[Federal Register Volume 88, Number 38 (Monday, February 27, 2023)]
[Proposed Rules]
[Pages 12268-12273]
[FR Doc No: 2023-03890]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 21

[Docket No. FAA-2022-0770]

Airworthiness Criteria: Special Class Airworthiness Criteria for
the Asylon DroneSentry Model ASY02C+ Unmanned Aircraft

AGENCY: Federal Aviation Administration (FAA), Department of
Transportation (DOT).

ACTION: Notice of proposed airworthiness criteria.

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SUMMARY: The FAA announces the availability of and requests comments on
proposed airworthiness criteria for the Asylon Incorporated (Asylon)
DroneSentry Model ASY02C+ unmanned aircraft (UA). This document
proposes the airworthiness criteria that the FAA finds to be
appropriate and applicable for the UA design.

DATES: Send comments on or before March 29, 2023.

ADDRESSES: Send comments identified by Docket No. FAA-2022-0770 using
any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov/ and follow the online instructions for sending
your comments electronically.
     Mail: Send comments to Docket Operations, M-30, U.S.
Department of Transportation (DOT), 1200 New Jersey Avenue SE, Room
W12-140, West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Take comments to Docket
Operations in Room W12-140 of the West Building Ground Floor at 1200
New Jersey Avenue SE, Washington, DC, between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
     Fax: Fax comments to Docket Operations at<PHONE_NUMBER>.
    Privacy: The FAA will post all comments it receives, without
change, to http://www.regulations.gov/, including any personal
information the commenter provides. Using the search function of the
docket website, anyone can find and read the electronic form of all
comments received into any FAA docket, including the name of the
individual sending the comment (or signing the comment for an
association, business, labor union, etc.). DOT's complete Privacy Act
Statement can be found in the Federal Register published on April 11,
2000 (65 FR 19477-19478).
    Docket: Background documents or comments received may be read at
http://www.regulations.gov/ at any time. Follow the online instructions
for accessing the docket or go to Docket Operations in Room W12-140 of
the West Building Ground Floor at 1200 New Jersey Avenue SE,
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Christopher J. Richards, Emerging
Aircraft Strategic Policy Section, AIR-618, Strategic Policy Management
Branch, Policy and Innovation Division, Aircraft Certification Service,
Federal Aviation Administration, 6020 28th Avenue South, Room 103,
Minneapolis, MN 55450, telephone<PHONE_NUMBER>, email
[email protected].

SUPPLEMENTARY INFORMATION:

Comments Invited

    The FAA invites interested people to take part in the development
of these airworthiness criteria by sending written comments, data, or
views. The most helpful comments reference a specific portion of the
airworthiness criteria, explain the reason for any recommended change,
and include supporting data. Comments on operational, pilot
certification, and maintenance requirements would address issues that
are beyond the scope of this document.
    Except for Confidential Business Information as described in the
following paragraph, and other information as described in Sec.  11.35
of title 14, Code of Federal Regulations (14 CFR), the FAA will file in
the docket all comments received, as well as a report summarizing each
substantive public contact with FAA personnel concerning these proposed
airworthiness criteria. Before acting on this proposal, the FAA will
consider all comments received on or before the closing date for
comments. The FAA will consider comments filed late if it is possible
to do so without incurring delay. The FAA may change these proposed
airworthiness criteria based on received comments.

Confidential Business Information

    Confidential Business Information (CBI) is commercial or financial
information that is both customarily and actually treated as private by
its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552),
CBI is exempt from public disclosure. If your comments responsive to
these proposed airworthiness criteria contain commercial or financial
information that is customarily treated as private, that you actually
treat as private, and this is relevant or responsive to these proposed
airworthiness criteria, it is important that you clearly designate the
submitted comments as CBI. Please mark each page of your submission
containing CBI as ``PROPIN.'' The FAA will treat such marked
submissions as confidential under the FOIA, and the indicated comments
will not be placed in the public docket of these proposed airworthiness
criteria. Send submissions containing CBI to Christopher J. Richards,
Emerging Aircraft Strategic Policy Section, AIR-618, Strategic Policy
Management Branch, Policy and Innovation Division, Aircraft
Certification Service, Federal Aviation Administration, 6020 28th
Avenue South, Room 103, Minneapolis, MN 55450, email
[email protected]. Comments the FAA receives, which are
not specifically designated as CBI, will be placed in the public docket
for these proposed airworthiness criteria.

Background

    Asylon Incorporated (Asylon) applied to the FAA on October 15, 2021
for a special class type certificate under 14 CFR 21.17(b) for the
DroneSentry Model ASY02C+ UA.
    The DroneSentry Model ASY02C+ consists of an unmanned aircraft (UA)
and its associated elements (AE) including communication links and
components that control the UA. The DroneSentry Model ASY02C+ UA has a
maximum gross takeoff weight of 19.2 pounds. It is approximately 49
inches in width, 49 inches in length, and 12 inches in height. The
DroneSentry Model ASY02C+ UA is battery powered using electric motors
for vertical takeoff, landing, and forward flight. The unmanned
aircraft system (UAS) operations would rely on high levels of
automation and may include multiple UA operated by a single pilot, up
to a ratio of five UA to one pilot. Asylon anticipates operators will
use the DroneSentry Model ASY02C+ for perimeter security patrols and
surveillance. The proposed concept of operations for the DroneSentry
Model ASY02C+ identifies a maximum operating altitude of 400 feet above
ground level, a maximum cruise speed of 33.5 miles per hour, operations
beyond visual line of sight of the pilot, and operations over human
beings. Asylon has not requested type certification for flight into
known icing for the DroneSentry Model ASY02C+.

Discussion

    The FAA establishes airworthiness criteria to ensure the safe
operation of aircraft in accordance with 49 U.S.C. 44701(a) and 44704.
UA are type certificated by the FAA as special class

aircraft for which airworthiness standards have not been established by
regulation. Under the provisions of 14 CFR 21.17(b), the airworthiness
standards for special class aircraft are those the FAA finds to be
appropriate and applicable to the specific type design.
    The applicant has proposed a design with constraints upon its
operations and an unusual design characteristic: the pilot is remotely
located. The FAA developed existing airworthiness standards to
establish an appropriate level of safety for each product and its
intended use. The FAA's existing airworthiness standards did not
envision aircraft with no pilot in the flightdeck and the technologies
associated with that capability.
    The FAA has reviewed the proposed design and assessed the potential
risk to the National Airspace System. The FAA considered the size of
the proposed aircraft, its maximum airspeed and altitude, and
operational limitations to address the number of unmanned aircraft per
operator and address operations in which the aircraft would operate
beyond the visual line of sight of the pilot. These factors allowed the
FAA to assess the potential risk the aircraft could pose to other
aircraft and to human beings on the ground. Using these parameters, the
FAA developed airworthiness criteria to address those potential risks
to ensure the aircraft remains reliable, controllable, safe, and
airworthy.
    The proposed criteria focus on mitigating hazards by establishing
safety outcomes that must be achieved, rather than by establishing
prescriptive requirements that must be met. This is in contrast to many
current airworthiness standards, used to certificate traditional
aircraft systems, which prescribe specific indicators and instruments
for a pilot in a flightdeck that would be inappropriate for UA. The FAA
finds that the proposed criteria are appropriate and applicable for the
UA design, based on the intended operational concepts for the UA as
identified by the applicant.
    The FAA selected the particular airworthiness criteria proposed by
this notice for the following reasons:
    General: In order to determine appropriate and applicable
airworthiness standards for UA as a special class of aircraft, the FAA
determined that the applicant must provide information describing the
characteristics and capabilities of the UA and how it will be used.
    D&R.001 Concept of Operations: To assist the FAA in identifying and
analyzing the risks and impacts associated with integrating the
proposed UA design into the National Airspace System, the applicant
would be required to submit a Concept of Operations (CONOPS). The
proposed criteria would require the applicant's CONOPS to identify the
intended operational concepts for the UA and describe the UAS and its
operation. The applicant would be required to describe the information
in the CONOPS in sufficient detail to determine parameters and extent
of testing, as well as operating limitations that will be placed in the
UA Flight Manual. If the applicant requests to include collision
avoidance equipment, the proposed criteria would require the applicant
to identify such equipment in the CONOPS.
    D&R.005 Definitions: The proposed criteria include a definitions
section, distinguishing the term ``loss of Flight'' and ``loss of
Control.''
    Design and Construction: The FAA selected the design and
construction criteria in this section to address airworthiness
requirements where the flight testing demonstration alone may not be
sufficient to demonstrate an appropriate level of safety.
    D&R.100 UA Signal Monitoring and Transmission: To address the risks
associated with loss of control of the UA, the applicant would be
required to design the UA to monitor and transmit to the AE all
information necessary for continued safe flight and operation. Some of
the AE are located separately from the UA, and therefore are a unique
feature to UAS. As a result, no regulatory airworthiness standards
exist that directly apply to this part of the system. The FAA based
some of the proposed criteria on existing regulations that address the
information that must be provided to a pilot in the flightdeck of a
manned aircraft, and modified them as appropriate to the UAS. These
proposed criteria list the specific minimum types of information the
FAA finds are necessary for the UA to transmit for continued safe
flight and operation; however, the applicant must determine whether
additional parameters are necessary.
    D&R.105 UAS AE Required for Safe UA Operations: Because safe UAS
operations depend and rely on both the UA and the AE, the FAA considers
the AE in assessing whether the UA meets the criteria that comprise the
certification basis. While the AE items themselves will be outside the
scope of the UA type design, the applicant must provide sufficient
specifications for any aspect of the AE, including the control station,
which could affect airworthiness. The proposed criteria would require a
complete and unambiguous identification of the AE and their interface
with the UA, so that their availability or use is readily apparent.
    As explained in FAA Policy Memorandum AIR600-21-AIR-600-PM01, dated
July 13, 2021, the FAA will approve either the specific AE or minimum
specifications for the AE, as identified by the applicant, as part of
the type certificate by including them as an operating limitation in
the type certificate data sheet and flight manual. The FAA may impose
additional operating limitations specific to the AE through conditions
and limitations for inclusion in the operational approval (i.e.,
waivers, exemptions, operating certificates, or a combination of
these). In this way, the FAA will consider the entirety of the UAS for
operational approval and oversight.
    D&R.110 Software: Software for manned aircraft is certified under
the regulations applicable to systems, equipment, and installations
(e.g., Sec. Sec.  23.2510, 25.1309, 27.1309, or 29.1309). Two
regulations specifically prescribe airworthiness standards for
software: Engine airworthiness standards (Sec.  33.28) and propeller
airworthiness standards (Sec.  35.23). The proposed UA software
criteria are based on these regulations and tailored for the risks
posed by UA software.
    D&R.115 Cyber Security: The location of the pilot, separate from
the UA, requires a continuous wireless connection (command and control
link) with the UA for the pilot to monitor and control it. Because the
purpose of this link is to control the aircraft, this makes the UA
susceptible to cyber security threats in a unique way.
    The current regulations for the certification of systems,
equipment, and installations (e.g., Sec. Sec.  23.2510, 25.1309,
27.1309, and 29.1309) do not adequately address potential security
vulnerabilities exploited by unauthorized access to aircraft systems,
data buses, and services. Therefore for manned aircraft, the FAA issues
special conditions for particular designs with network security
vulnerabilities.
    To address the risks to the UA associated with intentional
unauthorized electronic interactions, the applicant would be required
to design the UAS' systems and networks to protect against intentional
unauthorized electronic interactions and mitigate potential adverse
effects. The FAA based the language for the proposed criteria on
recommendations in the final report dated August 22, 2016, from the
Aircraft System Information Security/Protection (ASISP)

working group, under the FAA's Aviation Rulemaking Advisory Committee.
Although the recommendations pertained to manned aircraft, the FAA has
reviewed the report and determined the recommendations are also
appropriate for UA. The wireless connections used by UA make these
aircraft susceptible to the same cyber security risks, and therefore
require similar criteria as manned aircraft.
    D&R.120 Contingency Planning: The location of the pilot and the
controls for the UAS, separate from the UA, is a unique feature to UAS.
As a result, no regulatory airworthiness standards exist that directly
apply to this feature of the system.
    To address the risks associated with loss of communication between
the pilot and the UA, and thus the pilot's inability to control the UA,
the proposed criteria would require that the UA be designed to
automatically execute a predetermined action. Because the pilot needs
to be aware of the particular predetermined action the UA will take
when there is a loss of communication between the pilot and the UA, the
proposed criteria would require that the applicant identify the
predetermined action in the UA Flight Manual. The proposed criteria
would also include requirements for preventing takeoff when the quality
of service is inadequate.
    D&R.125 Lightning: Because of the size and physical limitations of
this UA, it would be unlikely that this UA would incorporate
traditional lightning protection features. To address the risks that
would result from a lightning strike, the proposed criteria would
require an operating limitation in the UA Flight Manual that prohibits
flight into weather conditions conducive to lightning. The proposed
criteria would also allow design characteristics to protect the UA from
lightning as an alternative to the prohibition.
    D&R.130 Adverse Weather Conditions: Because of the size and
physical limitations of this UA, adverse weather such as rain, snow,
and icing pose a greater hazard to the UA than to manned aircraft. For
the same reason, it would be unlikely that this UA would incorporate
traditional protection features from icing. The FAA based the proposed
criteria on the icing requirements in 14 CFR 23.2165(b) and (c) and
applied them to all of these adverse weather conditions. The proposed
criteria would allow design characteristics to protect the UA from
adverse weather conditions. As an alternative, the proposed criteria
would require an operating limitation in the UA Flight Manual that
prohibits flight into known adverse weather conditions, and either also
prevent inadvertent flight into adverse weather or provide a means to
detect and to avoid or exit adverse weather conditions.
    D&R.135 Flight Essential Parts: The proposed criteria for flight
essential parts are substantively the standards for normal category
rotorcraft critical parts in Sec.  27.602, with changes to reflect UA
terminology and failure conditions. Because part criticality is
dependent on safety risk to those on board the aircraft, the term
``flight essential'' is used for those components of an unmanned
aircraft whose failure may result in loss of flight or unrecoverable
loss of UA control.
    Operating Limitations and Information: Similar to manned aircraft,
the FAA determined that the UA applicant must provide airworthiness
instructions, operating limitations, and flight and performance
information necessary for the safe operation and continued operational
safety of the UA.
    D&R.200 Flight Manual: The proposed criteria for the UA Flight
Manual are substantively the same as those in Sec.  23.2620, with minor
changes to reflect UA terminology.
    D&R.205 Instructions for Continued Airworthiness: The proposed
criteria for the Instructions for Continued Airworthiness (ICA) are
substantively the same as those in Sec.  23.1529, with minor changes to
reflect UA terminology.
    Testing: Traditional certification methodologies for manned
aircraft are based on design requirements verified at the component
level by inspection, analysis, demonstration, or test. Due to the
difference in size and complexity, the FAA determined testing
methodologies that demonstrate reliability at the aircraft (UA) level,
in addition to the design and construction criteria identified in this
proposal, will achieve the same safety objective. The proposed testing
criteria in sections D&R.300 through D&R.320 utilize these
methodologies.
    D&R.300 Durability and Reliability: The FAA intends for the
proposed testing criteria in this section to cover key design aspects
and prevent unsafe features at an appropriate level tailored for this
UA. The proposed durability and reliability testing would require the
applicant to demonstrate safe flight of the UA across the entire
operational envelope and up to all operational limitations for all
phases of flight and all aircraft configurations. The UA would only be
certificated for operations within the limitations prescribed for its
operating environment, as defined in the applicant's proposed CONOPS
and demonstrated by test. The FAA intends for this process to be
similar to the process for establishing limitations prescribed for
special purpose operations for restricted category aircraft. The
proposed criteria would require that all flights during the testing be
completed with no failures that result in a loss of flight, loss of
control, loss of containment, or emergency landing outside of the
operator's recovery zone.
    For some aircraft design requirements imposed by existing
airworthiness standards (e.g., Sec. Sec.  23.2135, 23.2600, 25.105,
25.125, 27.141, 27.173, 29.51, 29.177), the aircraft must not require
exceptional piloting skill or alertness. These rules recognize that
pilots have varying levels of ability and attention. In a similar
manner, the proposed criteria would require that the durability and
reliability flight testing be performed by a pilot with average skill
and alertness.
    Flight testing will be used to determine the aircraft's ability to
withstand flight loads across the range of operating limits and the
flight envelope. Because of the size of this UA, it may be subjected to
significant ground loads when handled, lifted, carried, loaded,
maintained, and transported physically by hand; therefore, the proposed
criteria would require that the aircraft used for testing endure the
same worst-case ground loads as those the UA will experience in
operation after type certification.
    D&R.305 Probable Failures: The FAA intends the proposed testing
criteria to evaluate how the UA functions after failures that are
probable to occur. The applicant will test the UA by inducing certain
failures and demonstrating that the failure will not result in a loss
of containment or control of the UA. The proposed criteria contain the
minimum types of failures the FAA finds are probable; however, the
applicant must determine the probable failures related to any other
equipment that will be addressed for this requirement.
    D&R.310 Capabilities and Functions: The proposed criteria for this
section address the minimum capabilities and functions the FAA finds
are necessary in the design of the UA and would require the applicant
to demonstrate these capabilities and functions by test. Due to the
location of the pilot and the controls for UAS, separate from the UA,
communication between the pilot and the UA is significant to the
design. Thus, the proposed criteria would require the applicant to
demonstrate the capability of the UAS to regain command and control
after a loss. As with manned aircraft, the electrical

system of the UA must have a capacity sufficient for all anticipated
loads; the proposed criteria would require the applicant to demonstrate
this by test.
    The proposed criteria contain functions that allow the pilot to
command the UA to deviate from its flight plan or from its pre-
programmed flight path. For example, in the event the pilot needs to
deconflict the airspace, the UA must respond to pilot inputs that
override any pre-programming.
    In the event an applicant requests approval for certain features,
such as geo-fencing or external cargo, the proposed criteria contain
requirements to address the associated risks. The proposed criteria in
this section would also require the design of the UA to safeguard
against unintended discontinuation of flight or release of cargo,
whether by human action or malfunction.
    D&R.315 Fatigue: The FAA intends the proposed criteria in this
section to address the risks from reduced structural integrity and
structural failure due to fatigue. The proposed criteria would require
the applicant to establish an airframe life limit and demonstrate that
loss of flight or loss of control due to structural failure will be
avoided throughout the operational life of the UA. These proposed
criteria would require the applicant to demonstrate this by test while
maintaining the UA in accordance with the ICA.
    D&R.320 Verification of Limits: This section would evaluate
structural safety and address the risks associated with inadequate
structural design. While the proposed criteria in D&R.300 address
testing to demonstrate that the UA structure adequately supports
expected loads throughout the flight and operational envelopes, the
proposed criteria in this section would require an evaluation of the
performance, maneuverability, stability, and control of the UA with a
factor of safety.

Applicability

    These proposed airworthiness criteria, established under the
provisions of Sec.  21.17(b), are applicable to the DroneSentry Model
ASY02C+ UA. Should Asylon Incorporated apply at a later date for a
change to the type certificate to include another model, these
airworthiness criteria would apply to that model as well, provided the
FAA finds them appropriate in accordance with the requirements of
subpart D to part 21.

Conclusion

    This action affects only the airworthiness criteria for one model
UA. It is not a standard of general applicability.

Authority Citation

    The authority citation for these airworthiness criteria is as
follows:
    Authority: 49 U.S.C. 106(g), 40113, 44701, 44702, 44704.

The Proposed Airworthiness Criteria

    The FAA proposes to establish the following airworthiness criteria
for type certification of the Asylon Incorporated DroneSentry Model
ASY02C+ UA. The FAA proposes that compliance with the following would
mitigate the risks associated with the proposed design and Concept of
Operations appropriately and would provide an equivalent level of
safety to existing rules:

General

D&R.001 Concept of Operations

    The applicant must define and submit to the FAA a concept of
operations (CONOPS) proposal describing the unmanned aircraft system
(UAS) operation in the national airspace system for which unmanned
aircraft (UA) type certification is requested. The CONOPS proposal must
include, at a minimum, a description of the following information in
sufficient detail to determine the parameters and extent of testing and
operating limitations:
    (a) The intended type of operations;
    (b) UA specifications;
    (c) Meteorological conditions;
    (d) Operators, pilots, and personnel responsibilities;
    (e) Control station, support equipment, and other associated
elements (AE) necessary to meet the airworthiness criteria;
    (f) Command, control, and communication functions;
    (g) Operational parameters (such as population density, geographic
operating boundaries, airspace classes, launch and recovery area,
congestion of proposed operating area, communications with air traffic
control, line of sight, and aircraft separation); and
    (h) Collision avoidance equipment, whether onboard the UA or part
of the AE, if requested.

D&R.005 Definitions

    For purposes of these airworthiness criteria, the following
definitions apply.
    (a) Loss of control: Loss of control means an unintended departure
of an aircraft from controlled flight. It includes control reversal or
an undue loss of longitudinal, lateral, and directional stability and
control. It also includes an upset or entry into an unscheduled or
uncommanded attitude with high potential for uncontrolled impact with
terrain. A loss of control means a spin, loss of control authority,
loss of aerodynamic stability, divergent flight characteristics, or
similar occurrence, which could generally lead to crash.
    (b) Loss of flight: Loss of flight means a UA's inability to
complete its flight as planned, up to and through its originally
planned landing. It includes scenarios where the UA experiences
controlled flight into terrain, obstacles, or any other collision, or a
loss of altitude that is severe or non-reversible. Loss of flight also
includes deploying a parachute or ballistic recovery system that leads
to an unplanned landing outside the operator's designated recovery
zone.

Design and Construction

D&R.100 UA Signal Monitoring and Transmission

    The UA must be designed to monitor and transmit to the AE all
information required for continued safe flight and operation. This
information includes, at a minimum, the following:
    (a) Status of all critical parameters for all energy storage
systems;
    (b) Status of all critical parameters for all propulsion systems;
    (c) Flight and navigation information as appropriate, such as
airspeed, heading, altitude, and location; and
    (d) Communication and navigation signal strength and quality,
including contingency information or status.

D&R.105 UAS AE Required for Safe UA Operations

    (a) The applicant must identify and submit to the FAA all AE and
interface conditions of the UAS that affect the airworthiness of the UA
or are otherwise necessary for the UA to meet these airworthiness
criteria. As part of this requirement--
    (1) The applicant may identify either specific AE or minimum
specifications for the AE.
    (i) If minimum specifications are identified, they must include the
critical requirements of the AE, including performance, compatibility,
function, reliability, interface, operator alerting, cyber security,
and environmental requirements.
    (ii) Critical requirements are those that if not met would impact
the ability to operate the UA safely and efficiently.
    (2) The applicant may use an interface control drawing, a
requirements document, or other reference, titled so that it is clearly
designated as AE interfaces to the UA.
    (b) The applicant must show the FAA that the AE or minimum
specifications

identified in paragraph (a) of this section meet the following:
    (1) The AE provide the functionality, performance, reliability,
cyber security, and information to assure UA airworthiness in
conjunction with the rest of the design;
    (2) The AE are compatible with the UA capabilities and interfaces;
    (3) The AE must monitor and transmit to the operator all
information required for safe flight and operation, including but not
limited to those identified in D&R.100 and
    (4) The minimum specifications, if identified, are correct,
complete, consistent, and verifiable to assure UA airworthiness.
    (c) The FAA will establish the approved AE or minimum
specifications as operating limitations and include them in the UA type
certificate data sheet and Flight Manual.
    (d) The applicant must develop any maintenance instructions
necessary to address implications from the AE on the airworthiness of
the UA. Those instructions will be included in the instructions for
continued airworthiness (ICA) required by D&R.205.

D&R.110 Software

    To minimize the existence of software errors, the applicant must:
    (a) Verify by test, all software that may impact the safe operation
of the UA;
    (b) Utilize a configuration management system that tracks,
controls, and preserves changes made to software throughout the entire
life cycle; and
    (c) Implement a problem reporting system that captures and records
defects and modifications to the software.

D&R.115 Cyber Security

    (a) UA equipment, systems, and networks, addressed separately and
in relation to other systems, must be protected from intentional
unauthorized electronic interactions that may result in an adverse
effect on the security or airworthiness of the UA. Protection must be
ensured by showing that the security risks have been identified,
assessed, and mitigated as necessary.
    (b) When required by paragraph (a) of this section, procedures and
instructions to ensure security protections are maintained must be
included in the ICA.

D&R.120 Contingency Planning

    (a) The UA must be designed so that, in the event of a loss of the
command and control (C2) link, the UA will automatically and
immediately execute a safe predetermined flight, loiter, landing, or
termination.
    (b) The applicant must establish the predetermined action in the
event of a loss of the C2 link and include it in the UA Flight Manual.
    (c) The UA Flight Manual must include the minimum performance
requirements for the C2 data link, defining when the C2 link is
degraded to a level where remote active control of the UA is no longer
ensured. Takeoff when the C2 link is degraded below the minimum link
performance requirements must be prevented by design or prohibited by
an operating limitation in the UA Flight Manual.

D&R.125 Lightning

    (a) Except as provided in paragraph (b) of this section, the UA
must have design characteristics that will protect the UA from loss of
flight or loss of control due to lightning.
    (b) If the UA has not been shown to protect against lightning, the
UA Flight Manual must include an operating limitation to prohibit
flight into weather conditions conducive to lightning activity.

D&R.130 Adverse Weather Conditions

    (a) For purposes of this section, ``adverse weather conditions''
means rain, snow, and icing.
    (b) Except as provided in paragraph (c) of this section, the UA
must have design characteristics that will allow the UA to operate
within the adverse weather conditions specified in the CONOPS without
loss of flight or loss of control.
    (c) For adverse weather conditions for which the UA is not approved
to operate, the applicant must develop operating limitations to
prohibit flight into known adverse weather conditions and either:
    (1) Develop operating limitations to prevent inadvertent flight
into adverse weather conditions; or
    (2) Provide a means to detect any adverse weather conditions for
which the UA is not certificated to operate and show the UA's ability
to avoid or exit those conditions.

D&R.135 Flight Essential Parts

    (a) A flight essential part is a part, the failure of which could
result in a loss of flight or unrecoverable loss of UA control.
    (b) If the type design includes flight essential parts, the
applicant must establish a flight essential parts list. The applicant
must develop and define mandatory maintenance instructions or life
limits, or a combination of both, to prevent failures of flight
essential parts. Each of these mandatory actions must be included in
the Airworthiness Limitations section of the ICA.

Operating Limitations and Information

D&R.200 Flight Manual

    The applicant must provide a flight manual with each UA.
    (a) The UA flight manual must contain the following information:
    (1) UA operating limitations;
    (2) UA operating procedures;
    (3) Performance information;
    (4) Loading information; and
    (5) Other information that is necessary for safe operation because
of design, operating, or handling characteristics.
    (b) Those portions of the UA Flight Manual containing the
information specified in paragraph (a)(1) of this section must be
approved by the FAA.

D&R.205 Instructions for Continued Airworthiness

    The applicant must prepare ICA for the UA in accordance with
Appendix A to Part 23, as appropriate, that are acceptable to the FAA.
The ICA may be incomplete at type certification if a program exists to
ensure their completion prior to delivery of the first UA or issuance
of a standard airworthiness certificate, whichever occurs later.

Testing

D&R.300 Durability and Reliability

    The UA must be designed to be durable and reliable when operated
under the limitations prescribed for its operating environment, as
documented in its CONOPS and included as operating limitations on the
type certificate data sheet and in the UA Flight Manual. The durability
and reliability must be demonstrated by flight test in accordance with
the requirements of this section and completed with no failures that
result in a loss of flight, loss of control, loss of containment, or
emergency landing outside the operator's recovery area.
    (a) Once a UA has begun testing to show compliance with this
section, all flights for that UA must be included in the flight test
report.
    (b) Tests must include an evaluation of the entire flight envelope
across all phases of operation and must address, at a minimum, the
following:
    (1) Flight distances;
    (2) Flight durations;
    (3) Route complexity;
    (4) Weight;
    (5) Center of gravity;
    (6) Density altitude;
    (7) Outside air temperature;
    (8) Airspeed;
    (9) Wind;

    (10) Weather;
    (11) Operation at night, if requested;
    (12) Energy storage system capacity; and
    (13) Aircraft to pilot ratio.
    (c) Tests must include the most adverse combinations of the
conditions and configurations in paragraph (b) of this section.
    (d) Tests must show a distribution of the different flight profiles
and routes representative of the type of operations identified in the
CONOPS.
    (e) Tests must be conducted in conditions consistent with the
expected environmental conditions identified in the CONOPS, including
electromagnetic interference (EMI) and high intensity radiated fields
(HIRF).
    (f) Tests must not require exceptional piloting skill or alertness.
    (g) Any UAS used for testing must be subject to the same worst-case
ground handling, shipping, and transportation loads as those allowed in
service.
    (h) Any UA used for testing must use AE that meet, but do not
exceed, the minimum specifications identified under D&R.105. If
multiple AE are identified, the applicant must demonstrate each
configuration.
    (i) Any UAS used for testing must be maintained and operated in
accordance with the ICA and UA flight manual. No maintenance beyond the
intervals established in the ICA will be allowed to show compliance
with this section.
    (j) If cargo operations or external-load operations are requested,
tests must show, throughout the flight envelope and with the cargo or
the external load at the most critical combinations of weight and
center of gravity, that--
    (1) The UA is safely controllable and maneuverable; and
    (2) The cargo or the external load is retainable and transportable.

D&R.305 Probable Failures

    The UA must be designed such that a probable failure will not
result in a loss of containment or control of the UA. This must be
demonstrated by test.
    (a) Probable failures related to the following equipment, at a
minimum, must be addressed:
    (1) Propulsion systems;
    (2) C2 link;
    (3) Global Positioning System (GPS);
    (4) Flight control components with a single point of failure;
    (5) Control station; and
    (6) Any other AE identified by the applicant.
    (b) Any UA used for testing must be operated in accordance with the
UA Flight Manual.
    (c) Each test must occur at the critical phase and mode of flight,
and at the highest aircraft-to-pilot ratio.

D&R.310 Capabilities and Functions

    (a) All of the following required UAS capabilities and functions
must be demonstrated by test:
    (1) Capability to regain command and control of the UA after the C2
link has been lost.
    (2) Capability of the electrical system to power all UA systems and
payloads.
    (3) Ability for the pilot to safely discontinue the flight.
    (4) Ability for the pilot to dynamically re-route the UA.
    (5) Ability to safely abort a takeoff.
    (6) Ability to safely abort a landing and initiate a go-around.
    (b) The following UAS capabilities and functions, if requested for
approval, must be demonstrated by test:
    (1) Continued flight after degradation of the propulsion system.
    (2) Geo-fencing that contains the UA within a designated area, in
all operating conditions.
    (3) Positive transfer of the UA between control stations that
ensures only one control station can control the UA at a time.
    (4) Capability to release an external cargo load to prevent loss of
control of the UA.
    (5) Capability to detect and avoid other aircraft and obstacles.
    (c) The UA must be designed to safeguard against inadvertent
discontinuation of the flight and inadvertent release of cargo or
external load.

D&R.315 Fatigue

    The structure of the UA must be shown to withstand the repeated
loads expected during its service life without failure. A life limit
for the airframe must be established, demonstrated by test, and
included in the ICA.

D&R.320 Verification of Limits

    The performance, maneuverability, stability, and control of the UA
within the flight envelope described in the UA Flight Manual must be
demonstrated at a minimum of 5% over maximum gross weight with no loss
of control or loss of flight.

    Issued in Washington, DC, on February 2, 2023.
James David Foltz,
Acting Manager, Strategic Policy Management, Policy and Innovation
Division, Aircraft Certification Service.
[FR Doc. 2023-03890 Filed 2-24-23; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 81, Number 134 (Wednesday, July 13, 2016)]
[Notices]
[Pages 45349-45351]
[FR Doc No: 2016-16480]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78239; File No. SR-NYSEArca-2016-15]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change, as Modified by Amendment No. 1, To Amend Rule 6.67(c) by
Revising the Clearing Member Requirement for Entering an Order Into the
Electronic Order Capture System

July 7, 2016.

I. Introduction

    On March 22, 2016, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Rule 6.67(c) to change the timing for
recording the name of the Clearing Member \3\ in the Electronic Order
Capture system (``EOC''). On March 29, 2016,\4\ the Exchange filed

Amendment No. 1 to the proposed rule change. The Commission published
the proposed rule change, as modified by Amendment No. 1, for comment
in the Federal Register on April 11, 2016.\5\ The Commission received
no comments on the proposed rule change. On May 25, 2016 the Commission
extended the time period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule change
to July 10, 2016.\6\ The Commission did not receive any comments on the
proposed rule change. This order institutes proceedings under section
19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1
thereto.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Rule 6.1(b)(3) defines ``Clearing Member'' as an Exchange
OTP which has been admitted to membership in the Options Clearing
Corporation pursuant to the provisions of the Rules of the Options
Clearing Corporation.
    \4\ The Commission notes that the amendment date of March 30,
2016 in the SR-NYSEArca-2016-15 Notice is incorrect and the proper
date is March 29, 2016.
    \5\ See Securities Exchange Act Release No. 34-77516 (April 5,
2016), 81 FR 21430 (``Notice''). Amendment No.1 was included in the
Notice and provided the clarification that the CMTA Information and
the name of the clearing OTP Holder would be entered into the EOC
``as the events occur and/or during trade reporting procedures which
may occur after the representation and execution of the order.''
    \6\ See Securities Exchange Act Release No. 34-77909 (May 25,
2016), 81 FR 35079 (June 1, 2016).
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal, as Modified by Amendment No. 1

    The Exchange proposes to amend Rule 6.67(c) by revising the timing
for an OTP holder to record the name of the Clearing Member in the
EOC.\8\ In 2000, the Commission issued an order, which required the
Exchange, in coordination with other exchanges, to ``design and
implement a consolidated options audit trail system (`COATS'),'' that
would ``enable the options exchanges to reconstruct markets promptly,
effectively surveil them and enforce order handling, firm quote, trade
reporting and other rules.'' \9\ The Commission Order requires the
Exchange to incorporate into the audit trail all non-electronic orders
``such that the audit trail provides an accurate, time-sequenced record
of electronic and other orders, quotations and transactions on such
respondent exchange, beginning with the receipt of an order by such
respondent exchange and further documenting the life of the order
through the process of execution, partial execution, or cancellation of
that order, which audit trail shall be readily retrievable in the
common computer format.'' \10\ To comply with the Commission Order, the
Exchange developed the EOC system for OTP holders.\11\
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    \8\ See Notice, supra note 5, 81 FR at 21431.
    \9\ See Section IV.B.e.(v) of the Commission's Order Instituting
Public Administrative Proceedings Pursuant to sections 19(h)(1) of
the Securities Exchange Act of 1934, Making Findings and Imposing
Remedial Sanctions (``Commission Order''), Securities Exchange Act
Release No. 43268 (September 11, 2000) and Administrative Proceeding
File No. 3-10282.
    \10\ See id.
    \11\ See Notice, supra note 5, 81 FR at 21431.
---------------------------------------------------------------------------

    The EOC is the Exchange's floor-based electronic audit trail and
order tracking system that provides an accurate time-sequenced record
of all orders and transactions represented on the Exchange's trading
floor.\12\ Rule 6.67(c) sets forth the EOC entry requirements and
requires every OTP holder that receives an order for execution on the
Exchange to ``immediately, prior to representation in the trading
crowd, record the details of the order (including any modification of
the terms of the order or cancellation of the order) into the EOC,
unless such order has been entered into the Exchange's other electronic
order processing facilities.'' \13\ The pre-trade EOC requirements
under current Rule 6.67(c)(1) include ``the name of the clearing OTP
Holder.'' \14\ Rule 6.67(c)(1) further states that ``[t]he remaining
elements prescribed in Rule 6.68(a) and any additional information with
respect to the order shall be recorded as the events occur and/or
during trade reporting procedures which may occur after the
representation and execution of the order.'' \15\
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    \12\ See id.; see also Rule 6.67(c).
    \13\ See Rule 6.67(c).
    \14\ See Rule 6.67(c)(1)(vii).
    \15\ See Rule 6.67(c)(1); see also Rule 6.68(a) (Record of
Orders) (requiring that OTP Holders and OTP Firms maintain a record
of each order that includes that the following data elements: (1)
CMTA Information and the name of the clearing OTP Holder or Firm;
(2) options symbol, expiration month, exercise price and type of
options; (3) side of the market and order type; (4) quantity of
options; (5) limit or stop price or special conditions; (6) opening
or closing transaction; (7) time in force; (8) account origin code;
and (9) whether the order was solicited or unsolicited).
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 6.67(c)(1) to allow an OTP
Holder to record the name of the Clearing Member in the EOC ``as the
events occur and/or during trade reporting procedures'' rather than
prior to representation of the order in the trading crowd.\16\ The
Exchange states that because the identity of the firm through which
each trade will clear is not always initially provided when an order is
presented, Floor Brokers waiting to receive this information and enter
it into the EOC are delayed in representing and executing an order.\17\
The Exchange represents that the proposal would amend only the timing
for the recording of the Clearing Member in the EOC while still
maintaining the requirement to record the Clearing Member in the EOC
for audit trail purposes.\18\ According to the Exchange, Floor Brokers
would continue to be required to maintain proper order records, as part
of each trade record, including the identity of the clearing OTP
Holder, and would continue to be required to give up the responsible
Clearing Member on each trade as part of each trade record.\19\
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    \16\ See Notice, supra note 5, 81 FR at 21431.
    \17\ See id.
    \18\ See id.
    \19\ See id. at 21431-32; see also Rule 6.68(a).
---------------------------------------------------------------------------

III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2016-15 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to section
19(b)(2)(B) of the Act \20\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change, as discussed below.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described in greater detail below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding. See id.
---------------------------------------------------------------------------

    Pursuant to section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings because the proposal raises
important issues that warrant further public comment and Commission
consideration. Specifically, the Commission is instituting proceedings
to allow for additional analysis of, and input from commenters with
respect to, the proposed rule change's consistency with section 6(b)(5)
of the Act,\21\ which requires that the rules of a national securities
exchange be designed, among other things, to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and

open market and a national market system and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Under the Exchange's current rules, a floor broker must record the
name of the Clearing Member in the EOC prior to representing an order
on the floor. As discussed above,\22\ the Exchange developed the EOC
and created the pre-trade Clearing Member requirement in response to
the Commission Order. The Exchange justifies the proposed elimination
of the pre-trade clearing requirement by stating that ``Floor Brokers
have told the Exchange that the identity of the firm through which each
trade will clear is not always initially provided when an order is
presented and that waiting to receive this information and enter it
into EOC can delay the representation and execution of an order. In
today's trading environment of rapidly moving markets and the need to
execute an order and hedge a trade in real or near real time, even a
slight delay can prove to be detrimental to the handling of an order.''
\23\ The Exchange further states that the ``proposed change to
eliminate the Give Up Requirement prior to execution of each trade
would not impair the Exchange's ability to comply with the [Commission]
Order. Specifically, the EOC would still provide an accurate, time-
sequenced record beginning with the receipt of an order and document
the life of the order through the process of execution, partial
execution, or cancellation. Entry of information pursuant to the Give
Up Requirement would occur after the order had been represented and
executed in the Trading Crowd. Thus, only the timing of the disclosure
of such information would be affected by this proposal.'' \24\
---------------------------------------------------------------------------

    \22\ See supra note 9.
    \23\ See Notice, supra note 5, 81 FR at 21431.
    \24\ See id.
---------------------------------------------------------------------------

    The Exchange, however, does not explain why the identity of the
Clearing Member may not be provided when an order is presented to a
Floor Broker, how frequently this occurs, or why it is burdensome to
identify the Clearing Member in advance. As a result, the Exchange does
not appear to offer a credible justification for proposing to incur the
risk of delaying the recording of this important information into the
EOC. The Commission accordingly believes the proposal, as modified by
Amendment No. 1, raises questions as to whether it consistent with the
requirements of section 6(b)(5) of the Act, including whether the
proposal is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written
submissions of their views, data and arguments with respect to the
concerns identified above, as well as any other concerns they may have
with the proposed rule change. In particular, the Commission invites
the written views of interested persons concerning whether the
proposal, as modified by Amendment No. 1, is consistent with sections
6(b)(5) \25\ or any other provision of the Act, or the rules and
regulations thereunder. Although there does not appear to be any issue
relevant to approval or disapproval which would be facilitated by an
oral presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4 under the Act,\26\ any request for an
opportunity to make an oral presentation.\27\ Interested persons are
invited to submit written data, views, and arguments regarding whether
the proposal should be approved or disapproved by August 3, 2016. Any
person who wishes to file a rebuttal to any other person's submission
must file that rebuttal by August 17, 2016. In light of the concerns
raised by the proposed rule change, as discussed above, the Commission
invites additional comment on the proposed rule change as the
Commission continues its analysis of the proposed rule change's
consistency with sections 6(b)(5) and 6(b)(8),\28\ or any other
provision of the Act, or the rules and regulations thereunder. The
Commission asks that commenters address the sufficiency and merit of
the Exchange's statements in support of the proposed rule change, in
addition to any other comments they may wish to submit about the
proposed rule change.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 17 CFR 240.19b-4.
    \27\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Act Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
    \28\ 15 U.S.C. 78f(b)(5), (b)(8).
---------------------------------------------------------------------------

    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File No. SR-NYSEArca-2016-15 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-NYSEArca-2016-15. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-NYSEArca-2016-15, and should be
submitted by August 3, 2016. Rebuttal comments should be submitted by
August 17, 2016.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-16480 Filed 7-12-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 86, Number 153 (Thursday, August 12, 2021)]
[Notices]
[Pages 44455-44458]
[FR Doc No: 2021-17177]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92600; File No. SR-NASDAQ-2021-057]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend NOM's Options Regulatory Fee

August 6, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 5, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II, below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend The Nasdaq Options Market LLC's
(``NOM'') Pricing Schedule at Options 7, Section 5 related to the
Options Regulatory Fee or ``ORF''.
    While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on October 1,
2021.
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, NOM assesses an ORF of $0.0020 per contract side as
specified in NOM's Pricing Schedule at Options 7, Section 5. The
Exchange proposes to waive its ORF from October 1, 2021 to January 31,
2022, and then recommence the ORF on February 1, 2022.
    By way of background, the options industry has experienced
extremely high options trading volumes and volatility. This historical
anomaly of persistent increased options volumes has impacted NOM's ORF
collection which, in turn, has caused the Exchange to continue to
revisit its financial forecast to reflect the sustained elevated
options volumes and volatility. As the Exchange continues to monitor
the amount of revenue collected from the ORF to ensure that our ORF
collection, in combination with other regulatory fees and fines, does
not exceed regulatory costs, the Exchange has found it difficult to
determine when volumes will return to more normal levels. In order to
avoid iterative rule changes to amend its ORF, the Exchange believes it
is prudent to instead waive its ORF from October 1, 2021 to January 31,
2022, to permit the Exchange to plan future forecasts without the need
to account for any ORF collection during that timeframe. This proposal
would ensure that revenue collected from the ORF, in combination with
other regulatory fees and fines, would not exceed the Exchange's total
regulatory costs. NOM would recommence assessing its current ORF rate
of $0.0020 per contract side as of February 1, 2022. Furthermore, prior
to February 1, 2022, NOM will examine its ORF rate to determine if the
$0.0020 per contract side ORF is justified given the current volumes in
2022 as well as the current Exchange regulatory expenses at that time.
NOM would file a proposed rule change to amend its per contract ORF if
changes are necessary to ensure an equitable allocation of reasonable
ORF, if e.g., the Exchange believes that the volumes NOM experiences in
the second half of 2021 are likely to persist throughout 2022. Of note,
NOM proposes to continue to operate with the ORF fee waived in January
2022 to allow its Participants \3\ and other broker dealers time to
align their systems for February 1, 2022, allowing for time after the
holiday period which traditionally have year-end code freezes in place.
---------------------------------------------------------------------------

    \3\ The term ``Options Participant'' or ``Participant'' mean a
firm, or organization that is registered with the Exchange pursuant
to Options 2A of these Rules for purposes of participating in
options trading on NOM as a ``Nasdaq Options Order Entry Firm'' or
``Nasdaq Options Market Maker''. See Options 1, Section 1(a)(39).
All NOM Participants must be an existing member or become a member
of the Exchange, pursuant to the 1000 rules series, and continue to
abide by the requirements of the 1000 Series with respect to
participation in NOM. See Options 2A, Section 1(b)(3).
---------------------------------------------------------------------------

Collection of ORF
    Currently, NOM assesses its ORF for each customer option
transaction that is either: (1) Executed by a Participant on NOM; or
(2) cleared by a NOM Participant at The Options Clearing Corporation
(``OCC'') in the customer range,\4\ even if the transaction was
executed by a non-Participant of NOM, regardless of the exchange on
which the transaction occurs.\5\
---------------------------------------------------------------------------

    \4\ Participants must record the appropriate account origin code
on all orders at the time of entry of the order. The Exchange
represents that it has surveillances in place to verify that
Participants mark orders with the correct account origin code.
    \5\ The Exchange uses reports from OCC when assessing and
collecting the ORF.
---------------------------------------------------------------------------

ORF Revenue and Monitoring of ORF
    The Exchange monitors the amount of revenue collected from the ORF
to ensure that it, in combination with other regulatory fees and fines,
does not exceed regulatory costs. In determining whether an expense is
considered a regulatory cost, the Exchange reviews all costs and makes
determinations if there is a nexus between the expense and a regulatory
function. The Exchange notes that fines collected by the Exchange in
connection with a disciplinary matter offset ORF.
    Revenue generated from ORF, when combined with all of the
Exchange's other regulatory fees and fines, is designed to recover a
material portion of the regulatory costs to the Exchange of the
supervision and regulation of Participant customer options business
including performing routine surveillances, investigations,
examinations, financial monitoring, and policy, rulemaking,
interpretive, and enforcement activities. Regulatory costs include
direct regulatory expenses and certain indirect expenses in support of
the regulatory function. The direct expenses include in-house and
third-party service provider costs to support the day-to-day regulatory
work such as surveillances, investigations and examinations. The
indirect expenses include support from such areas as Office of the
General Counsel, technology, and internal audit. Indirect expenses are
estimated to be approximately 42% of the total regulatory costs for
2021. Thus, direct

expenses are estimated to be approximately 58% of total regulatory
costs for 2021.
    The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of its members,
including performing routine surveillances, investigations,
examinations, financial monitoring, and policy, rulemaking,
interpretive, and enforcement activities.
Proposal
    Based on the Exchange's most recent review, the Exchange proposes
to waive ORF from October 1, 2021 to January 31, 2022, to help ensure
that revenue collected from the ORF, in combination with other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. NOM would recommence assessing its current ORF rate
of $0.0020 per contract side as of February 1, 2022. The Exchange
issued an Options Trader Alert on July 2, 2021 indicating the proposed
rate change for October 1, 2021.\6\
---------------------------------------------------------------------------

    \6\ See Options Trader Alert 2021-41.
---------------------------------------------------------------------------

    The proposed waiver is based on recent options volume which has
remained at abnormally and unexpectedly high levels. Options volume in
2021 remains significantly high when that volume is compared to 2019
and 2020 options volume. For example, total options contract volume in
November 2020 was 71% higher than the total options contract volume in
November 2019.\7\ Below is industry data from OCC \8\ which illustrates
the significant increase in volume during the fourth quarter of 2020.
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    \7\ See data from OCC at: https://www.businesswire.com/news/home/20201202005584/en/OCC-November-2020-Total-Volume-Up-71-Percent-From-a-Year-Ago.
    \8\ See data from OCC at: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Account-Type.

----------------------------------------------------------------------------------------------------------------
               Volume                    October 2020      November 2020      December 2020         Q4 2020
----------------------------------------------------------------------------------------------------------------
Total...............................        633,365,184        673,660,858        753,568,354      2,060,594,396
Customer............................        587,707,301        630,297,252        708,037,956      1,926,042,509
Total ADV...........................      28,789,326.55      33,683,042.90      34,253,107.00      32,196,787.44
Customer ADV........................      26,713,968.23      31,514,862.60      32,183,543.45      30,094,414.20
----------------------------------------------------------------------------------------------------------------

    Below is industry data from OCC \9\ which illustrates the
significant increase in volume from January 2021 through March 2021.
The options volume in the first quarter of 2021 was higher than the
fourth quarter of 2020. Also, April and May 2021 volumes remain
significantly high as compared to 2020 options volume in general.
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    \9\ Id.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                          Volume                              January 2021      February 2021        March 2021         April 2021          May 2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total....................................................        838,339,790        823,412,827        898,653,388        711,388,828        718,368,993
Customer.................................................        784,399,878        782,113,450        837,247,059        667,208,963        659,913,862
Total ADV................................................      44,123,146.84      43,337,517.20      39,071,886.40      33,875,658.50      35,918,449.70
Customer ADV.............................................      41,284,204.11      41,163,865.79      36,402,046.04      31,771,855.38      32,995,693.10
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As a result of the historical anomaly created by these high options
volumes, NOM has no assurance that the Exchange's final costs for 2021
will not differ materially from these expectations and prior practice,
nor can the Exchange predict with certainty whether options volume will
remain at the current level going forward. The Exchange notes however,
that when combined with regulatory fees and fines, the revenue being
generated utilizing the current ORF rate may result in revenue in
excess of the Exchange's estimated regulatory costs for the year.
Particularly, as noted above, the options market has seen a substantial
increase in volume in 2021 as compared to 2020, due in large part to
the continued extreme volatility in the marketplace as a result of the
COVID-19 pandemic. This unprecedented spike in volatility resulted in
significantly higher volume than was originally projected by the
Exchange (thereby resulting in substantially higher ORF revenue than
projected). The Exchange therefore proposes to waive ORF from October
1, 2021 to January 31, 2022 to ensure it does not exceed its regulatory
costs for 2021. Particularly, the Exchange believes that waiving ORF
from October 1, 2021 to January 31, 2022 and considering all of the
Exchange's other regulatory fees and fines would allow the Exchange to
continue covering a material portion of its regulatory costs, while
lessening the potential for generating excess revenue that may
otherwise occur using the current rate.\10\
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    \10\ The Exchange notes that its regulatory responsibilities
with respect to Participant compliance with options sales practice
rules have largely been allocated to FINRA under a 17d-2 agreement.
The ORF is not designed to cover the cost of that options sales
practice regulation.
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    NOM would recommence assessing its current ORF rate of $0.0020 per
contract side as of February 1, 2022. Until October 1, 2021, the
Exchange will continue to monitor the amount of revenue collected from
the ORF to ensure that it, in combination with its other regulatory
fees and fines, does not exceed regulatory costs. The Exchange would
also continue monitoring the amount of revenue collected from the ORF
when it recommences assessing ORF on February 1, 2022. If the Exchange
determines regulatory revenues exceed regulatory costs, the Exchange
will adjust the ORF by submitting a fee change filing to the Commission
and notifying \11\ its Participants via an Options Trader Alert.\12\
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    \11\ The Exchange will provide Participants with such notice at
least 30 calendar days prior to the effective date of the change.
    \12\ The Exchange notes that in connection with this proposal,
it provided the Commission confidential details regarding the
Exchange's projected regulatory revenue, including projected revenue
from ORF, along with a projected regulatory expenses.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act. \13\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act, \14\ which provides that Exchange rules may provide
for the equitable allocation of reasonable dues,

fees, and other charges among its members, and other persons using its
facilities. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \15\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposed fee waiver is reasonable because
customer transactions will be subject to no ORF from October 1, 2021 to
January 31, 2022. Moreover, the proposed waiver is necessary, so the
Exchange does not collect revenue in excess of its anticipated
regulatory costs, in combination with other regulatory fees and fines,
which is consistent with the Exchange's practices.
    The Exchange designed the ORF to generate revenues that would be
less than the amount of the Exchange's regulatory costs to ensure that
it, in combination with its other regulatory fees and fines, does not
exceed regulatory costs, which is consistent with the view of the
Commission that regulatory fees be used for regulatory purposes and not
to support the Exchange's business operations. As discussed above,
however, after review of its regulatory costs and regulatory revenues,
which includes revenues from ORF and other regulatory fees and fines,
the Exchange determined that absent a reduction in ORF, it may be
collecting revenue in excess of its regulatory costs. Indeed, the
Exchange notes that when considering the recent options volume, which
included an increase in customer options transactions, it estimates the
ORF may generate revenues that may cover more than the approximated
Exchange's projected regulatory costs. As such, the Exchange believes
it's reasonable and appropriate to waive ORF from October 1, 2021 to
January 31, 2022 and recommence assessing ORF on February 1, 2022.
    The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory as no Participant would be assessed an ORF
from October 1, 2021 to January 31, 2022. While the Exchange has
assessed and collected ORF from January through September, 2021, but
will not collect ORF, with this proposal, from October 2021 through
January 2022, the Exchange does not believe that it is unfairly
discriminatory to not assess the ORF from October 2021 through January
2022 because the ORF is designed and intended to recover a portion of
the Exchange's regulatory costs without collecting in excess of those
costs. Unexpectedly high and sustained customer volume has resulted in
higher revenues from the ORF that, if not suspended, will likely result
in over-collection of ORF, which would be inconsistent with the
Exchange's prior representations and undertaking to not collect ORF in
excess of regulatory expenses. The Exchange did not decrease the amount
of the ORF earlier in 2021 because it did not expect, based on its
prior experience, that customer volume would remain abnormally high.
Also, it is equitable and not unfairly discriminatory to recommence the
assessment of the ORF on February 1, 2022 because assessing the ORF to
each Participant for options transactions cleared by OCC in the
customer range where the execution occurs on another exchange and is
cleared by aa NOM Participant is an equitable allocation of reasonable
dues, fees, and other charges among its members and issuers and other
persons using its facilities.\16\
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    \16\ If the OCC clearing member is a NOM Participant, ORF is
assessed and collected on all cleared customer contracts (after
adjustment for CMTA); and (2) if the OCC clearing member is not a
NOM Participant, ORF is collected only on the cleared customer
contracts executed at NOM, taking into account any CMTA instructions
which may result in collecting the ORF from a non-member.
---------------------------------------------------------------------------

    The Exchange believes recommencing the ORF on February 1, 2022 at
the same rate, unless options volumes at that time warrant a proposed
rule change, continues to ensure fairness by assessing higher fees to
those Participants that require more Exchange regulatory services based
on the amount of customer options business they conduct. As noted in
prior ORF rule changes which set the current ORF rate of $0.0020 per
contract side, regulating customer trading activity is much more labor
intensive and requires greater expenditure of human and technical
resources than regulating non-customer trading activity, which tends to
be more automated and less labor-intensive. For example, there are
costs associated with main office and branch office examinations (e.g.,
staff expenses), as well as investigations into customer complaints and
the terminations of registered persons.\17\
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    \17\ See Securities Exchange Act Release No. 81344 (August 8,
2017), 82 FR 37955 (August 14, 2017) (SR-NASDAQ-2017-068) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Revise
the NASDAQ Options Market LLC Rules Regarding the Options Regulatory
Fee). The Exchange also noted in this rule change that, ``As a
result, the costs associated with administering the customer
component of the Exchange's overall regulatory program are
materially higher than the costs associated with administering the
Customer component of the Exchange's overall regulatory program are
materially higher than the costs associated with administering the
non-Customer component (e.g. Participant proprietary transactions)
of its regulatory program.'' See 82 FR 37956. Further, the Exchange
notes that it has broad regulatory responsibilities with respect to
activities of its Participants, irrespective of where their
transactions take place. Many of the Exchange's surveillance
programs for customer trading activity may require the Exchange to
look at activity across all markets, such as reviews related to
position limit violations and manipulation. Indeed, the Exchange
cannot effectively review for such conduct without looking at and
evaluating activity regardless of where it transpires. In addition
to its own surveillance programs, the Exchange also works with other
SROs and exchanges on intermarket surveillance related issues.
Through its participation in the Intermarket Surveillance Group
(``ISG'') the Exchange shares information and coordinates inquiries
and investigations with other exchanges designed to address
potential intermarket manipulation and trading abuses. Accordingly,
there is a strong nexus between the ORF and the Exchange's
regulatory activities with respect to customer trading activity of
its Participants.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that this proposal creates an unnecessary or inappropriate intra-market
or inter-market burden on competition for several reasons. First, ORF
has been amended several times since its inception in 2011.\18\ For
example, NOM amended its ORF rate from $0.0021 to $0.0027 per contract
side as of August 1, 2017. Participants who either executed a
transaction on NOM or cleared a transaction at OCC in the customer
range would have been assessed a higher ORF for a transaction executed
on NOM on August 1, 2017 ($0.0027 per contract side) as compared to
July 31, 2017 ($0.0021 per contract side). There have been ORF
amendments which have caused NOM to assess different ORF rates to
Participants for different time periods causing Participants to have
paid different ORFs since 2011. For example, if NOM received payment of
a fine from a disciplinary action, that fine would offset regulatory
costs and would cause NOM to require less regulatory revenue for a
particular period. The changing regulatory costs would impact the ORF
assessed by NOM to Participants. In the past, the Exchange has amended
ORF to be higher or lower,\19\ thereby impacting the amount paid by
Participants in a calendar year. Third, options markets assess ORF at
different rates. For

instance, today, Nasdaq MRX, LLC (``MRX'') assesses a lower ORF of
$0.0004 per contract side.\20\ MRX has assessed this rate since
February 1, 2019.\21\ Depending on where a customer order is executed,
a Participant could be assessed a much different ORF. For example, in
the case where a customer order is sent to NOM and routed to MRX, and a
non-Participant cleared that transaction, the NOM ORF of $0.0020 would
not be assessed to the Participant who executed the transaction or
cleared the transaction, rather the MRX rate of $0.0004 per contract
side would be assessed. In that same scenario presuming a non-
Participant cleared the transaction, if the customer order could have
executed on NOM instead of routing away the Participant would have been
assessed the NOM ORF of $0.0020 per contract side. The customer, in
that instance, would have no knowledge of where the order could be
executed, as the liquidity profile of each exchange may differ at that
exact moment. Therefore, Participants could be assessed a different ORF
on the same day on the same transaction based on routing decisions, and
in those cases the Participant would continue to benefit from the
regulatory program available on each market and discover where the
liquidity is available, irrespective of any ORF rate differentials
across markets.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release Nos. 81344 (August 8,
2017), 82 FR 37955 (August 14, 2017) (SR-NASDAQ-2017-068); 78360
(July 19, 2016), 81 FR 48475 (July 25, 2016) (SR-NASDAQ-2016-096);
and 76950 (January 21, 2016), 81 FR 4687 (January 27, 2016) (SR-
NASDAQ-2016-003).
    \19\ Id.
    \20\ See Securities Exchange Act Release Nos. 85127 (February
13, 2019), 84 FR 5173 (February 20, 2019) (SR-MRX-2019-03).
    \21\ Of note, prior to February 1, 2019, MRX assessed no ORF
thereby creating a calendar year where Participants were assessed no
ORF for a period similar to what is proposed.
---------------------------------------------------------------------------

    The Exchange believes recommencing the ORF on February 1, 2022 at
the same rate, unless options volumes or the Exchange's regulatory
expenses at that time warrant a proposed rule change, does not create
an undue burden on competition because the ORF applies to all customer
activity, thereby raising regulatory revenue to offset regulatory
expenses. It also supplements the regulatory revenue derived from non-
customer activity. Recommencing the assessment of the current ORF does
not create an unnecessary or inappropriate inter-market burden on
competition because it is a regulatory fee that supports regulation in
furtherance of the purposes of the Act. The Exchange is obligated to
ensure that the amount of regulatory revenue collected from the ORF, in
combination with its other regulatory fees and fines, does not exceed
regulatory costs.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule
19b-4 \23\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File No. SR-NASDAQ-2021-057 on the subject line.
Paper Comments
     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File No. SR-NASDAQ-2021-057. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File No. SR-NASDAQ-2021-057, and should be submitted on
or before September 2, 2021.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17177 Filed 8-11-21; 8:45 am]
BILLING CODE 8011-01-P