required, to present information about all
instruments, positions, and cash flows subject to market risk. Is the
scope of instruments covered by this proposed amendment sufficient? If
not, which instruments should be included or excluded?
3. Implementation Issues Relating to Quantitative and Qualitative
Disclosures About Market Risk
a. Disclosure Threshold
(i) Discussion
Under the proposed amendments, registrants would be required to
make quantitative and qualitative disclosures about market risk when
such risk is material. For purposes of making this materiality
assessment, registrants would need to consider both (i) the materiality
of the fair values of derivative financial instruments, other financial
instruments, and derivative commodity instruments outstanding at the
end of the current reporting period and (ii) the materiality of the
potential loss in future cash flows, earnings, or fair values from
reasonably possible market movements.65 If either (i) or (ii) in
the previous sentence are material, registrants would have to disclose
qualitative and quantitative information about market risk.
\65\ For purposes of this release, the term ``reasonably
possible'' is defined by para. 3 of FASB, Statement of Financial
Accounting Standards No. 5, ``Accounting for Contingencies'' (``FAS
5'') (March 1975), which states that ``reasonably possible'' means
the chance of a future transaction or event occurring is more than
remote but less than likely.
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In determining the fair values of market risk sensitive instruments
outstanding at the end of the current reporting period, registrants
generally should not net fair values, except to the extent allowed
under FASB Interpretation No. 39, ``Offsetting of Amounts Related to
Certain Contracts'' (``Interpretation 39'') (March 1992).66 For
example, the fair value of assets generally should not be netted with
the fair value of liabilities. Instead, the fair values of such
instruments should be aggregated, without netting, for purposes of
assessing materiality.67
\66\ Interpretation 39 states that it is a general principle of
accounting that the offsetting of assets and liabilities in the
balance sheet is improper except where a right of set off exists.
Interpretation 39 defines right of set off and specifies what
conditions must be met to have that right. FAS 119 para. 15(d) in
disclosing the fair values of instruments also prohibits the netting
of fair values, except to the extent that the offsetting of carrying
amounts in the statement of financial position is permitted under
Interpretation 39.
\67\ In general, the Commission is not proposing the netting of
fair values for purposes of assessing materiality primarily because
it believes the establishment of a set of netting rules for fair
values would be complex and difficult to implement.
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In determining the materiality of the potential loss in future
earnings or fair values from reasonably possible market movements,
registrants should consider (i) the magnitude of past market movements,
(ii) expectations about the magnitude of reasonably possible future
market movements, and (iii) potential losses that may arise from
leverage, option, and/or multiplier features.
(ii) Requests for Comment
In developing the proposed disclosure thresholds, the Commission
was interested in establishing thresholds that considered the
materiality of fair values of market risk sensitive instruments at the
end of a reporting period and the potential for market risk in those
instruments in future periods. The Commission believes an assessment of
the materiality of the instruments held at period end is appropriate
because investors are likely to be concerned about the market risk
exposure of an entity whenever their financial statements indicate
material investments in derivative financial instruments, other
financial instruments, and derivative commodity instruments. Without
such disclosure, investors likely would be unable to determine the
magnitude of the combined market risk exposure inherent in these
individual instruments. Similarly, the Commission believes an
assessment of the risk of loss in earnings, cash flows, or fair values
from reasonably possible future market movements is necessary to
capture, for example, the potential exposure to market risk in
instruments with leverage, written option, or prepayment features that
may not be reflected fully in fair values at period end.
Are these proposed disclosure thresholds relating to quantitative
and qualitative disclosures about market risk, including the guidance
relating to netting of fair values of market risk sensitive
instruments, appropriate? Are there other disclosure thresholds that
would provide more meaningful information to investors? For example,
for purposes of determining the materiality of fair values of market
risk sensitive instruments at period end, would it be better to
determine a disclosure threshold based on the materiality of the larger
of the fair values of (i) assets, and ``off-balance-sheet''
unrecognized assets or (ii) liabilities and ``off-balance-sheet''
unrecognized liabilities? Alternatively, would the disclosure
thresholds for MD&A be more appropriate? 68
\68\ See SEC Financial Reporting Policies Sec. 501.02 for the
interpretative release to Item 303 of Regulation S-K, which
specifies the MD&A disclosure thresholds.
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Finally, should the Commission take a different approach to
materiality assessments by specifying quantitative indicators that
provide a threshold for disclosure, such as ratios of certain notional
amounts, contractual amounts, fair values, and/or potential future
losses to either stockholders' equity, earnings from continuing
operations, and/or some other amount? If so, what specific indicators
should result in disclosure (e.g., fair value amounts in excess of 10%
of stockholders' equity, or some other percentage of stockholders'
equity or some other amount; notional and contractual amounts in excess
of a specified percentage of stockholders' equity; and/or potential
loss in earnings or fair values in excess of a specified percentage of
earnings from continuing operations)? If specific indicators are used,
should netting of certain amounts be permitted?
b. Location of Quantitative and Qualitative Disclosures
(i) Discussion
The proposed qualitative and quantitative market risk disclosure
amendments specify that these disclosures be placed outside the
financial statements. Thus, for example, this information would be
required to be included in the annual report to shareholders, but would
be located outside the financial statements covered by the audit
opinion. The proposed disclosures are designed to supplement and make
complete existing information about market risk sensitive instruments
(e.g., information required to be disclosed by FAS 119) that currently
appears in prospectuses, registration statements, reports, and other
documents that are used to make investment and voting decisions and
that are delivered to investors and shareholders. Thus, the Commission
is
[[Page 588]]
recommending that the proposed market risk disclosures be included in
such documents delivered to investors and shareholders, rather than
included in documents filed only with the Commission.
(ii) Request for Comment
The Commission recognizes that the proposed disclosures may be
complex, especially given the requirement to describe, when
appropriate, the model and key assumptions used to prepare the
quantitative disclosures about market risk. Given this complexity,
would it be better to disclose the proposed information about market
risk in reports and statements filed with the Commission that are not
required to be delivered to all shareholders and investors? If so, will
investors be disadvantaged by the omission of such information from
delivered documents if it is otherwise required to be included in
Commission filings and made available for free electronically and
immediately through the SEC's EDGAR system?
c. Relationship of Proposed Disclosures to MD&A
Market risk sensitive instruments often are used to manage known
uncertainties in market rates and prices. Under Item 303 of Regulation
S-K, registrants currently are required to disclose in MD&A, among
other things, the impact on past and future financial condition and
results of operations of known uncertainties. Thus, there is a
potential for overlap between the proposed amendments under new Item
305 and current Item 303. To the extent that the disclosures in a
registrant's MD&A comply with the proposed amendments, registrants
would not need to repeat this information elsewhere in their filings.
Likewise, if the proposed disclosures are provided in the footnotes to
the financial statements, that information also would not need to be
reported elsewhere.
d. Application to Registrants
(i) Discussion
New Item 305 would require that all registrants currently required
to provide MD&A disclosures, pursuant to Item 303 of Regulation S-X,
also would have to comply with proposed Item 305 of Regulation S-K. As
a result, to the extent material, quantitative and qualitative
information about market risk would be required explicitly for many
different types of registrants, including, for example, commercial and
industrial companies, financial institutions, broker dealers, service
companies, business development companies, and companies registering
insurance contracts, such as market-value adjusted annuities and real
estate funds underlying annuity contracts.
(ii) Request for Comment
Should proposed Item 305 of Regulation S-K be required for all
registrants that prepare MD&A pursuant to Item 303 of Regulation S-K?
If not, which registrants should be exempted from proposed Item 305 of
Regulation S-K? In particular, should business development companies
and companies registering insurance contracts be exempted from proposed
Item 305?
e. Safe Harbor Provision
As noted by the FASB, some have expressed concern that disclosing
information about market risk may have legal ramifications for
registrants if actual outcomes differ from the market risk amounts
disclosed.69 It is the Commission's intention that forward looking
disclosures made pursuant to proposed Item 305 of Regulation S-K and
Item 9A of Form 20-F be subject to an appropriate safe harbor.
\69\ See FAS 119 para. 73. Under the Commission's current safe
harbor rules, a statement made by or on behalf of an issuer is not
deemed a fraudulent statement unless it can be shown that the
statement was made or reaffirmed without a reasonable basis or was
disclosed other than in good faith. See Rule 175 under the
Securities Act of 1933 and Rule 3b-6 under the Securities Exchange
Act of 1934. The Commission has been re-examining Rules 175 and 3b-
6. See Securities Act Release No. 7101 (October 13, 1994), 59 FR
52723 (October 19, 1994).
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Congress recently adopted the Private Securities Litigation Reform
Act of 1995 70 that, among other things, amends the Securities Act
and Securities Exchange Act to include a safe harbor for forward
looking information. The Commission's staff is continuing to consider
how best to craft an appropriate safe harbor in light of this recent
legislation. The Commission intends to issue a release shortly that
would propose that the disclosures to be required by new Items 305 and
9A be made subject to safe harbor provisions. Comments received on that
release will be considered in connection with the comments received on
this release to enable the Commission to take appropriate action with
respect to both releases at the same time.
\70\ Private Securities Litigation Reform Act of 1995, Pub. L.
No. 104-67 (December 22, 1995).
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IV. Applicability of Proposed Amendments
A. Application to Small Business Issuers
1. Discussion
The Commission believes that because of the newness and evolving
nature of these disclosures, as well as the relative costs of complying
with these disclosures for small business issuers,71 that it is
appropriate, at this time, to exempt small business issuers from the
proposed disclosures of quantitative and qualitative information about
market risk. Accordingly, at this time, the Commission is not proposing
to amend Regulation S-B to incorporate an item similar to proposed Item
305 of Regulation S-K. Small business issuers, however, still would be
required (i) to comply with the proposed amendment regarding accounting
policies disclosures for derivatives, (ii) to comply with Rule 12b-20
and Rule 408 as described in section VI of this release, thereby being
responsive to guidance reminding registrants to provide additional
information about the effects of derivatives on information expressly
required to be filed with the Commission, and (iii) to the extent
market risk represents a known trend, event, or uncertainty, to discuss
the impact of market risk on past and future financial condition and
results of operations, pursuant to Item 303 of Regulation S-B, 17 CFR
228.303.
\71\ ``Small business issuer'' is defined to mean any entity
that (1) has revenues of less than $25,000,000, (2) is a United
States or Canadian issuer, (3) is not an investment company, and (4)
if a majority owned subsidiary, the parent corporation is also a
small business issuer. An entity is not a small business issuer,
however, if it has a public float (the aggregate market value of the
outstanding securities held by non-affiliates) of $25,000,000 or
more, 17 CFR 230.405.
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2. Request for Comment
Should small business issuers be excluded from either a portion or
all of the proposed quantitative and qualitative disclosures about
market risk? If not, should application of these proposed amendments to
small business issuers be delayed to provide them more time to become
familiar with and implement the amendments?
B. Application to Foreign Private Issuers
1. Discussion
The need for improved disclosures about market risk sensitive
instruments is not an issue limited to domestic registrants. Standard
setters throughout the world have recognized and have begun to address
the need for improvement in such disclosures for foreign companies,
including some foreign private issuers that have registered securities
with the Commission.72 The Commission is proposing to amend Form
20-F to require disclosure by all foreign private
[[Page 589]]
issuers of quantitative and qualitative information about market risk.
\72\ See note 33, supra.
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In addition, those foreign private issuers that prepare financial
statements in accordance with Item 18 of Form 20-F would be required to
provide descriptions in the footnotes to the financial statements of
the policies used to account for derivatives. In contrast, foreign
private issuers that prepare financial statements in accordance with
Item 17 of Form 20-F are not required to provide financial statement
disclosures required by generally accepted accounting principles and
Regulation S-X, including disclosures about accounting policies.73
Thus, the proposed amendments requiring disclosures of accounting
policies would not apply to foreign private issuers filing under Item
17 of Form 20-F. However, foreign private issuers filing under Item 17
of Form 20-F would need to consider the guidance presented in Staff
Accounting Bulletin Topic 1:D (``SAB Topic 1:D'') to determine if
information regarding accounting policies for derivatives should be
provided in MD&A.74
\73\ Foreign private issuers complying with Item 18 of Form 20-F
must provide all information required by US generally accepted
accounting principles and Regulation S-X. Disclosures required by US
generally accepted accounting principles but not required by foreign
generally accepted accounting principles on which the financial
statements are prepared need not be furnished pursuant to Item 17 of
Form 20-F. Compliance with Item 17 of Form 20-F is acceptable for
registration statements or annual reports on Form 20-F. With certain
exceptions, foreign private issuers offering securities must comply
with Item 18 of Form 20-F.
\74\ SAB Topic 1:D provides several examples of disclosures in
MD&A that might be necessary to enable readers to understand the
financial statements as a whole. One of those example disclosures
includes significant accounting policies and measurement assumptions
which may bear upon an understanding of operating trends or
financial condition.
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2. Request for Comment
Should foreign private issuers be subject to the proposed
amendments? In particular, are the proposed differences in disclosure
that would be applicable to foreign private issuers that file under
Items 17 and 18 of Form 20-F appropriate? For example, should foreign
private issuers filing under Item 17 of Form 20-F be required to
provide accounting policies disclosures? Should application of some or
all of the proposed amendments to foreign private issuers be delayed to
provide them more time to become familiar with and implement the
amendments? If so, which portions of the proposed amendments should be
delayed and what period of delay would be appropriate (six months, one
year, or some other time period)?
C. Scope and Definition of Instruments
For purposes of this release, financial instruments, derivative
financial instruments, other financial instruments, and derivative
commodity instruments are defined as follows. ``Financial instruments''
have the same meaning as that set forth in paragraph 3 of FAS
107.75 ``Derivative financial instruments'' are a subset of
financial instruments and include futures, forwards, swaps, options,
and other financial instruments with similar characteristics, as
defined by paragraphs 5-7 of FAS 119.76
\75\ FAS 107 para. 3 states:
A financial instrument is defined as cash, evidence of an
ownership interest in an entity, or a contract that both:
a. Imposes on one entity a contractual obligation (1) to deliver
cash or another financial instrument to a second entity or (2) to
exchange other financial instruments on potentially unfavorable
terms with the second entity.
b. Conveys to that second entity a contractual right (1) to
receive cash or another financial instrument from the first entity
or (2) to exchange other financial instruments on potentially
favorable terms with the first entity.
\76\ FAS 119 Paras. 5-7 state:
5. For purposes of this Statement, a derivative financial
instrument is a futures, forward, swap, or option contract, or other
financial instrument with similar characteristics.
6. Examples of other financial instruments with characteristics
similar to option contracts include interest rate caps or floors and
fixed-rate loan commitments. Those instruments have characteristics
similar to options in that they provide the holder with benefits of
favorable movements in the price of an underlying asset or index
with limited or no exposure to losses from unfavorable price
movements, generally in return for a premium paid at inception by
the holder to the issuer. Variable-rate loan commitments and other
variable-rate financial instruments also may have characteristics
similar to option contracts. For example, contract rate adjustments
may lag changes in market rates or be subject to caps or floors.
Examples of other financial instruments with characteristics similar
to forward contracts include various kinds of commitments to
purchase stocks or bonds, forward interest rate agreements, and
interest rate collars. Those instruments are similar to forwards in
that they provide benefits of favorable movements in the price of an
underlying asset or index and exposure to losses from unfavorable
price movements, generally with no payments at inception.
7. The definition of derivative financial instrument in
paragraph 5 excludes all on-balance-sheet receivables and payables,
including those that ``derive'' their values or contractually
required cash flows from the price of some other security or index,
such as mortgage-backed securities, interest-only and principal-only
obligations, and indexed debt instruments. It also excludes option
features that are embedded within an on-balance-sheet receivable or
payable, for example, the conversion feature and call provisions
embedded in convertible bonds.
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Other financial instruments include all financial instruments as
defined in paragraph 3 of FAS 107, except for derivative financial
instruments, as defined above. For example, other financial instruments
include trade accounts receivable, investments, loans, structured
notes, mortgage-backed securities, trade accounts payable, indexed debt
instruments, interest-only and principal-only obligations, deposits,
and other debt obligations. However, for purposes of this release,
trade accounts receivable and trade accounts payable should not be
considered other financial instruments when their carrying amounts
approximate fair value.
Commodity derivative instruments include, to the extent such
instruments are not derivative financial instruments, commodity
futures, commodity forwards, commodity swaps, commodity options, and
other commodity instruments with similar characteristics, that are
reasonably possible to be settled in cash or with another financial
instrument.77
\77\ The term ``reasonably possible'' as used in the proposed
rulemaking amendments is consistent with para. 3 of FAS 5, which
defines ``reasonably possible'' to mean the chance of a future
transaction or event occurring is more than remote but less than
likely.
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Thus, the instrument definitions described above do not encompass
(i) commodity positions, (ii) derivative commodity instruments that are
not reasonably possible to be settled in cash or with another financial
instrument (e.g., a commodity forward contract that must be settled in
the commodity), (iii) cash flows from anticipated transactions, and/or
(iv) operating cash flows from non-financial and non-commodity
instruments.78
\78\ See section III B1b(v), supra, for a further description of
the instruments, positions, and transactions described in this
paragraph.
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D. Reporting Frequency
1. Discussion
The proposed amendments would apply to all registration statements
filed under the Securities Act and all reports and proxy and
information statements filed under the Exchange Act that are required
to include or incorporate financial statements. However, for reports
that only include interim financial statements (e.g., Form 10-Qs), the
proposed amendments would need to be complied with only to the extent
there has been a material change in the information disclosed as of the
preceding fiscal year end. Thus, for example, the quantitative and
qualitative information about market risk required by the proposed
amendments would be included in interim filings only if there was a
material change in that information when compared to the information
[[Page 590]]
presented as of the end of the preceding fiscal year.
2. Request for Comment
Is the frequency of reporting proposed in the amendments adequate?
Alternatively, given that market risk sensitive instruments allow a
registrant to change rapidly its exposures to market risk, should the
proposed disclosures be provided in all interim filings?
V. General Request for Comment
The Commission seeks comment from all interested persons wishing to
address any aspect of the proposed amendments. In addition to the
requests for comments listed throughout this release, the Commission
also is requesting comment on whether the proposed amendments, if
adopted, would have an adverse impact on competition or would impose a
burden on competition that is neither necessary nor appropriate in
furthering the purposes of the Securities Act and the Exchange Act.
Comments in this regard will be considered by the Commission in
complying with its responsibilities under Section 23(a) of the Exchange
Act, 15 U.S.C. 78w(a).
VI. Disclosure of the Effects of Derivative Instruments on Reporting
Financial Instruments, Commodity Positions, Firm Commitments, and
Anticipated Transactions
In conjunction with the publication today of proposed rules to
require specific additional disclosures concerning market risk
sensitive instruments, including derivatives, the Commission is taking
this opportunity to remind registrants of existing obligations that may
already require certain disclosures about derivatives. The staff's 1994
and 1995 reviews of registrant filings suggested that some registrants
may not be providing sufficient disclosure about how derivatives
directly or indirectly affect reported items. As a result, those
disclosures that are being made may not accurately reflect such matters
as the effective terms or expected cash flows of the reported items.
It is fundamental that registrants must include in any filings or
reports any material information that may be necessary to make
statements made, in light of the circumstances under which they are
made, not misleading.79 That is, registrants must provide
disclosure about derivatives that affect, directly or indirectly, the
terms, fair values, or cash flows, of the reported items. This would
include derivative transactions that are designated to reported items
under generally accepted accounting principles.80
\79\ See, e.g., Rule 12b-20, 17 CFR 240.12b-20, under the
Securities Exchange Act of 1934 (``Exchange Act'') and Rule 408, 17
CFR 230.408 under the Securities Act of 1933 (``Securities Act'').
\80\ See, e.g., FAS 52 para. 21a and FAS 80 para. 4a.
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Thus, for example, information required to be disclosed in the
footnotes to the financial statements about the interest rates and
repricing characteristics of debt obligations should include, when
material, the effects of derivatives. Similarly, summary information
and disclosures in MD&A about the interest costs of debt obligations
should include, when material, disclosure of the effects of
derivatives. Likewise, when derivatives directly or indirectly affect
the terms and cash flows of items such as securities held as assets,
servicing rights, oil and gas reserves, loan receivables, deposit
liabilities, and leases, disclosure about the terms and cash flows of
these items should include, when material, disclosure of the effects of
derivatives to the extent such disclosure is necessary to prevent the
disclosure about the reported item from being misleading.
VII. Cost-Benefit Analysis
A. Background
To assist the Commission in its evaluation of the costs and
benefits that may result from the proposed disclosure requirements
discussed in this release, commenters are requested to provide views
and data relating to any costs and benefits associated with the
proposed amendments. In general, the proposed amendments clarify
existing standards and rules, include additional instruments within
existing standards, and provide alternatives for quantitative
disclosures regarding market risk sensitive instruments. In particular,
the proposed amendments provide:
1. Enhanced descriptions of accounting policies for derivative
financial instruments and derivative commodity instruments;
2. Quantitative disclosures about market risk; and
3. Qualitative disclosures about market risk.
The Commission is proposing these amendments in response to
requests from investors and others to provide more meaningful
information about market risk sensitive instruments.81 The
expected benefits of these proposed amendments are to make information
about market risk sensitive instruments, including derivative
instruments, more understandable to investors and others. This
increased understanding is expected to enhance the ability of investors
to make investment decisions and also improve the efficiency of
markets. The Commission believes these benefits will outweigh the
related costs, which are discussed below.
\81\ See notes 23-29, supra, for examples of investors,
regulators, and other private bodies endorsing or recommending
improved quantitative disclosures about market risk.
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B. Descriptions of Accounting Policies for Derivatives
FAS 119 was designed, in part, to help investors and others
understand how derivative financial instruments are reported in the
financial statements.82 Thus, FAS 119 requires, among other
things, disclosure of the policies used to account for derivative
financial instruments, pursuant to the requirements of APB 22.83
However, the scope of FAS 119 is limited to derivative financial
instruments; therefore, it does not apply to other derivative
instruments with similar characteristics, such as derivative commodity
instruments. In addition, FAS 119 does not provide explicit guidance
indicating what must be described in accounting policies footnotes to
make the financial statement effects of derivatives more
understandable. The SEC staff found that the accounting policies
footnotes for derivatives often were too general in nature, not
reflecting adequately the many choices made by registrants in their
accounting for derivatives.
\82\ See FAS 119 para. 60.
\83\ See FAS 119 para. 8. See also note 39, supra, for a
discussion of the requirements of APB 22.
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The current proposed amendments require descriptions of accounting
policies for derivative financial instruments and derivative commodity
instruments, unless the registrant's derivative activities are not
material. Thus, the scope of the proposed amendments is broader than
the scope of FAS 119. In addition, to help make clear the impact of
derivatives on the financial statements, the proposed amendments make
explicit the items to be disclosed in the accounting policies
footnotes.
The proposed amendments are likely to result in a more focused and
descriptive discussion of the accounting policies for both derivative
financial instruments and derivative commodity instruments. This
additional information is likely to result in additional preparation,
audit, and printing costs. However, because accounting policies for
these instruments are known by registrants and should be known by their
auditors,
[[Page 591]]
most of the preparation and audit costs are expected to relate to
initial compliance with the proposed amendments. These costs, along
with expected printing costs, are not estimated to be significant.
Other costs, such as ongoing recordkeeping and compliance costs, also
are not expected to be significant.
C. Quantitative Information About Market Risk
As discussed earlier in this release, under the proposed
amendments, registrants would be required to present quantitative
information about market risk. An important aspect of this requirement,
from a cost perspective, is that registrants will have the flexibility
to choose one of three disclosure alternatives (tabular presentation,
sensitivity analysis, or value at risk) to provide such quantitative
information about market risk.
The Commission believes that, for registrants electing to provide
tabular disclosure, much of the required information is currently
available. Thus, additional costs relating to recordkeeping are not
expected to be significant. While increased reporting and compliance
burdens may result, in many cases the information presented in the
tabular disclosures is used in managing the business activities of the
registrant and, therefore, may be available at relatively low
incremental costs. Further, registrants complying with Securities Act
Industry Guide 3,\84\ principally financial institutions, already
disclose a significant amount of the requested information.
\84\ Securities Act Industry Guide 3, ``Statistical Disclosure
by Bank Holding Companies.'' Exchange Act Industry Guide 3 is
identical to the Securities Act guide. Detailed disclosures are
required under Guide 3 of, among other things, the registrant's: (i)
distribution of assets, liabilities and stockholders' equity;
interest rates and interest differential; (ii) investment portfolio;
(iii) loan portfolio (including types of loans, maturities and
sensitivities of loans to changes in interest rates, risk elements,
and loans outstanding in foreign countries); (iv) summary of loan
loss experience; (v) deposits; (vi) return on equity and assets; and
(vii) short-term borrowings.
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Registrants that choose to use either the sensitivity or value at
risk disclosure alternatives may incur significant additional costs if
they currently do not use these methodologies to manage market risk. In
contrast, if registrants currently use sensitivity or value at risk
analyses to manage market risk, the Commission believes that any
additional costs associated with complying with the proposed amendments
are likely to be negligible. In addition, the Commission understands
that some of the data and the systems needed to develop these analyses
recently have been made available at a relatively moderate cost.\85\
Moreover, some registrants are required to prepare such information for
regulatory capital measurement purposes. In particular, thrift
institutions are required to prepare fair value sensitivity analysis
amounts for risk-based capital purposes.\86\ Also, bank holding
companies may be required, under a proposed rulemaking requirement, to
prepare a value at risk analysis for risk-based capital purposes.\87\
Thus, the costs associated with the sensitivity and value at risk
analyses may vary depending on (i) whether the registrant currently
engages in these analyses for other management or regulatory purposes
and (ii) the particular model and assumptions used in the registrant's
calculations. Any registrant that believes the cost of such analyses
outweigh the benefits of disclosing them, however, may elect to provide
tabular presentation of information about market risk sensitive
instruments.
\85\ See Wall Street Journal, ``Morgan Unveils the Way It
Measures Market Risk'' C1 (October 11, 1994).
\86\ See note 51, supra.
\87\ See Department of the Treasury, Notice of Proposed
Rulemaking, ``Risk-Based Capital Standards: Market Risk,'' 60 FR
38082 (July 25, 1995): see also Federal Reserve System, Request of
Comments, ``Capital Requirements for Market Risk,'' 60 FR 38142
(July 25, 1995).
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D. Qualitative Information About Market Risk
FAS 119 requires certain qualitative disclosures about the market
risk management activities associated with derivative financial
instruments held or issued for purposes other than trading. In
particular, FAS 119 requires disclosure of ``the entity's objectives
for holding or issuing the derivative financial instruments, the
context needed to understand those objectives, and its general
strategies for achieving those objectives.'' \88\ However, as indicated
above, these requirements of FAS 119 only apply to certain derivative
financial instruments, and the SEC staff has observed that these
disclosures typically have been general in nature, providing only
limited insight into an entity's overall market risk management
activities.
\88\ See FAS 119 para. 11a.
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In essence, the proposed amendments expand certain disclosure
requirements set forth in FAS 119 to (i) encompass derivative financial
instruments entered into for trading purposes, other financial
instruments, and derivative commodity instruments and (ii) require
registrants to evaluate and describe material changes in their primary
risk exposures and their market risk management activities. The
Commission believes this should present a more complete discussion of a
registrant's exposure to market risks and the way it manages those
risks. Because this information is likely to be used by registrants as
part of their risk management activities, incremental costs relating to
such disclosure are not expected to be significant.
E. Small Business Issuers
As noted earlier, the Commission has determined not to amend
Regulation S-B \89\ to incorporate an item similar to Item 305 of
Regulation S-K. Regulation S-B may be used by small business issuers
\90\ required to register their securities with the Commission. By
excluding small business issuers from all but the accounting policies
disclosures that would be required by the proposed amendments, the
Commission has limited substantially the cost of these proposals for
small entities.
\89\ 17 CFR 228.10 et seq.
\90\ See note 71, supra.
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The Commission will reassess reporting, recordkeeping, compliance
requirements, and other cost-benefit issues in light of comments it
receives in response to the proposed amendments.
VII. Summary of Initial Regulatory Flexibility Analysis
The Commission has prepared an Initial Regulatory Flexibility
Analysis pursuant to the requirements of the Regulatory Flexibility
Act,\91\ regarding the proposed amendments to Rule 4-08 of Regulation
S-X and to Regulation S-K to create Item 305. Additionally, the
Commission is proposing amendments to Forms S-1, S-2, S-4, S-11, and F-
4 under the Securities Act of 1933, and Rule 14a-3, Schedule 14A and
Forms 10, 20-F, 10-Q, and 10-K under the Exchange Act. The analysis
notes that the amendments would clarify existing disclosure
requirements, include additional instruments within existing disclosure
requirements, and provide disclosure alternatives for quantitative
information regarding derivative financial instruments, other financial
instruments, and derivative commodity instruments. These amendments are
intended to provide investors with information that provides a clearer
understanding of registrants' use of such instruments, and the market
risks inherent in those instruments.
\91\ 5 U.S.C. Sec. 603.
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The analysis notes that, although the proposed amendments may
increase the
[[Page 592]]
reporting burden for those registrants not currently providing
comparable disclosures, there should not be a significant impact on
recordkeeping or other compliance burdens. The analysis also indicates
that the proposals do not conflict or overlap with existing
requirements but rather tailor them for specific purposes.
As more fully discussed in the analysis and noted in the Cost-
Benefit Analysis section of this release, the Commission has determined
not to amend Regulation S-B to incorporate an item similar to proposed
Item 305 of Regulation S-K. The Commission, therefore, has reduced the
impact of the proposed amendments on small business issuers.
Request for Comment
Written comments are encouraged with respect to any aspect of the
Initial Regulatory Flexibility Analysis. Such comments will be
considered in preparation of the Final Regulatory Flexibility Analysis
if the proposed amendments are adopted. A copy of the Initial
Regulatory Flexibility Analysis may be obtained by contacting Robert E.
Burns, Chief Counsel, Office of the Chief Accountant, at (202) 942-
4400, Securities and Exchange Commission, 450 Fifth Street, NW., Mail
Stop 11-3, Washington, DC 20549.
List of Subjects in 17 CFR Parts 210, 228, 229, 239, 240, and 249
Accounting, Reporting and recordkeeping requirements, Securities.
Text of Proposed Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF
1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT
COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975
1. The authority citation for Part 210 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77aa(25),
77aa(26), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e(b), 79j(a),
79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-30, 80a-37a, unless
otherwise noted.
2. By amending Sec. 210.4-08 by adding paragraph (n) to read as
follows:
Sec. 210.4-08 General notes to financial statements.
* * * * *
(n) Accounting policies for certain derivative instruments. In
connection with the accounting policies disclosures required by
generally accepted accounting principles, identify and describe all
accounting principles and the methods of applying those principles that
affect the recognition and measurement of derivative financial
instruments and derivative commodity instruments, as defined in the
instructions to this paragraph, unless the registrant's derivatives
activities are not material. Materiality of derivative activities shall
be measured by the fair values of derivative financial instrument and
derivative commodity instruments at the end of each reporting period
and the fair value of those instruments during each reporting period.
This description shall include:
(1) A description of each method used to account for derivative
financial instruments and derivative commodity instruments;
(2) The types of derivative financial instruments and derivative
commodity instruments accounted for under each method;
(3) The criteria required to be met for each accounting method used
(e.g., the manner in which the type of risk reduction, correlation,
designation, and/or effectiveness tests are applied);
(4) The accounting method used if the specified criteria are not
met;
(5) The accounting for terminations of derivatives designated as
hedges or used to affect directly or indirectly the terms, fair values,
or cash flows of a designated item;
(6) The accounting for derivatives if the designated item matures,
or is sold, extinguished, terminated, or, if related to an anticipated
transaction, is no longer likely to occur; and
(7) Where and when derivative financial instruments and derivative
commodity instruments and their related gains and losses are reported
in the statements of financial position, cash flows, and results of
operations.
Instructions to Paragraph 4-08(n). 1. In preparing the
accounting policies disclosures under this paragraph 4-08(n),
registrants should include those derivative financial instruments
and derivative commodity instruments that are held during, or
outstanding at the end of, each reporting period.
2. For purposes of this paragraph 4-08(n), derivative financial
instruments and derivative commodity instruments are defined as
follows:
(i) Derivative financial instruments have the same meaning as
defined by generally accepted accounting principles (see, e.g.,
Financial Accounting Standards Board (``FASB''), Statement of
Financial Accounting Standards No. 119, ``Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments,'' paragraphs 5-7, (October 1994) (``FAS 119'')), and
includes futures, forwards, swaps, options, and other financial
instruments with similar characteristics.
(ii) Derivative commodity instruments include, to the extent
such instruments are not derivative financial instruments, commodity
futures, commodity forwards, commodity swaps, commodity options, and
other commodity instruments with similar characteristics that are
reasonably possible to be settled in cash or with another financial
instrument. For purposes of this paragraph, the term ``reasonably
possible'' has the same meaning as defined by generally accepted
accounting principles (see, e.g., FASB, Statement of Financial
Accounting Standards No. 5 ``Accounting for Contingencies,''
paragraph 3 (March 1975)).
3. For purposes of these instructions, ``anticipated
transactions'' means transactions (other than transactions involving
existing assets or liabilities or transactions necessitated by
existing firm commitments) an enterprise expects, but is not
obligated, to carry out in the normal course of business (see, e.g.,
FASB, Statement of Financial Accounting Standards No. 80,
``Accounting for Futures Contracts,'' paragraph 9, (August 1984)).
4. For purposes of paragraphs 4-08(n)(2), 4-08(n)(3), 4-
08(n)(4), and 4-08(n)(7) registrants should distinguish derivative
financial instruments and derivative commodity instruments entered
into for trading purposes from those instruments that are entered
into for purposes other than trading. For purposes of this
paragraph, ``trading purposes'' has the same meaning as defined by
generally accepted accounting principles (see, e.g., FASB, Statement
of Accounting Standards No. 119, ``Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments,''
paragraph 9a, (October 1994)).
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
3. The authority citation for Part 228 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37, 80b-
11, unless otherwise noted.
4. By amending the NOTES to Sec. 228.310 by revising the first
sentence of note 2 to read as follows:
Sec. 228.310 (Item 310) Financial Statements.
Notes--1. * * *
2. Regulation S-X [17 CFR 210.1-210.12] Form and Content of and
Requirements for Financial Statements shall not apply to the
preparation of such financial statements, except that the report and
qualifications of the independent accountant shall comply with the
requirements of article 2 of regulation S-X [17 CFR 210.2], articles
[[Page 593]]
3-19 and 3-20 [17 CFR 210.3-19 and 210.3-20] shall apply to financial
statements of foreign private issuers, the description of accounting
policies shall comply with article 4-08(n) of regulation S-X [17 CFR
210.4-08(n)], and small business issuers engaged in oil and gas
producing activities shall follow the financial accounting and
reporting standards specified in article 4-10 of Regulation S-X [17 CFR
210.4-10] with respect to such activities. * * *
* * * * *
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
5. The authority citation for part 229 continues to read in part as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79e, 79n,
79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise noted.
* * * * *
6. By adding Sec. 229.305 (Item 305) to read as follows:
Sec. 229.305 (Item 305) Quantitative and qualitative disclosures about
market risk.
(a) Quantitative information about market risk. (1) To the extent
material, registrants shall provide quantitative disclosures about
market risk, as of the end of the latest fiscal year. Such disclosures
should be provided using any one of the following three disclosure
alternatives at the election of the registrant:
(i)(A)(1) Tabular presentation of terms and information related to
market risk sensitive instruments; such information (e.g., expected
cash flows by maturity dates) should be categorized according to risk
exposure category (e.g., interest rate risk, foreign currency exchange
rate risk, commodity price risk, and other similar market risks, such
as equity price risk), and within the foreign currency exchange rate
risk category, by functional currency (e.g., U.S. dollar, Japanese
yen).
(2) Within each of these risk exposure categories, instruments
should be grouped based on common characteristics. At a minimum,
instruments should be distinguished by the following characteristics:
(i) Fixed rate or variable rate assets or liabilities;
(ii) Long or short forwards or futures;
(iii) Written or purchased put or call options;
(iv) Receive fixed or receive variable interest rate swaps; and
(v) The currency in which the instruments' cash flows are
denominated.
(3) For each instrument in the table, expected cash flow
information should be presented separately for each of the next five
years with the remaining expected cash flows presented as an aggregate
amount. Derivatives used to manage risks inherent in anticipated
transactions also should be disclosed separately; and
(B) A description of assumptions necessary to an understanding of
the disclosures required under paragraph (a)(1)(i) (A) of this item 305
(see the appendix to this Item for a suggested tabular format for
presentation of this information), or
(ii)(A) Sensitivity analyses that express the hypothetical loss in
future earnings, fair values, or cash flows of market risk sensitive
instruments resulting from at least one selected hypothetical change in
interest rates, currency exchange rates, commodity prices, and similar
market rates or prices over a selected time period. The magnitude of
each selected hypothetical change in rates or prices may differ across
risk exposures. Separate sensitivity analysis disclosures should be
made for each category of risk exposure, i.e., interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other
similar market risks, such as equity price risk; and
(B) A description of the model assumptions and parameters necessary
to an understanding of the disclosures required under paragraph
(a)(1)(ii) (A) of this item 305; or
(iii)(A) Value at risk disclosures that express the potential loss
in fair values, earnings, or cash flows from market movements (e.g.,
changes in interest rates, foreign currency exchange rates, commodity
prices, and other similar market rates or prices) over a selected time
period with a selected likelihood of occurrence; value at risk
disclosures should be made on an aggregate basis for all market risk
sensitive instruments and for each category of market risk exposure,
such as interest rate risk, foreign currency exchange rate risk,
commodity price risk, and other similar market risks, such as equity
price risk;
(B) For each risk exposure category either:
(1) The average or range in the value at risk numbers for the
reported period;
(2) The average or range in actual changes in fair values,
earnings, or cash flows of instruments occurring during the reporting
period; or
(3) The percentage of time the actual changes in fair values,
earnings, or cash flows of market risk sensitive instruments exceeded
the reported value at risk amounts during the current reporting period;
(The information in this paragraph (a)(1)(iii)(B) is not required for
[the first fiscal year end for which this section is effective]), and
(C) A description of the model assumptions and parameters necessary
to an understanding of the disclosures required under paragraphs
(a)(1)(iii) (A) and (B) of this item 305.
(2) Registrants shall discuss material limitations that may cause
the information required under paragraph (a)(1) of this item 305 not to
reflect the overall market risk of the entity. This discussion shall
include descriptions of:
(i) Each limitation; and
(ii) If applicable, the instruments' features that are not
reflected fully within the selected quantitative market risk disclosure
alternative.
(3) Registrants shall present summarized information for the
preceding fiscal year. Registrants also shall discuss the reasons for
material changes in quantitative information about market risk when
compared to the information reported in the previous period.
Information required by this paragraph (a)(3) of item 305, however, is
not required if disclosure is not required pursuant to paragraph (a)(1)
of this item 305 for the current fiscal year. Information required by
this paragraph (a)(3) of item 305 is not required [for the first fiscal
year end in which item 305 is effective].
(4) Registrants may change methods of presenting quantitative
information about market risk (e.g., changing from tabular presentation
to value at risk). However, if such a change is made the registrants
shall:
(i) Explain the reasons for the change; and
(ii) Provide summarized comparable information, under the new
disclosure method, for the year preceding the current year.
Instructions to Paragraph 305(a).
1. In preparing the disclosures under paragraph 305(a),
registrants are required to include derivative financial
instruments, other financial instruments, and derivative commodity
instruments, as specified in the General Instructions to Paragraphs
305(a) and 305(b).
2. In preparing disclosures under paragraph 305(a), registrants
should distinguish derivative financial instruments, other financial
instruments, and derivative commodity instruments entered into for
trading purposes from those instruments that are entered into for
purposes other than trading.
3. In preparing disclosures under paragraph 305(a), registrants
may include
[[Page 594]]
other market risk sensitive instruments, positions, and transactions
that are not addressed in instruction 1. to paragraph 305(a). Such
instruments, positions, and transactions might include commodity
positions, derivative commodity instruments that are not reasonably
possible to be settled in cash or with another financial instrument,
cash flows from anticipated transactions, and operating cash flows
from non-financial and non-commodity instruments (e.g., cash flows
generated by manufacturing activities). Registrants choosing to
include voluntarily these instruments, positions, and cash flows for
purposes of paragraphs 305(a)1(ii) and 305(a)1(iii) are required to
state that they have included such instruments, positions, and cash
flows.
4. Under paragraph 305(a)(1)(i):
(A) The examples of terms and information relating to market
risk sensitive instruments that should be disclosed include, but are
not limited to, the instruments' fair values, expected principal or
transaction cash flows, weighted average effective rates or prices,
and other relevant market risk related information;
(B) Functional currency means functional currency as defined by
generally accepted accounting principles (see, e.g., FASB, Statement
of Financial Accounting Standards No. 52, ``Foreign Currency
Translation'', (``FAS 52'') Appendix E (December 1981);
(C) Model assumptions that should be described include, but are
not limited to, specification of the differing numbers reported in
the table for various categories of instruments (e.g., principal
cash flows for debt, notional amounts for swaps, and contract
amounts for options and futures) and key prepayment and/or
reinvestment assumptions relating to the timing of reported cash
flow amounts; and
(D) Market risk sensitive instruments that are exposed to rate
or price changes in more than one market risk exposure category
should be presented within the tabular information under each of
those risk exposure categories.
5. Under paragraph 305(a)(1)(ii), model assumptions and
parameters that should be described include, but are not limited to,
how loss is defined by the model (e.g., loss in earnings, fair
values, or cash flows), a general description of the modeling
technique (e.g., change in net present values arising from parallel
shifts in market rates or prices and how optionality is addressed by
the model), the types of instruments covered by the model (e.g.,
derivative financial instruments, other financial instruments,
derivative commodity instruments, and whether other instruments are
included voluntarily, such as certain commodity instruments and
positions, cash flows from anticipated transactions, and operating
cash flows from non-financial and non-commodity instruments), and
other relevant information on the model's parameters, (e.g., the
magnitudes of parallel shifts in market rates or prices used, the
method by which discount rates are determined, and key prepayment
and/or reinvestment assumptions).
6. Under paragraph 305(a)(1)(iii), model assumptions and
parameters that should be described include, but are not limited to,
how loss is defined by the model (e.g., loss in earnings, fair
values, or cash flows), type of model used (e.g., variance/
covariance, historical simulation, Monte Carlo simulation, and how
optionality is addressed by the model), the types of instruments
covered by the model (e.g., derivative financial instruments, other
financial instruments, derivative commodity instruments, and whether
other instruments are included voluntarily, such as certain
commodity instruments and positions, cash flows from anticipated
transactions, and operating cash flows from non-financial and non-
commodity instruments), and other relevant information on model
parameters, (e.g., holding period, confidence interval, and the
method used for aggregating value at risk amounts across market risk
exposure categories, such as by assuming perfect positive
correlation, independence, or actual observed correlation).
7. Under paragraph 305(a)(2), limitations that should be
considered include, but are not limited to:
(A) The exclusion of certain market risk sensitive instruments,
positions, and transactions from the disclosures required under
paragraph 305(a)(1) (e.g., derivative commodity instruments not
reasonably possible to be settled in cash or with another financial
instrument, commodity positions, cash flows from anticipated
transactions, and operating cash flows from non-financial and non-
commodity instruments, such as cash flows from manufacturing
activities). Failure to include such instruments, positions, and
transactions in preparing the disclosures under paragraph 305(a)(1)
may be a limitation because the resulting information may not fully
reflect the overall market risk of a registrant; and
(B) The ability of disclosures required under paragraph
305(a)(1) to reflect fully the market risk that may be inherent in
instruments with leverage, option, or prepayment features (e.g.,
structured notes, collateralized mortgage obligations, leveraged
swaps, and swaps with embedded written options).
(b) Qualitative information about market risk. To the extent
material, describe:
(1) The registrant's primary market risk exposures;
(2) How those exposures are managed (e.g., a description of the
objectives, general strategies, and instruments, if any, used to manage
those exposures); and
(3) Changes in either the registrant's primary market risk
exposures or how those exposures are managed when compared to what was
in effect during the most recent reporting period and what is known or
expected to be in effect in future reporting periods.
Instructions to Paragraph 305(b).
1. The disclosures required by this paragraph relate to the
market risk exposures inherent in derivative financial instruments,
other financial instruments, and derivative commodity instruments,
as defined in the General Instructions to Paragraphs 305(a) and
305(b).
2. In preparing disclosures under paragraph 305(b), the
qualitative information about market risk should be presented
separately for derivative financial instruments, other financial
instruments, and derivative commodity instruments that are entered
into for trading purposes and those that are entered into for
purposes other than trading. In addition, qualitative information
about market risk should be presented separately for those
instruments used to manage risks inherent in anticipated
transactions.
3. Primary market risk exposures, for the purposes of this
paragraph, mean:
(A) The following categories of market risk: interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other
similar market rate or price risks (e.g., equity prices); and
(B) Within each of these categories, the particular markets that
present the primary risk of loss to the registrant. For example, if
a registrant has a material exposure to foreign currency exchange
rate risk and, within this category of market risk, is most
vulnerable to changes in dollar/yen, dollar/pound, and dollar/peso
exchange rates, the registrant would disclose these exposures.
Similarly, if a registrant has a material exposure to interest rate
risk and, within this category of market risk, is most vulnerable to
changes in short-term U.S. prime interest rates, it would disclose
this exposure.
4. For purposes of disclosure under paragraph (b) of this item
305, registrants should describe primary market risk exposures that
exist at the end of the current reporting period, and how those
exposures are managed.
General Instructions to Paragraphs 305(a) and 305(b).
1. The disclosure called for by paragraphs 305(a) and 305(b) is
intended to clarify the registrant's exposure to market risks
associated with activities in derivative financial instruments,
other financial instruments, and derivative commodity instruments.
2. For purposes of paragraphs 305(a) and 305(b), derivative
financial instruments, other financial instruments, and derivative
commodity instruments (referred collectively as ``market rate
sensitive instruments'' or ``instruments'') are defined as follows:
(A) Derivative financial instruments has the same meaning as
defined by generally accepted accounting principles (see, e.g.,
FASB, Statement of Financial Accounting Standards No. 119,
``Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments,'' paragraphs 5-7, (October 1994)), and
includes futures, forwards, swaps, options, and other financial
instruments with similar characteristics;
(B) Other financial instruments means all financial instruments
as defined by generally accepted accounting principles (see, e.g.,
FASB, Statement of Financial Accounting Standards No. 107,
``Disclosures about Fair Value of Financial Instruments,'' paragraph
3, (December 1991)), except for derivative financial instruments, as
defined above;
[[Page 595]]
(C) Other financial instruments include, but are not limited to,
trade accounts receivable, investments, loans, structured notes,
mortgage-backed securities, trade accounts payable, indexed debt
instruments, interest-only and principal-only obligations, deposits,
and other debt obligations. However, for purposes of this release,
trade accounts receivable and trade accounts payable should not be
considered other financial instruments when their carrying amounts
approximate fair value; and
(D) Derivative commodity instruments include, to the extent such
instruments are not derivative financial instruments, commodity
futures, commodity forwards, commodity swaps, commodity options, and
other commodity instruments with similar characteristics that are
reasonably possible to be settled in cash or with another financial
instrument. For purposes of paragraphs 305(a) and 305(b) and these
general instructions, the term ``reasonably possible'' has the same
meaning as defined by generally accepted accounting principles (see,
e.g., FASB, Statement of Financial Accounting Standards No. 5,
``Accounting for Contingencies,'' paragraph 3 (March 1975)).
3. For purposes of paragraphs 305(a) and 305(b), disclosure is
not required for:
(A) Commodity positions;
(B) Derivative commodity instruments that are not reasonably
possible to be settled in cash or with another financial instrument;
(C) Cash flows from anticipated transactions; and/or
(D) Operating cash flows from non-financial and non-commodity
instruments.
4. (A) For purposes of making a materiality assessment under
paragraphs 305(a) and 305(b), registrants should consider both:
(i) The materiality of the fair values of derivative financial
instruments, other financial instruments, and derivative commodity
instruments outstanding at the end of the current reporting period;
and
(ii) The materiality of the potential loss in future earnings,
fair values, or cash flows from reasonably possible market
movements.
(B) If either (i) or (ii) of instruction 4.(A) is material, then
the disclosures under paragraphs 305(a) and 305(b) are required.
(C) In determining the materiality of the fair values of market
risk sensitive instruments outstanding at the end of the current
reporting period, registrants generally should not net fair values,
except to the extent allowed under generally accepted accounting
principles (see, e.g., FASB Interpretation No. 39, ``Offsetting of
Amounts Related to Certain Contracts'' (March 1992)). For example,
under this instruction, the fair value of assets generally should
not be netted with the fair value of liabilities. In determining the
materiality of the potential loss in future earnings or fair values
from reasonably possible market movements, registrants should
consider both the magnitude of past market movements, as well as
expectations about the magnitude of future market movements. In
addition, in making the determination under this instruction about
the materiality of the potential loss in future earnings, fair
values, or cash flows, registrants should consider, among other
things, potential losses that may arise from leverage, option, and/
or multiplier features.
5. For purposes of presenting quantitative and qualitative
information about market risk, registrants generally should provide
the required information in one location. However, alternative
presentation, such as inclusion of all or part of the information in
the footnotes to the financial statements or in Management's
Discussion and Analysis, may be used at the discretion of the
registrant.
6. For purposes of the instructions to paragraphs 305(a) and
305(b), ``trading purposes'' has the same meaning as defined by
generally accepted accounting principles (see, e.g., FASB, Statement
of Financial Accounting Standards No. 119, ``Disclosure About
Derivative Financial Instruments and Fair Value of Financial
Instruments,'' paragraph 9a (October 1994)). In addition,
``anticipated transactions'' means transactions (other than
transactions involving existing assets or liabilities or
transactions necessitated by existing firm commitments) an
enterprise expects, but is not obligated, to carry out in the normal
course of business (e.g., FASB, Statement of Financial Accounting
Standards No. 80, ``Accounting for Futures Contracts,'' paragraph 9
(August 1984)).
Appendix to Item 305--Tabular Disclosures
The tables set forth below are illustrative of the format that
might be used when a registrant elects to present the information
required by paragraph (a)(1)(i)(A) of Item 305 regarding terms and
information about derivative financial instruments, other financial
instruments, and derivative commodity instruments. These examples
are for illustrative purposes only. Registrants are not required to
display the information in the specific manner illustrated below.
Alternative methods of display are permissible as long as the
disclosure requirements of the section are satisfied. Furthermore,
these examples were designed primarily to illustrate possible
formats for presentation of the information required by the proposed
section and do not purport to illustrate the broad range of
derivative financial instruments, other financial instruments, and
derivative commodity instruments utilized by registrants.
Interest Rate Sensitivity
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are
sensitive to changes in interest rates, including interest rate swaps
and debt obligations. For debt obligations, the table presents
principal cash flows and related weighted average interest rates by
expected maturity dates. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date. For
interest rate swaps, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be
exchanged under the contract. The information is presented in U.S.
dollar equivalents, which is the Company's reporting currency. The
instrument's actual cash flows are denominated in both U.S. dollar
($U.S.) and German deutschmarks (DMs), as indicated in parentheses.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity date
------------------------------------------------------------------ Fair
December 31, 19 x 1 There- Total value
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 after
--------------------------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Long-term Debt:
Fixed Rate ($US)........................................ $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average interest rate............................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Fixed Rate (DMs)........................................ XXX XXX XXX XXX XXX XXX XXX XXX
Average interest rate............................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Variable Rate ($US)..................................... XXX XXX XXX XXX XXX XXX XXX XXX
Average interest rate............................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 596]]
----------------------------------------------------------------------------------------------------------------------------------
FR Doc. 96-130 Proposed Amendments to Require Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Qualitative and Quantitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments
----------------------
Expected maturity date
------------------------------------------------------------------ Fair
Interest Rate Derivatives There- Total value
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 after
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps:
Variable to Fixed ($US)..................................... $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average pay rate........................................ X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Average receive rate.................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Fixed to Variable ($US)..................................... XXX XXX XXX XXX XXX XXX XXX XXX
Average pay rate........................................ X.X% X.X% X.X% X.X% X.X% X.X% X.X%
Average receive rate.................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Exchange Rate Sensitivity
The table below provides information about the Company's derivative
financial instruments, other financial instruments, and firmly
committed sales transactions by functional currency and presents such
information in U.S. dollar equivalents.1 The table summarizes
information on instruments and transactions that are sensitive to
foreign currency exchange rates, including foreign currency forward
exchange agreements, deutschmark (DM)-denominated debt obligations, and
firmly committed DM sales transactions. For debt obligations, the table
presents principal cash flows and related weighted average interest
rates by expected maturity dates. For firmly committed DM-sales
transactions, sales amounts are presented by the expected transaction
date, which are not expected to exceed two years. For foreign currency
forward exchange agreements, the table presents the notional amounts
and weighted average exchange rates by expected (contractual) maturity
dates. These notional amounts generally are used to calculate the
contractual payments to be exchanged under the contract.
\1\ The information is presented in U.S. dollars because that is
the registrant's reporting currency.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity date
------------------------------------------------------------------ Fair
December 31, 19 x 1 There- Total value
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 after
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) (US$ Equivalent in Millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
On-Balance Sheet Financial Instruments:
$US Functional Currency 2 Liabilities
Long-Term Debt (DM)..................................... $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average U.S. dollar/DM Exchange Rate.................... X.X X.X X.X X.X X.X X.X X.X
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity or transaction date
------------------------------------------------------------------ Fair
There- Total value
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 after
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) (US$ Equivalent in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anticipated Transactions and Related Derivatives 3
$US Functional Currency:
Firmly committed transactions:
Sales Contracts (DM)................................ $XXX $XXX ......... ......... ......... ......... $XXX $XXX
Forward Exchange Agreements (Receive $US/Pay DM)
Contract Amount..................................... XXX XXX ......... ......... ......... ......... XXX XXX
Average Exchange Rate............................... X.X X.X ......... ......... ......... ......... X.X
--------------------------------------------------------------------------------------------------------------------------------------------------------
2 Similar tabular information would be provided for other functional currencies.
3 Pursuant to Instruction 3 to proposed Item 305(a) of Regulation S-K, registrants may include cash flows from anticipated transactions and operating
cash flows resulting from non-financial and non-commodity instruments.
Commodity Price Sensitivity
The table below provides information about the Company's corn
inventory and futures contracts that are sensitive to changes in
commodity prices, specifically corn prices. For inventory, the table
presents the carrying amount and fair value at December 31, 19x1. For
the futures contracts the table presents the notional amounts in
bushels, the weighted average contract prices, and the total dollar
contract amount by expected maturity dates, the latest of which occurs
one year from the reporting date. Contract amounts are used to
calculate the contractual payments and quantity of corn to be exchanged
under the futures contracts.
[[Page 597]]
------------------------------------------------------------------------
Carrying
December 31, 19 x 1 amount Fair value
------------------------------------------------------------------------
(1) (In millions)
------------------------------------------------------------------------
On Balance Sheet Commodity Position and
Related Derivatives:
Corn Inventory............................ $XXX $XXX 4
------------------------------------------------------------------------
------------------------------------------------------------------------
Expected
maturity Fair value
1992
------------------------------------------------------------------------
Related Derivatives:
Futures Contracts (Short):
Contract Volumes (100,000 bushels).... XXX ...........
Weighted Average Price (Per 100,000
bushels)............................. $X.XX ...........
Contract Amount ($US in millions)..... $XXX $XXX
------------------------------------------------------------------------
4 Pursuant to Instruction 3 to proposed Item 305 of Regulation S-K,
registrants may include information on commodity positions, such as
corn inventory.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
7. The authority citation for Part 239 continues to read, in part,
as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l,
78m, 78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l, 79m,
79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise
noted.
* * * * *
8. By amending Form S-1 (referenced in 239.11) by redesignating
items 11(j) through 11(m) as items 11(k) through 11(n) and adding item
11(j) to read as follows:
Note--The text of Form S-1 does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form S-1
Registration Statement Under the Securities Act of 1933
* * * * *
Item 11. Information With Respect to the Registrant
* * * * *
(j) Information required by Item 305 of Regulation S-K
(Sec. 229.305 of this chapter), quantitative and qualitative
disclosures about market risk.
* * * * *
9. By amending Form S-2 (referenced in Sec. 239.12) by adding
paragraph (9) to Item 11(b), removing ``and'' at the end of Item
12(a)(3)(vii), removing the period at the end of Item 12(a)(3)(viii)
and in its place adding ``; and'', and adding paragraph (ix) to Item
12(a)(3) to read as follows:
Note--The text of Form S-2 does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form S-2
Registration Statement Under the Securities Act of 1933
* * * * *
Item 11. Information With Respect to the Registrant
(a) * * *
(b) * * *
(9) Furnish quantitative and qualitative disclosures about
market risk required by Item 305 of Regulation S-K (Sec. 229.305 of
this chapter).
* * * * *
Item 12. Incorporation of Certain Information by Reference.
(a) * * *
(3) * * *
(ix) quantitative and qualitative disclosures about market risk
as required by Item 305 of Regulation S-K (Sec. 229.305 of this
chapter).
* * * * *
10. By amending Form S-4 (referenced in Sec. 239.25) by removing
``and'' at the end of Item 12(b)(3)(v) and the period at the end of
Item 12(b)(3)(vi) and in its place adding ``; and'', adding paragraph
(vii) to Item 12(b)(3), removing ``and'' at the end of Item 13(a)(3)(v)
and the period at the end of Item 13(a)(3)(vi) and in its place adding
``; and'', adding paragraph (vii) to Item 13(a)(3), removing ``and'' at
the end of Item 14(h) and the period at the end of Item 14(i) and in
its place adding ``; and'', adding paragraph (j) to Item 14, and adding
paragraph (10) to Item 17(b) to read as follows:
Note--The text of Form S-4 does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form S-4
Registration Statement Under the Securities Act of 1933
* * * * *
Item 12. Information With Respect to S-2 or S-3 Registrants
* * * * *
(b) * * *
(3) * * *
(vii) Item 305 of Regulation S-K (Sec. 229.305 of this chapter),
quantitative and qualitative disclosures about market risk.
* * * * *
Item 13. Incorporation of Certain Information by Reference
* * * * *
(a) * * *
(3) * * *
(vii) Item 305 of Regulation S-K (Sec. 229.305 of this chapter)
quantitative and qualitative disclosures about market risk.
* * * * *
Item 14. Information With Respect to Registrants Other Than S-3 or
S-2 Registrants
* * * * *
(j) Item 305 of Regulation S-K (Sec. 229.305 of this chapter),
quantitative and qualitative disclosures about market risk.
* * * * *
Item 17. Information With Respect to Companies Other Than S-3 or S-
2 Companies
* * * * *
(b) * * *
(10) Item 305 of Regulation S-K (Sec. 229.305 of this chapter),
quantitative and qualitative disclosures about market risk.
* * * * *
11. By amending Form S-11 (referenced in Sec. 239.18) to
redesignate Items 30 through 36 as Items 31 through 37 and to add Item
30 to Part I to read as follows:
Note--The text of Form S-11 does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form S-11
Registration Statement Under the Securities Act of 1933
* * * * *
[[Page 598]]
Item 30. Quantitative and Qualitative Disclosures About Market Risk
Furnish the information required by Item 305 of Regulation S-K
(Sec. 229.305 of this chapter).
* * * * *
12. By amending Form F-4 (referenced in Sec. 239.34) to redesignate
Item 12(b)(3)(vi) as Item 12(b)(3)(vi)(A), add new paragraph (B) to
Item 12(b)(3)(vi), redesignate Item 14(g) as Item 14(g)(1), add new
Item 14(g)(2), redesignate Item 17(b)(4) as Item 17(b)(4)(i), and add
new Item 17(b)(4)(ii) to read as follows:
Note--The text of Form F-4 does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form F-4
Registration Statement Under the Securities Act of 1933
* * * * *
Item 12. Information With Respect to F-2 or F-3 Registrants
* * * * *
(b) * * *
(3) * * *
(vi)(A) * * *
(B) Item 9A of Form 20-F, quantitative and qualitative
disclosures of market risk.
* * * * *
Item 14. Information With Respect to Foreign Registrants Other Than
F-2 or F-3 Registrants
* * * * *
(g)(1) * * *
(g)(2) Item 9A of Form 20-F, quantitative and qualitative
disclosures of market risk.
* * * * *
Item 17. Information With Respect to Foreign Companies Other Than
F-2 or F-3 Companies
* * * * *
(b)(4)(i) * * *
(b)(4)(ii) Item 9A of Form 20-F, quantitative and qualitative
disclosures of market risk.
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
13. The authority citation for Part 240 continues to read in part
as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
14. By amending Sec. 240.14a-3 by adding paragraph (b)(5)(iii) to
read as follows:
Sec. 240.14a-3 Information to be furnished security holders.
* * * * *
(b) * * *
(5) * * *
(iii) The report shall contain the quantitative and qualitative
disclosures about market risk required by Item 305 of Regulation S-K
(Sec. 229.305 of this chapter).
* * * * *
15. By amending Sec. 240.14a-101 to remove the word ``and'' at the
end of Item 13(a)(4), redesignate Item 13(a)(5) as Item 13(a)(6), add
Item 13(a)(5), add Instruction 6 to Item 13, remove ``and'' at the end
of Item 14(b)(2)(i)(B)(3)(vi) and the period at the end of Item
14(b)(2)(i)(B)(3)(vii) and in its place add ``; and'', add paragraph
(viii) to Item 14(b)(2)(i)(B)(3), remove ``and'' at the end of Item
14(b)(2)(ii)(A)(3)(v) and the period at the end of Item
14(b)(2)(ii)(A)(3)(vi) and in its place add ``; and'', add paragraph
(vii) to Item 14(b)(2)(ii)(A)(3), remove ``and'' at the end of Item
14(b)(3)(i)(H) and the period at the end of Item 14(b)(3)(i)(I) and in
its place add ``; and'', add paragraph (J) to Item 14(b)(3)(i), and add
Instructions 8, 9, and 10 to Item 14 to read as follows:
Sec. 240.14a-101 Schedule 14A. Information required in proxy
statement.
* * * * *
Item 13. Financial and Other Information
(a) Information required. * * *
(5) Item 305 of Regulation S-K, quantitative and qualitative
disclosures about market risk; and
* * * * *
Instructions to Item 13.
* * * * *
6. A registered investment company need not comply with items
(a)(2), (a)(3), and (a)(5) of this Item 13.
* * * * *
Item 14. Mergers, Consolidations, Acquisitions and Similar Matters
* * * * *
(b) Information about the registrant and the other person.
* * * * *
(2) Information with respect to S-2 or S-3 registrants.
(i) Information required to be furnished. * * *
(B) * * *
(3) * * *
(viii) Item 305 of Regulation S-K (Sec. 229.305 of this
chapter), quantitative and qualitative disclosures about market
risk.
(ii) Incorporation of certain information by reference.
* * * * *
(A) * * *
(3) * * *
(vii) Item 305 of Regulation S-K, quantitative and qualitative
disclosures about market risk.
* * * * *
(3) Information with respect to registrants other than S-2 or S-
3 registrants.
(i) * * *
(A) * * *
(J) Item 305 of Regulation S-K, quantitative and qualitative
disclosures about market risk.
* * * * *
Instructions to Item 14.
* * * * *
8. A registered management company need not comply with Items
(i), (iii), (iv), (v), (vi), and (viii) of paragraph (b)(2)(i)(B)(3)
of this Item 14.
9. A registered management company need not comply with Items
(i), (ii), (iii), (iv), (v), and (vii) of paragraph (b)(2)(ii)(A)(3)
of this Item 14.
10. A registered management company need not comply with items
(A), (B), (D), (F), (G), (H), and (J) of paragraph (b)(3)(i) of this
Item 14.
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
16. The authority for Part 249 continues to read, in part, as
follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.
17. By amending Form 10 (referenced in Sec. 249.210) by revising
Item 2 to read as follows:
Note--The text of Form 10 does not, and this amendment will not,
appear in the Code of Federal Regulations.
Form 10
General Form for Registration of Securities
* * * * *
Item 2. Financial Information
Furnish the information required by Items 301, 303, and 305 of
Regulation S-K (Secs. 229.301, 229.303, and 229.305 of this
chapter).
* * * * *
18. By amending Form 20-F (referenced in Sec. 249.220f) by adding
Item 9A to be inserted after Item 9 and before Item 10 in Part I to
read as follows:
Note--The text of Form 20-F does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form 20-F
Registration Statement Pursuant to Section 12(b) or (g) of The
Securities Exchange Act of 1934 or Annual Report Pursuant to Section 13
or 15(d) of The Securities Exchange Act of 1934 or Transaction Report
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
* * * * *
Part I
* * * * *
[[Page 599]]
Item 9A. Quantitative and Qualitative Disclosures About Market
Risk.
(a) Quantitative information about market risk. (1) To the
extent material, registrants shall provide quantitative disclosures
about market risk, as of the end of the latest fiscal year. Such
disclosures should be provided using any one of the following three
disclosure alternatives at the election of the registrant:
(i)(A)(1) Tabular presentation of terms and information related
to market risk sensitive instruments; such information (e.g.,
expected cash flows by maturity dates) should be categorized
according to risk exposure category (e.g., interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other
similar market risks, such as equity price risk), and within the
foreign currency exchange rate risk category, by functional currency
(e.g., U.S. dollar, Japanese yen).
(2) Within each of these risk exposure categories, instruments
should be grouped based on common characteristics. At a minimum,
instruments should be distinguished by the following
characteristics:
(i) Fixed rate or variable rate assets or liabilities;
(ii) Long or short forwards or futures;
(iii) Written or purchased put or call options;
(iv) Receive fixed or receive variable interest rate swaps; and
(v) The currency in which the instruments' cash flows are
denominated.
(3) For each instrument in the table, expected cash flow
information should be presented separately for each of the next five
years with the remaining expected cash flows presented as an
aggregate amount. Derivatives used to manage risks inherent in
anticipated transactions also should be disclosed separately; and
(B) A description of assumptions necessary to an understanding
of the disclosures required under subparagraph (A) of this item
9A(a)(1)(i) (see the Appendix to this Item for a suggested tabular
format for presentation of this information), or
(ii)(A) Sensitivity analyses that express the hypothetical loss
in future earnings, fair values, or cash flows of market risk
sensitive instruments resulting from at least one selected
hypothetical change in interest rates, currency exchange rates,
commodity prices, and similar market rates or prices over a selected
time period. The magnitude of each selected hypothetical change in
rates or prices may differ across risk exposures. Separate
sensitivity analysis disclosures should be made for each category of
risk exposure, i.e., interest rate risk, foreign currency exchange
rate risk, commodity price risk, and other similar market risks,
such as equity price risk; and
(B) A description of the model assumptions and parameters
necessary to an understanding of the disclosures required under
subparagraph (A) of this item 9A(a)(1)(ii); or
(iii)(A) Value at risk disclosures that express the potential
loss in fair values, earnings, or cash flows from market movements
(e.g., changes in interest rates, foreign currency exchange rates,
commodity prices, and other similar market rates or prices) over a
selected time period with a selected likelihood of occurrence; value
at risk disclosures should be made on an aggregate basis for all
market risk sensitive instruments and for each category of market
risk exposure, such as interest rate risk, foreign currency exchange
rate risk, commodity price risk, and other similar market risks,
such as equity price risk;
(B) For each risk exposure category either:
(1) The average or range in the value at risk numbers for the
reported period;
(2) The average or range in actual changes in fair values,
earnings, or cash flows of instruments occurring during the
reporting period; or
(3) The percentage of time the actual changes in fair values,
earnings, or cash flows of market risk sensitive instruments
exceeded the reported value at risk amounts during the current
reporting period; (The information in this subparagraph (B) is not
required for the first fiscal year end for which this rule is
effective) and
(C) A description of the model assumptions and parameters
necessary to an understanding of the disclosures required under
subparagraphs (A) and (B) of this Item 9A(a)(1)(iii).
(2) Registrants shall discuss material limitations that may
cause the information required under paragraph (a)(1) of this item
9A not to reflect the overall market risk of the entity. This
discussion shall include descriptions of:
(i) Each limitation; and
(ii) If applicable, the instruments' features that are not
reflected fully within the selected quantitative market risk
disclosure alternative.
(3) Registrants shall present summarized information for the
preceding fiscal year. Registrants also shall discuss the reasons
for material changes in quantitative information about market risk
when compared to the information reported in the previous period.
Information required by this paragraph (a)(3) of item 9A, however,
is not required if disclosure is not required pursuant to paragraph
(a)(1) of this item 9A for the current fiscal year. Information
required by this paragraph (a)(3) of item 9A is not required for the
first fiscal year end in which this item 9A is effective.
(4) Registrants may change methods of presenting quantitative
information about market risk (e.g., changing from tabular
presentation to value at risk). However, if such a change is made
the registrants shall:
(i) Explain the reasons for the change; and
(ii) Provide summarized comparable information, under the new
disclosure method, for the year preceding the current year.
Instructions to Paragraph 9A(a).
1. In preparing the disclosures under paragraph 9A(a),
registrants are required to include derivative financial
instruments, other financial instruments, and derivative commodity
instruments, as specified in the General Instructions to Paragraphs
9A(a) and 9A(b).
2. In preparing disclosures under paragraph 9A(a), registrants
should distinguish derivative financial instruments, other financial
instruments, and derivative commodity instruments entered into for
trading purposes from those instruments that are entered into for
purposes other than trading.
3. In preparing disclosures under paragraph 9A(a), registrants
may include other market risk sensitive instruments, positions, and
transactions that are not addressed in instruction 1. to paragraph
9A(a). Such instruments, positions, and transactions might include
commodity positions, derivative commodity instruments that are not
reasonably possible to be settled in cash or with another financial
instrument, cash flows from anticipated transactions, and operating
cash flows from non-financial and non-commodity instruments (e.g.,
cash flows generated by manufacturing activities). Registrants
choosing to include voluntarily these instruments, positions, and
cash flows for purposes of paragraphs 9A(a)1(ii) and 9A(a)1(iii) are
required to state that they have included such instruments,
positions, and cash flows.
4. Under paragraph 9A(a)(1)(i):
(A) The examples of terms and information relating to market
risk sensitive instruments that should be disclosed include, but are
not limited to, the instruments' fair values, expected principal or
transaction cash flows, weighted average effective rates or prices,
and other relevant market risk related information;
(B) Functional currency means functional currency as defined by
generally accepted accounting principles (see, e.g., FASB, Statement
of Financial Accounting Standards No. 52, ``Foreign Currency
Translation'', (``FAS 52'') Appendix E (December 1981);
(C) Model assumptions that should be described include, but are
not limited to, specification of the differing numbers reported in
the table for various categories of instruments (e.g., principal
cash flows for debt, notional amounts for swaps, and contract
amounts for options and futures) and key prepayment and/or
reinvestment assumptions relating to the timing of reported cash
flow amounts; and
(D) Market risk sensitive instruments that are exposed to rate
or price changes in more than one market risk exposure category
should be presented within the tabular information under each of
those risk exposure categories.
5. Under paragraph 9A(a)(1)(ii), model assumptions and
parameters that should be described include, but are not limited to,
how loss is defined by the model (e.g., loss in earnings, fair
values, or cash flows), a general description of the modeling
technique (e.g., change in net present values arising from parallel
shifts in market rates or prices and how optionality is addressed by
the model), the types of instruments covered by the model (e.g.,
derivative financial instruments, other financial instruments,
derivative commodity instruments, and whether other instruments are
included voluntarily, such as certain commodity instruments and
positions, cash flows from anticipated transactions, and operating
cash flows from non-financial and non-commodity
[[Page 600]]
instruments), and other relevant information on the model's parameters,
(e.g., the magnitudes of parallel shifts in market rates or prices
used, the method by which discount rates are determined, and key
prepayment and/or reinvestment assumptions).
6. Under paragraph 9A(a)(1)(iii), model assumptions and
parameters that should be described include, but are not limited to,
how loss is defined by the model (e.g., loss in earnings, fair
values, or cash flows), type of model used (e.g., variance/
covariance, historical simulation, Monte Carlo simulation, and how
optionality is addressed by the model), the types of instruments
covered by the model (e.g., derivative financial instruments, other
financial instruments, derivative commodity instruments, and whether
other instruments are included voluntarily, such as certain
commodity instruments and positions, cash flows from anticipated
transactions, and operating cash flows from non-financial and non-
commodity instruments), and other relevant information on model
parameters, (e.g., holding period, confidence interval, and the
method used for aggregating value at risk amounts across market risk
exposure categories, such as by assuming perfect positive
correlation, independence, or actual observed correlation).
7. Under paragraph 9A(a)(2), limitations that should be
considered include, but are not limited to:
(A) The exclusion of certain market risk sensitive instruments,
positions, and transactions from the disclosures required under
paragraph 9A(a)(1) (e.g., derivative commodity instruments not
reasonably possible to be settled in cash or with another financial
instrument, commodity positions, cash flows from anticipated
transactions, and operating cash flows from non-financial and non-
commodity instruments, such as cash flows from manufacturing
activities). Failure to include such instruments, positions, and
transactions in preparing the disclosures under paragraph 9A(a)(1)
may be a limitation because the resulting information may not fully
reflect the overall market risk of a registrant; and
(B) The ability of disclosures required under paragraph 9A(a)(1)
to reflect fully the market risk that may be inherent in instruments
with leverage, option, or prepayment features (e.g., structured
notes, collateralized mortgage obligations, leveraged swaps, and
swaps with embedded written options).
(b) Qualitative information about market risk. To the extent
material, describe:
(1) The registrant's primary market risk exposures;
(2) How those exposures are managed (e.g., a description of the
objectives, general strategies, and instruments, if any, used to
manage those exposures); and
(3) Changes in either the registrant's primary market risk
exposures or how those exposures are managed when compared to what
was in effect during the most recent reporting period and what is
known or expected to be in effect in future reporting periods.
Instructions to Paragraph 9A(b).
1. The disclosures required by this paragraph 9A(b) relate to
the market risk exposures inherent in derivative financial
instruments, other financial instruments, and derivative commodity
instruments, as defined in the General Instructions to Paragraphs
9A(a) and 9A(b).
2. In preparing disclosures under paragraph 9A(b), the
qualitative information about market risk should be presented
separately for derivative financial instruments, other financial
instruments, and derivative commodity instruments that are entered
into for trading purposes and those that are entered into for
purposes other than trading. In addition, qualitative information
about market risk should be presented separately for those
instruments used to manage risks inherent in anticipated
transactions.
3. Primary market risk exposures, for the purposes of this
paragraph, mean:
(A) The following categories of market risk: interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other
similar market rate or price risks (e.g., equity prices); and
(B) Within each of these categories, the particular markets that
present the primary risk of loss to the registrant. For example, if
a registrant has a material exposure to foreign currency exchange
rate risk and, within this category of market risk, is most
vulnerable to changes in dollar/yen, dollar/pound, and dollar/peso
exchange rates, the registrant would disclose these exposures.
Similarly, if a registrant has a material exposure to interest rate
risk and, within this category of market risk, is most vulnerable to
changes in short-term U.S. prime interest rates, it would disclose
this exposure.
4. For purposes of disclosure under paragraph (b) of this item
9A, registrants should describe primary market risk exposures that
exist at the end of the current reporting period, and how those
exposures are managed.
General Instructions to Paragraphs 9A(a) and 9A(b).
1. The disclosure called for by paragraphs 9A(a) and 9A(b) is
intended to clarify the registrant's exposure to market risks
associated with activities in derivative financial instruments,
other financial instruments, and derivative commodity instruments.
2. For purposes of paragraphs 9A(a) and 9A(b), derivative
financial instruments, other financial instruments, and derivative
commodity instruments (referred collectively as ``market rate
sensitive instruments'' or ``instruments'') are defined as follows:
(A) Derivative financial instruments has the same meaning as
defined by generally accepted accounting principles (see, e.g.,
FASB, Statement of Financial Accounting Standards No. 119,
``Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments,'' paragraphs 5-7, (October 1994)), and
includes futures, forwards, swaps, options, and other financial
instruments with similar characteristics;
(B) Other financial instruments means all financial instruments
as defined by generally accepted accounting principles (see, e.g.,
FASB, Statement of Financial Accounting Standards No. 107,
``Disclosures about Fair Value of Financial Instruments,'' paragraph
3, (December 1991)), except for derivative financial instruments, as
defined above;
(C) Other financial instruments include, but are not limited to,
trade accounts receivable, investments, loans, structured notes,
mortgage-backed securities, trade accounts payable, indexed debt
instruments, interest-only and principal-only obligations, deposits,
and other debt obligations. However, for purposes of this release,
trade accounts receivable and trade accounts payable should not be
considered other financial instruments when their carrying amounts
approximate fair value; and
(D) Derivative commodity instruments include, to the extent such
instruments are not derivative financial instruments, commodity
futures, commodity forwards, commodity swaps, commodity options, and
other commodity instruments with similar characteristics that are
reasonably possible to be settled in cash or with another financial
instrument. For purposes of paragraphs 9A(a) and 9A(b) and these
general instructions, the term ``reasonably possible'' has the same
meaning as defined by generally accepted accounting principles (see,
e.g., FASB, Statement of Financial Accounting Standards No. 5,
``Accounting for Contingencies,'' paragraph 3, (March 1975)).
3. For purposes of paragraphs 9A(a) and 9A(b), disclosure is not
required for:
(A) Commodity positions;
(B) Derivative commodity instruments that are not reasonably
possible to be settled in cash or with another financial instrument;
(C) Cash flows from anticipated transactions; and/or
(D) Operating cash flows from non-financial and non-commodity
instruments.
4. (A) For purposes of making a materiality assessment under
paragraphs 9A(a) and 9A(b), registrants should consider both:
(i) The materiality of the fair values of derivative financial
instruments, other financial instruments, and derivative commodity
instruments outstanding at the end of the current reporting period;
and
(ii) The materiality of the potential loss in future earnings or
fair values from reasonably possible market movements.
(B) If either (i) or (ii) of instruction 4. (A) is material,
then the disclosures under paragraphs 9A(a) and 9A(b) are required.
(C) In determining the materiality of the fair values of market
risk sensitive instruments outstanding at the end of the current
reporting period, registrants generally should not net fair values,
except to the extent allowed under generally accepted accounting
principles (see, e.g., FASB Interpretation No. 39, ``Offsetting of
Amounts Related to Certain Contracts'' (March 1992)). For example,
under this instruction, the fair value of assets generally should
not be netted with the fair value of liabilities. In determining the
materiality of the potential loss in future earnings or fair values
from reasonably possible market movements, registrants should
consider both the magnitude of past market movements, as well as
expectations about the magnitude of future market movements. In
addition, in making the determination under this instruction
[[Page 601]]
about the materiality of the potential loss in future earnings, fair
values, or cash flows, registrants should consider, among other
things, potential losses that may arise from leverage, option, and/
or multiplier features.
5. For purposes of presenting quantitative and qualitative
information about market risk, registrants generally should provide
the required information in one location. However, alternative
presentation, such as inclusion of all or part of the information in
the footnotes to the financial statements or in Management's
Discussion and Analysis, may be used if such presentation would be
more meaningful to investors.
6. For purposes of the instructions to paragraphs 9A(a) and
9A(b), ``trading purposes'' has the same meaning as defined by
generally accepted accounting principles (see, e.g., FASB, Statement
of Financial Accounting Standards No. 119, ``Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments,'' paragraph 9a, (October 1994)). In addition,
``anticipated transactions'' means transactions (other than
transactions involving existing assets or liabilities or
transactions necessitated by existing firm commitments) an
enterprise expects, but is not obligated, to carry out in the normal
course of business (e.g., FASB, Statement of Financial Accounting
Standards No. 80, ``Accounting for Futures Contracts,'' paragraph 9,
(August 1984)).
Appendix to Item 9A--Tabular Disclosures
The tables set forth below are illustrative of the format that
might be used when a registrant elects to present the information
required by paragraph (a)(1)(i)(A) of Item 9A regarding terms and
information about derivative financial instruments, other financial
instruments, and derivative commodity instruments. These examples
are for illustrative purposes only. Registrants are not required to
display the information in the specific manner illustrated below.
Alternative methods of display are permissible as long as the
disclosure requirements of the section are satisfied. Furthermore,
these examples were designed primarily to illustrate possible
formats for presentation of the information required by the proposed
section and do not purport to illustrate the broad range of
derivative financial instruments, other financial instruments, and
derivative commodity instruments utilized by registrants.
Interest Rate Sensitivity
The table below provides information about the Company's derivative
financial instruments and other financial instruments, which are
sensitive to changes in interest rates, including interest rate swaps
and debt obligations. For debt obligations, the table presents
principal cash flows and related weighted average interest rates by
expected maturity dates. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date. For
interest rate swaps, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be
exchanged under the contract. The information is presented in US dollar
equivalents, which is the Company's reporting currency. The
instrument's actual cash flows are denominated in both US dollar ($US)
and German deutschmarks (DMs), as indicated in parentheses.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity date
December 31, 19 x 1 ------------------------------------------------------------------- Total Fair
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 Thereafter Value
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) (In millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Long-term Debt:
Fixed Rate ($US)....................................... $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average interest rate.............................. X.X% X.X% X.X% X.X% X.X% X.X% X.X% .........
Fixed Rate (DMs)....................................... XXX XXX XXX XXX XXX XXX XXX XXX
Average interest rate.............................. X.X% X.X% X.X% X.X% X.X% X.X% X.X% .........
Variable Rate ($US).................................... XXX XXX XXX XXX XXX XXX XXX XXX
Average interest rate............................. X.X% X.X% X.X% X.X% X.X% X.X% X.X% .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity date
------------------------------------------------------------------- Total Fair
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 Thereafter value
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) (In millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Derivatives:
Interest Rate Swaps
Variable to Fixed ($US)................................ $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average pay rate................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X% .........
Average receive rate............................... X.X% X.X% X.X% X.X% X.X% X.X% X.X% .........
Fixed to Variable ($US)................................ XXX XXX XXX XXX XXX XXX XXX XXX
Average pay rate................................... X.X% X.X% X.X% X.X% X.X% X.X% X.X% .........
Average receive rate............................... X.X% X.X% X.X% X.X% X.X% X.X% X.X% .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Exchange Rate Sensitivity
The table below provides information about the Company's derivative
financial instruments, other financial instruments, and firmly
committed sales transactions by functional currency and presents such
information in U.S. dollar equivalents.1 The table summarizes
information on instruments and transactions that are sensitive to
foreign currency exchange rates, including foreign currency forward
exchange agreements, deutschmark (DM)-denominated debt obligations, and
firmly committed DM sales transactions. For debt obligations, the table
presents principal cash flows and related weighted average interest
rates by expected maturity dates. For firmly committed DM-sales
transactions, sales amounts are presented by the expected transaction
date, which are not expected
[[Page 602]]
to exceed two years. For foreign currency forward exchange agreements,
the table presents the notional amounts and weighted average exchange
rates by expected (contractual) maturity dates. These notional amounts
generally are used to calculate the contractual payments to be
exchanged under the contract.
\1\ The information is presented in U.S. dollars because that is
the registrant's reporting currency.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity date
December 31, 19 x 1 ------------------------------------------------------------------- Total Fair
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 Thereafter value
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) (US$ Equivalent in Millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
On-Balance Sheet Financial Instruments:
$US Functional Currency \2\ Liabilities
Long-Term Debt (DM).................................... $XXX $XXX $XXX $XXX $XXX $XXX $XXX $XXX
Average U.S. dollar /DM Exchange Rate.................. X.X X.X X.X X.X X.X X.X X.X .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
\2\ Similar tabular information would be provided for other functional currencies.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expected maturity or transaction date
------------------------------------------------------- Thereafter Total Fair
19 x 2 19 x 3 19 x 4 19 x 5 19 x 6 value
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) (US$ Equivalent in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anticipated Transactions and Related Derivatives \3\
$US Functional Currency:
Firmly committed transactions:
Sales Contracts (DM)............................... $XXX $XXX ......... ......... ......... .......... $XXX $XXX
Forward Exchange Agreements (Receive $US/Pay DM):
Contract Amount.................................... XXX XXX ......... ......... ......... .......... $XXX $XXX
Average Exchange Rate.............................. X.X X.X ......... ......... ......... .......... X.X .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
\3\ Pursuant to Instruction 3 to proposed Item 9A of Form 20-F, registrants may include cash flows from anticipated transactions and operating cash
flows resulting from non-financial and non-commodity instruments.
Commodity Price Sensitivity
The table below provides information about the Company's corn
inventory and futures contracts that are sensitive to changes in
commodity prices, specifically corn prices. For inventory, the table
presents the carrying amount and fair value at December 31, 19x1. For
the futures contracts the table presents the notional amounts in
bushels, the weighted average contract prices, and the total dollar
contract amount by expected maturity dates, the latest of which occurs
within one year from the reporting date. Contract amounts are used to
calculate the contractual payments and quantity of corn to be exchanged
under the futures contracts.
------------------------------------------------------------------------
December 31, 19 x 1 Carrying amount Fair Value
------------------------------------------------------------------------
On Balance Sheet Commodity Position
and Related Derivatives:
(1) (In millions)
------------------------------------------------------------------------
Corn Inventory................. $XXX.................. $XXX 4
------------------------------------------------------------------------
\4\ Pursuant to proposed Instruction 3 to proposed Item 9A of Form 20-F,
registrants may include information on commodity positions, such as
corn inventory.
------------------------------------------------------------------------
Expected
maturity Fair value
1992
------------------------------------------------------------------------
Related Derivatives:
Futures Contracts (Short):
Contract Volumes (100,000 bushels).... XXX ...........
Weighted Average Price (Per 100,000
bushels)............................. $X.XX
Contract Amount ($US in millions)..... $XXX $XXX
------------------------------------------------------------------------
* * * * *
19. By amending Form 10-Q (referenced in Sec. 249.308a) by removing
references to ``Items 1 and 2 of Part I of this form'' and adding in
their place references to ``Items 1, 2, and 3 of Part I of this form''
in paragraphs 1 and 2 of General Instruction F, adding paragraph 2.c.
to General Instruction H and Item 3 to Part I to read as follows:
Note--The text of Form 10-Q does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form 10-Q
[[Page 603]]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 or Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
* * * * *
General Instructions
* * * * *
H. Omission of Information by Certain Wholly-Owned Subsidiaries
* * * * *
2. * * *
c. Such registrants may omit the information called for by Item
3 of Part I, Quantitative and Qualitative Disclosures About Market
Risk.
* * * * *
Part I--Financial Information
* * * * *
Item 3. Quantitative and Qualitative Disclosures About Market Risk
If there has been a material change in the information required
by Item 305 of Regulation S-K (Sec. 229.305 of this chapter) from
the end of the preceding fiscal year to the date of the most recent
interim balance sheet provided, furnish the information required by
Item 305 of Regulation S-K.
* * * * *
20. By amending Form 10-K (referenced in Sec. 249.310) by adding
Item 7A to be inserted after Item 7 and before Item 8 in Part II to
read as follows:
Note--The text of Form 10-K does not, and this amendment will
not, appear in the Code of Federal Regulations.
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 or Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
* * * * *
Part II
* * * * *
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Furnish the information required by Item 305 of Regulation S-K
(Sec. 229.305 of this chapter).
* * * * *
Dated: December 28, 1995.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-130 Filed 1-5-96; 8:45 am]
BILLING CODE 8010-01-P
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