16690 Federal Register / Vol. 60, No. 62 / Friday, March 31, 1995 / Notices

27The exemptions granted by the Commission

under the Investment Company Act of 1940 that

permit the secondary market trading of MidCap

SPDRs, however, are specifically conditioned upon

the customer disclosure requirements described

above. See Investment Company Act Release No.

20797 (December 23, 1994), 60 FR 163.

28See Amex Rule 411.

29The circuit breaker rules provide that trading

in the stock, options, and futures markets will halt

for one hour if the Dow Jones Industrial Average

(‘‘DJIA’’) declines 250 points or more from its

previous day’s closing level, and thereafter, trading

will halt for an additional two hours if the DJIA

declines 400 points from the previous day’s close.

The triggering of futures price limits for the S&P

500, S&P 100, or Major Market Index futures,

however, will not in themselves result in a halt in

MidCap SPDR trading or delayed openings. Such an

event, however, could be considered by the

Exchange, along with other factors, in deciding

whether to halt trading.

30See Securities Exchange Act Release No. 31591,

supra note 5.

31The Commission notes that SPDRs have been

trading on the Amex since January 29, 1993,

without incident.

32Even though PDR transactions may serve as

substitutes for transactions in the cash market,

thereby making the order flow in individual stocks

smaller than would otherwise be the case, the

Commission acknowledges that during turbulent

market conditions the ability of large institutions to

redeem or create PDRs could conceivably have an

impact on price levels in the cash market. In

particular, if a PDR is redeemed, the resulting long

stock position could be sold into the market,

thereby depressing process further. The

Commission notes, however, that the redemption or

creation of PDRs likely will not exacerbate a price

movement because PDRs will be subject to the

equity margin requirements of 50% and PDRs are

non-leveraged instruments. In addition, as noted

above, during turbulent market conditions, the

Commission believes PDRs, including MidCap

SPDRs, will serve as a vehicle to accommodate and

‘‘bundle’’ order flow that otherwise would flow to

the cash market, thereby allowing such order flow

to be handled more efficiently and effectively.

Accordingly, although PDRs and MidCap SPDRs

could, in certain circumstances, have an impact on

the cash market, on balance the Commission

believes that the product will be beneficial to the

marketplace and can actually aid in maintaining

orderly markets.

33The product description also will be changed

to make it clear to investors the availability of the

Dividend Reinvestment Service.

34 15 U.S.C. § 78f(b)(5) (1988).

35 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b-4 (1994).

3Securities Exchange Act Release No. 33377 (Dec.

23, 1993), 58 FR 69419 (Dec. 30, 1993) (approving

the Interim SOES Rules on a one-year pilot basis

effective January 7, 1994). See also Securities

Exchange Act Release No. 33424 (Jan. 5, 1994)

trading of MidCap SPDRs,27 therefore,

pursuant to Amex Rule 1000(a), the

Amex equity rules governing account

opening and suitability will apply. Rule

411 provides, among other things, that

members shall use due diligence to

learn the essential facts relative to every

customer, and to every order or account

accepted.28

B. Market Impact

The Commission believes that the

Amex has adequately addressed the

potential market impact concerns raised

by its proposal. The Exchange’s existing

trading limit policies regarding PDRs

will apply to MidCap SPDRs. Thus,

MidCap SPDR trading will halt if the

Amex Rule 117 circuit breaker

parameters are reached.29 Similarly,

consistent with Amex Rule 918C(b), the

Amex may consider trading halts in the

primary market(s) for any combination

of underlying stocks accounting for 20%

or more of the applicable current index

group value, as well as the existence of

other unusual conditions.30

The Commission believes that the

listing and trading of MidCap SPDRs

will not adversely affect U.S. securities

markets.31 The corpus of the MidCap

SPDR Trust will be a portfolio of stocks

replicating the S&P MidCap 400 Index,

a broad-based, capitalization-weighted

index consisting of 400 actively traded

and liquid U.S. stocks. As described

above, the Commission believes that

MidCap SPDRs may provide substantial

benefits to the marketplace and

investors, including enhancing the

stability of the markets for individual

stocks.32 Finally, the PDR surveillance

procedures, that incorporate and rely

upon existing Amex surveillance

procedures governing options and

equities, will apply to MidCap SPDRs.

C. Trading Rules

The Commission finds that adequate

rules and procedures exist to govern the

trading of MidCap SPDRs. MidCap

SPDRs, like other PDRs, are equity

securities that will be subject to Amex

rules governing the trading of equity

securities, including, among others,

rules governing the priority, parity, and

precedence of orders and the

responsibilities of specialists. In

addition, the Amex has developed

specific listing and delisting criteria for

MidCap SPDRs. These criteria should

help to ensure that a minimum level of

liquidity will exist in MidCap SPDRs to

allow for the maintenance of fair and

orderly markets. Accordingly, the

Commission believes that the rules

governing the trading of MidCap SPDRs

provide adequate safeguards to prevent

manipulative acts and practices and to

protect investors and the public interest.

D. Dividend Reinvestment

The Commission finds that the

Exchange’s proposal to amend its Rule

1000(b) definition of PDRs is consistent

with the Act. Specifically, the

amendment makes clear that the DTC

Dividend Reinvestment Service will be

made available for the use of PDR

holders through DTC participant brokers

for the re-investment of the cash

proceeds of dividend equivalent

payments.33 This should provide

investors with a convenient means of reinvesting dividend equivalent payments

received from SPDRs.

IV. Conclusion

For the reasons set forth above, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange, and, in

particular, the requirements of Section

6(b)(5).34 As noted above, the trading of

MidCap SPDRs on a secondary market

should provide a variety of benefits to

the marketplace and investors trading

portfolios of securities. Accordingly, the

Commission believes that MidCap

SPDRs will serve to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and

protect investors and the public interest.

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (SR–AMEX–94–

52), as amended, is approved.

For the Commission, by the division of

Market Regulation, pursuant to delegated

authority.35

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–7988 Filed 3–30–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35535; File No. SR–NASD–

95–8]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving

Proposed Rule Change To Extend

Certain SOES Rules Through October

2, 1995

March 27, 1995.

I. Introduction

On February 10, 1995, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

a proposed rule change pursuant to

section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b-4 thereunder.2 The NASD proposes

to extend through October 2, 1995

certain of the prior changes to its Small

Order Execution System (‘‘SOES’’) that

were implemented in January 1994

(‘‘January 1994 Amended SOES

Rules’’),3 modified in January 1995
Federal Register / Vol. 60, No. 62 / Friday, March 31, 1995 / Notices 16691

(order denying stay and granting interim stay

through January 25, 1994) and Securities Exchange

Act Release No. 33635 (Feb. 17, 1994) (order

denying renewed application for stay).

4Securities Exchange Act Release No. 35275 (Jan.

25, 1995), 60 FR 6327 (Feb. 1, 1995).

5Securities Exchange Act Release No. 35364 (Feb.

13, 1995), 60 FR 9704 (Feb. 21, 1995).

6Thus, short sales in compliance with the

NASD’s short sales rule applicable to the Nasdaq

market as a whole are permitted in SOES. NASD

Manual, Rules of Fair Practices, Sec. 48, CCH

¶ 2200H.

7Letter from Richard Ketchum, Executive Vice

President & Chief Operating Officer, NASD, to

Jonathan G. Katz, Secretary, SEC (Mar. 22, 1995).

8 15 U.S.C. § 78s(b). The Commission’s statutory

role is limited to evaluating the rules as proposed

against the statutory standards. See S. Rep. No. 75,

94th Cong., 1st Sess., at 13 (1975).

9 In the Securities Acts Amendments of 1975,

Congress directed the Commission to use its

authority under the Act, including its authority to

approve SRO rule changes, to foster the

establishment of a national market system and

promote the goals of economically efficient

securities transactions, fair competition, and best

execution. Congress granted the Commission

‘‘broad, discretionary powers’’ and ‘‘maximum

flexibility’’ to develop a national market system and

to carry out these objectives. Furthermore, Congress

gave the Commission ‘‘the power to classify

markets, firms, and securities in any manner it

deems necessary or appropriate in the public

interest or for the protection of investors and to

facilitate the development of subsystems within the

national market system.’’ S. Rep. No. 75, 94th

Cong., 1st. Sess., at 7 (1975).

10Securities Exchange Act Release No. 35080

(Dec. 9, 1994), 59 FR 65109 (Dec. 16, 1994). The

NASD’s Economic Research Department examined

Nasdaq bid-ask spreads in specific stocks and price

volatility on two sample days each month from

November 1993 (three months prior to the effective

date of the rules) through August 1994.

11Letter from John F. Olson, Counsel for the

NASD, Gibson, Dunn & Crutcher, to Jonathan Katz,

Secretary, SEC (Dec. 30, 1994) (submitting in

connection with File No. SR–NASD–94–68 analysis

entitled The Association Between the Interim SOES

Continued

(‘‘January 1995 Amended SOES

Rules’’) 4 and are scheduled to expire

today. Without further Commission

action, the SOES rules would revert to

those in effect prior to the January 1994

Amended SOES Rules.

Although characterized by the NASD

as a proposal to extend the January 1995

Amended SOES Rules, under this

proposal, SOES will operate

significantly different from its current

operation. Most notably, the NASD’s

current proposal does not include

extension of the currently effective 500

share maximum SOES order size

limitation and, accordingly, the

maximum order size will return to 1,000

shares on March 28, 1995. While the

methodology for calculating the

minimum exposure limit will remain

unchanged from the January 1994

Amended SOES Rules, increasing the

maximum order size from 500 shares to

1,000 shares will raise the minimum

exposure limit applicable to

unpreferenced orders. For market

makers electing not to use the

automated quotation update feature, the

minimum exposure limit will rise from

1,000 shares to 2,000 shares and, for

those electing to use this feature, the

minimum exposure limit will rise from

500 to 1,000 shares. Moreover, the

current proposal will not reinstate the

short sale prohibition. Thus, in

comparison to the January 1994

Amended SOES Rules, the effect of this

proposal is to remove or alter every

change made to SOES so that retail

investor access to the Nasdaq market is

improved.

Notice of the proposed rule change

appeared in the Federal Register on

February 21, 1995.5 For the reasons

discussed below, this order approves

the propose rule change until October 2,

1995.

II. Description of the Current and Prior

Proposals

The NASD proposes to extend two of

the four January 1994 Amended SOES

Rules. Specifically, the NASD proposes

to extend until October 2, 1995 changes

that:

(1) Reduce the minimum exposure

limit for ‘‘unpreferenced’’ SOES orders

from five times the maximum order size

to two times the maximum order size,

and eliminate the exposure limits for

‘‘preferenced’’ SOES orders; and

(2) Add an automated function for

updating market maker quotations when

the market maker’s exposure limit has

been exhausted (market makers using

this update functions may establish an

exposure limit equal to the maximum

order size for that security).

In contrast, the January 1994

Amended SOES Rules included the

above two changes as well as changes

that:

(1) Reduced the maximum size order

eligible for SOES execution from 1,000

shares to 500 shares; and

(2) Prohibited short sale transactions

through SOES.

The January 1995 Amended SOES

Rules continued all of the January 1994

Amended SOES Rules except for the

short sale prohibition.6

III. Comments

The Commission received comments

from seven commenters, with four

supporting the proposal and three

opposing it. The NASD responded to

these comments in a letter dated March

22, 1995.7 Subsequently, two of the

original seven commenters submitted

letters reiterating their respective

positions; one of these supported the

proposal and the other opposed it.

Generally, commenters supporting the

proposal argue that approval of the

March 1995 Amended SOES Rules will

limit the exposure of market makers to

multiple executions, which will benefit

retail investors by producing narrower

spreads and more liquid markets.

Commenters opposed to the proposal

argue that the statistical and market

quality data cited by the NASD in

support of its proposal are not sufficient

to support the NASD’s position. They

contend that the two studies on which

the NASD relies fail to demonstrate any

increase in market quality as a result of

the rules and that market makers have

ample opportunity to update their

quotes in order to avoid multiple SOES

executions. One commenter also argued

that the NASD has not provided a

sufficient basis for establishing the

minimum exposure limit at 2,000 shares

and that determining the

appropriateness of the automated

quotation update feature is not possible

without information about the extent of

its use. Commenters opposed to the

NASD’s January 1994 Amended SOES

Rules and January 1995 Amended SOES

Rules argued that decreasing the

minimum exposure limit will increase

the potential for order queues to

develop and, thus, result in inferior

executions for retail customers.

IV. Discussion

The Commission must approve a

proposed NASD rule change if it finds

that the proposal is consistent with the

requirements of the Act and the rules

and regulations thereunder that govern

the NASD.8 In evaluating a given

proposal, the Commission examines the

record before it and relevant factors and

information.9 After balancing the

advantages and disadvantages of

extension, the Commission believes that

approval of the March 1995 Amended

SOES Rules through October 2, 1995

meets the above standards. Specifically,

the Commission believes that returning

the maximum order size to 1,000 shares,

thus increasing the minimum exposure

limit from 1,000 shares to 2,000 shares,

and maintaining the automated

quotation update feature is appropriate

while the NASD considers other

methods for handling small orders from

retail customers.

In connection with the January 1995

Amended SOES Rules, the NASD

submitted an econometric study

conducted by the NASD’s Economic

Research Department 10 and

commissioned a consulting economist

to provide an assessment of the effect of

the January 1994 Amended SOES

Rules.11 In summary, the NASD’s
16692 Federal Register / Vol. 60, No. 62 / Friday, March 31, 1995 / Notices

Rules and Nasdaq Market Quality prepared by Dean

Furbush, Ph.D., Economists Incorporated (Dec. 30,

1994)). This analysis compared sample days in the

three months prior to and three months after the

effective date of the January 1994 Amended SOES

Rules.

12Securities Exchange Act Release No. 35275

(Jan. 25, 1995), 60 FR 6327 (Feb. 1, 1995).

13NASD Manual, Schedules to the By-Laws,

Schedule D, Part V, Sec. 2(a), (CCH) ¶ 1819.

14 17 CFR 240.11Ac1–1(c). Nonetheless, the

Commission is concerned about the potential for

delayed and/or inferior executions. In this regard,

the Commission expects the NASD to monitor the

extent to which exposure limits are exhausted, the

extent to which the automated quotation update

feature is used, and the effects these two aspects

have on liquidity. Moreover, the Commission

expects the NASD to consider the possibility of

enhancements to eliminate the potential for delayed

and/or inferior executions.

15 In its response to commenters, the NASD

indicated that 21 percent of market makers in

Nasdaq National Market securities use the

automated quotation update feature resulting in 38

percent of all market making positions in Nasdaq

National Market securities. Letter from Richard

Ketchum, Executive Vice President & Chief

Operating Officer, NASD, to Jonathan G. Katz,

Secretary, SEC (Mar. 22, 1995).

16The Firm Quote Rule requires market makers

to execute orders at prices at least as favorable as

their quoted prices. The Rule also allows market

makers a reasonable period of time to update their

quotations following an execution, allows market

makers to reject an order if they have

communicated a quotation update to their exchange

or association, and provides for a size limitation on

liability at a given quote. 17 CFR 240.11Ac1–1(c)(2).

See also, Securities Exchange Act Release No.

14415 (Jan. 16, 1978), 43 FR 4342 (Feb. 1, 1978).

Economic Research Department found

that since implementation of the

January 1994 Amended SOES Rules: (a)

spreads in Nasdaq securities have

declined; and (b) volatility of Nasdaq

securities appears to be unchanged,

except for a brief, market-wide period of

volatility in March and April 1994. The

commissioned study reported that while

percentage quoted spreads increased a

statistically insignificant amount,

percentage quoted spreads adjusted for

other determining factors declined by a

statistically significant, but

economically insignificant, amount.

From this data, the author concluded

that the January 1994 Amended SOES

Rules did not harm market quality. In

support of its current proposal, the

NASD also relies on these studies for

the proposition that the January 1994

Amended SOES Rules and the January

1995 Amended SOES Rules collectively

and individually have improved the

quality of the Nasdaq market.

In its order approving the January

1995 Amended SOES Rules, however,

the Commission expressed its belief that

the empirical data submitted by the

NASD demonstrated neither significant

improvement to nor serious

deterioration in the quality of the

Nasdaq market subsequent to the

adoption of the January 1994 Amended

SOES Rules.12 Since Commission

approval of the January 1995 Amended

SOES Rules, no data concerning the

impact of the January 1994 Amended

SOES Rules or the January 1995

Amended SOES Rules has been

submitted. The Commission, therefore,

continues to believe that empirical

evidence submitted by the NASD

demonstrates neither a significant

improvement to nor serious

deterioration in the quality of the

Nasdaq market subsequent to the

adoption of the January 1994 Amended

SOES Rules. Moreover, the Commission

believes this is true whether the

amended SOES rules are viewed

collectively or individually.

The absence of negative implications

for market quality must be considered in

conjunction with other effects of the

recent changes to SOES on the investing

public. The current proposal, in

conjunction with termination of the

short sale prohibition in January 1995,

restores much of the access retail

investors with small orders enjoyed

prior to the January 1994 Amended

SOES Rules and, thus, the Commission

believes that a sufficient basis exists for

approving the NASD’s proposal.

Effective March 28, 1995, the 1,000

share maximum order size in effect

prior to the January 1994 Amended

SOES Rules will be restored. This will

provide retail investors enhanced

opportunity to obtain execution of

transactions between 500 and 1,000

shares and, accordingly, will improve

access to the Nasdaq market. The

Commission believes that the net effect

of the instant proposal and the January

1995 Amended SOES Rules is a

substantial departure from the January

1994 Amended SOES Rules, and would

eliminate the economically significant

restrictions imposed on order entry

firms by the prior rules.

The NASD’s proposal will continue

the methodology for calculating a

market maker’s minimum exposure

limit; that is, two times the maximum

order size rather than the pre-January

1994 Amended SOES Rules calculation

of five times the maximum order size.

Restoring the pre-January 1994

Amended SOES Rules maximum order

size of increasing the minimum

exposure limit from 1,000 shares to

2,000 shares.

Moreover, the current methodology

for calculating a market maker’s

outstanding exposure limit will

continue to exclude orders executed

pursuant to a preferencing arrangement.

Under the SOES Rules prior to the

January 1994 Amended SOES Rules,

both preferenced and unpreferenced

orders were considered when

calculating a market maker’s remaining

exposure limit. Thus, in relative terms,

the 2,000 share exposure limit

potentially provides greater liquidity

compared to the pre-January 1994

Amended SOES Rules’ 5,000 share

minimum exposure limit. This assures

enhanced access to Nasdaq market

makers by both firms with and without

preferencing arrangements.

The Commission believes that while

the proposal does not restore the preJanuary 1994 Amended SOES Rules

minimum exposure limit, it provides

customers fair access to the Nasdaq

market and reasonable assurance of

timely executions. In this regard, the

maximum order size will equal the size

requirement prescribed under the Firm

Quote Rule and NASD rules governing

the character of market maker

quotations.13 Moreover, market maker’s

minimum exposure limit for

unpreferenced orders will be double its

minimum size requirement prescribed

under these rules.14

The Commission also believes that

extending the automated update

function is consistent with the Firm

Quote Rule. The update function

provides market makers the opportunity

to update automatically their quotations

after executions through SOES;15 under

the Commission’s firm Quote Rule,

market makers are entitled to update

their quotations following an execution

and prior to accepting a second order at

their published quotes.16

The Commission notes commenter

views that the NASD’s proposal does

not go far enough in restoring access

available to investors prior to the

January 1994 Amended SOES Rules. As

discussed above, however, the current

proposal does offer investors

significantly wider latitude than the

January 1994 Amended SOES Rules and

the January 1995 Amended SOES Rules.

Moreover, the limited duration of the

proposal will give the NASD and

interested persons an opportunity to

assess the broader implications of

immediate execution of orders between

500 and 1,000 shares through SOES.

V. Conclusion

As indicated above, the Commission

has determined to approve the March

1995 Amended SOES Rules through

October 2, 1995. In light of the balance

of factors described above and the

limited duration of the current proposal,

the Commission believes extension of

the changed methodology for

calculating the minimum exposure and

the addition of an automatic quotation
Federal Register / Vol. 60, No. 62 / Friday, March 31, 1995 / Notices 16693

update feature is consistent with the

Act.

The Commission, in the exercise of

the authority delegated to it by

Congress, and in light of its experience

regulating securities markets and market

participants, has determined that

approval of the March 1995 Amended

SOES Rules until October 2, 1995 is

consistent with maintaining investor

protection and fair and orderly markets,

and that these goals, on balance,

outweigh any possible anti-competitive

effects on order entry firms and their

customers.

Accordingly, the Commission finds

that the rule change is consistent with

the Act and the rules and regulations

thereunder applicable to the NASD and,

in particular, Sections 15A(b)(6),

15A(b)(9), and 15A(b)(11). In addition,

the Commission finds that the rule

change is consistent with the

Congressional objectives for the equity

markets, set out in Section 11A, of

achieving more efficient and effective

market operations, fair competition

among brokers and dealers, and the

economically efficient execution of

investor orders in the best market.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

instant rule change SR–NASD–95–8 be,

and hereby is, approved, effective

March 28, 1995 through October 2,

1995.

By the Commission.

Jonathan G. Katz,

Secretary.

[FR Doc. 95–7987 Filed 3–30–95; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF TRANSPORTATION

Coast Guard

[CGD 95–015]

Load Lines: Barges on Lake Michigan

AGENCY: Coast Guard, DOT.

ACTION: Notice.

SUMMARY: The Coast Guard proposes to

amend its current policy exempting

unmanned, river-service, dry-cargo

barges operating on Lake Michigan

between Chicago (Calumet Harbor),

Illinois, and Milwaukee, Wisconsin,

from the requirement that they have a

Great Lakes Load Line Certificate. In

order to qualify for the exemption, the

barges must meet certain specified

requirements intended to provide a

level of safety equivalent to that

provided under the Great Lakes load

line regulations. Also, the Coast Guard

proposes to exempt similar barges under

the same requirements operating

between Chicago (Calumet Harbor),

Illinois, and St. Joseph (Benton Harbor),

Michigan. These changes should

facilitate the movement of goods along

these routes while maintaining an

equivalent level of safety.

DATES: This exemption is effective

March 31, 1995. Comments must be

received on or before May 15, 1995.

ADDRESSES: Comments may be mailed to

the Executive Secretary, Marine Safety

Council (G–LRA/3406) (CGD 95–015),

U.S. Coast Guard Headquarters, 2100

Second Street SW., Washington, DC

20593–0001, or may be delivered to

room 3406 at the same address between

8 a.m. and 3 p.m., Monday through

Friday, except Federal holidays. The

telephone number is (202) 267–1477.

The Executive Secretary maintains the

public docket for this notice. Comments

will become part of this docket and will

be available for inspection or copying at

room 3406, U.S. Coast Guard

Headquarters, between 8 a.m. and 3

p.m., Monday through Friday, except

Federal holidays.

FOR FURTHER INFORMATION CONTACT:

Mr. William Hayden, Office of Marine

Safety, Security and Environmental

Protection, U.S. Coast Guard (G–MTH–

3), room 1308, 2100 Second Street, SW.,

Washington DC 20593–0001. The

telephone number is (202) 267–2988.

SUPPLEMENTARY INFORMATION:

Changes to the Chicago to Milwaukee

Route Exemption

On September 21, 1992, the Coast

Guard published a notice in the Federal

Register (57 FR 43479) announcing that

unmanned barges designed for river

service and carrying dry, non-hazardous

cargo from the Illinois River system, via

Chicago and Lake Michigan, to

Milwaukee, Wisconsin, are exempt from

the requirement that they have a Great

Lakes Load Line Certificate under 46

CFR part 45. In order to qualify for the

exemption, the barges must have a

Limited Service Domestic Voyage Load

Line Certificate and meet certain special

operating restrictions and conditions.

Under 46 CFR 45.15(a), Coast Guard

determined that, due to the sheltered

nature of the voyage along the coast of

Lake Michigan and to the special

restrictions and conditions imposed, it

would be unreasonable to require these

barges to have a Great Lakes load line

under 46 CFR part 45.

Based on experience gained since

1992, the Coast Guard is making the

following changes to the special

restrictions and conditions for the

exemption:

(1) The lead barge of the tow must

have a raked bow. [See paragraph II.4.

below.] Comments received at a joint

Coast Guard/industry meeting held in

Muskegon, Michigan, on October 24,

1994, indicated that using a box (square

end) barge as the lead for the tow greatly

reduces the transit speed, thereby

increasing the transit time.

Representatives from several companies

operating barges on the Chicago to

Milwaukee route stated that they now

use a rake-end barge as the lead barge.

An increase in speed should reduce the

transit time to a harbor of safe refuge in

the event of an adverse change in the

weather.

(2) Paragraph III.5. allows the initial

load line survey for barges less than 10

years old to be conducted with the barge

remaining in the water, rather than

drydocked or hauled out of the water as

presently required. A survey afloat

should be sufficient in light of the

restricted nature of the route, the

relatively benign environment of river

service, and the relatively small portion

of time the barges would be operating

on Lake Michigan. When the barge

reaches 10 years of age or upon

expiration of its Limited Service

Domestic Voyage Load Line Certificate,

whichever occurs first, the survey must

include drydocking. [See paragraph

III.6.]

(3) Carrying cargo to a Lake Michigan

port not along the designated route is

prohibited. [See paragraph II.2.] The

purpose for the exemption is to provide

uninterrupted service between the

inland waterway system and certain

Lake Michigan ports and not to

circumvent traditional intra-lake service

provided by Great Lakes-capable barges.

Establishment of the Chicago to St.

Joseph Route Exemption

As recommended by ABS Americans

(ABS) on January 9, 1995, the Coast

Guard is granting that a similar

exemption with the same restrictions for

voyages between Calumet Harbor and

Benton Harbor, St. Joseph, Michigan.

The Coast Guard is allowing 45 days for

public comment and may amend this

exemption based on the comments

received.

To eliminate duplicative paperwork,

an approval for operation on one route

constitutes an approval for operation on

both routes. [See paragraph I.3.]

For the reasons set out above, the

Coast Guard, under 46 U.S.C. 5108 and

46 CFR 45.15(a), amends the exemption

announced in the notice of September

21, 1992, (57 FR 43479) as follows:

LIMITED SERVICE DOMESTIC

VOYAGE LOAD LINE ROUTES:

CHICAGO, ILLINOIS, TO MILWAUKEE,