[Federal Register: January 14, 2010 (Volume 75, Number 9)]
[Rules and Regulations]
[Page 2064-2067]
[DOCID:fr14ja10-5]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2009-0236; Directorate Identifier 2009-NE-06-AD;
Amendment 39-16162; AD 2010-01-05]
RIN 2120-AA64

Airworthiness Directives; CFM International, S.A. CFM56-7B Series
Turbofan Engines

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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SUMMARY: The FAA is adopting a new airworthiness directive (AD) for CFM
International, S.A. CFM56-7B series turbofan engines. This AD requires
initial and repetitive eddy current inspections (ECIs) of certain part
number (P/N) low-pressure (LP) turbine rear frames. This AD results
from a refined life analysis by the engine manufacturer that shows the
need to identify an initial and repetitive inspection threshold for
inspecting certain LP turbine rear frames. We are issuing this AD to
prevent failure of the LP turbine rear frame from low-cycle-fatigue
cracks. Failure of the LP turbine rear frame could result in engine
separation from the airplane, possibly leading to loss of control of
the airplane.

DATES: This AD becomes effective February 18, 2010. The Director of the
Federal Register approved the incorporation by reference of certain
publications listed in the regulations as of February 18, 2010.

ADDRESSES: You can get the service information identified in this AD
from CFM International, Technical Publications Department, 1 Neumann
Way, Cincinnati, OH 45215; telephone<PHONE_NUMBER>; fax (513) 552-
2816.
    The Docket Operations office is located at Docket Management
Facility, U.S. Department of Transportation, 1200 New Jersey Avenue,
SE., West Building Ground Floor, Room W12-140, Washington, DC 20590-
0001.

FOR FURTHER INFORMATION CONTACT: Antonio Cancelliere, Aerospace
Engineer, Engine Certification Office, FAA, Engine and Propeller
Directorate, 12 New England Executive Park, Burlington, MA 01803; e-
mail<EMAIL_ADDRESS>telephone<PHONE_NUMBER>; fax (781)
238-7199.

SUPPLEMENTARY INFORMATION: The FAA proposed to amend 14 CFR part 39
with a proposed AD. The proposed AD applies to CFM International, S.A.
CFM56-7B series turbofan engines. We published the proposed AD in the
Federal Register on May 11, 2009 (74 FR 21772). That action proposed to
require initial and repetitive ECIs of certain P/N LP turbine rear
frames.

Examining the AD Docket

    You may examine the AD docket on the Internet at http://
www.regulations.gov; or in person at the Docket Operations office
between 9 a.m. and 5 p.m., Monday through Friday, except Federal
holidays. The AD docket contains this AD, the regulatory evaluation,
any comments received, and other information. The street address for
the Docket Operations office (telephone<PHONE_NUMBER>) is provided in
the ADDRESSES section. Comments will be available in the AD docket
shortly after receipt.

Comments

    We provided the public the opportunity to participate in the
development of this AD. We have considered the comments received.

Request To Supersede or Revise Existing AD 2008-03-09

    One commenter, the Air Transport Association (ATA), requests that
we should supersede or revise existing AD 2008-03-09 to incorporate the
requirements and P/Ns affected by the proposed AD.
    We do not agree. Superseding or revising that AD to incorporate
these requirements would make the requirements of existing AD 2008-03-
09 and this AD confusing. AD 2008-03-09 requires a change to the
Airworthiness Limitations Section (ALS) for the introduction of the new
LP turbine rear frame life limits, with inspections, while this AD
introduces limits for LP turbine rear frame P/Ns that were introduced
to the field before the ALS changes occurred. We did not change the AD.

Request To Reference the Latest Service Bulletins (SBs)

    ATA and CFM International, S.A. request that we reference the
latest version of CFM International, S.A. SB No. CFM56-7B S/B 72-0579,
which is Revision 5, dated March 30, 2009. CFM International also
requests that we reference the latest version of CFM International,
S.A. SB No. CFM56-7B S/B 72-0558, which is Revision 3, dated March 30,
2009.
    We agree and changed the SB references in the AD.

Request To Include LP Turbine Rear Frame P/Ns

    ATA requests that we include turbine rear frame P/Ns 340-166-251-0;
340-166-252-0; and 340-166-253-0. These P/Ns are included in the
effectivity section of CFM International, S.A. SB No. CFM56-7B S/B 72-
0579, and Engine Manual 05-21-03. ATA also requests that we include LP
turbine rear frame P/Ns 340-027-110-0 and 370-027-120-0. These P/Ns are
included in the effectivity section of CFM International, S.A. SB No.
CFM56-7B S/B 72-0568.
    We do not agree. This AD addresses LP turbine rear frame P/Ns
introduced in the field by CFM International, S.A. through SB No.
CFM56-7B S/B 72-0527, before the ALS could be modified to include the
LP turbine rear frame P/Ns affected by this AD. The LP turbine rear
frame P/Ns listed by ATA are already listed in the ALS. We did not
change the AD.

Question Regarding Inclusion of LP Turbine Rear Frame P/Ns

    Japan Airlines (JAL) questions whether the LP turbine rear frame P/
Ns 340-166-251-0; 340-166-252-0; and 340-166-253-0 should be listed in
this AD.
    The LP turbine rear frame P/Ns referred to by JAL are already
listed in the ALS. We did not change the AD.

Request To Remove Engine Models

    ATA requests that we remove engine models CFM56-7B26/B2; CFM56-
7B26/3B2; and CFM56-7B26/3B2F from the proposed AD, as they are not
affected.
    We agree and removed those models from the AD. We also advised CFM
International, S.A., to remove those models from the effectivity list
of SB No. CFM56-7B S/B 72-0579.

Request To Remove Repeated P/Ns

    ATA requests that we remove the repeated listings of LP turbine
rear frame P/N 340-166-254-0 from the AD.
    We agree and removed the repeated P/N listings from the AD.

Request To Review and Correct an Engine Model

    ATA and CFM International, S.A. request that we review the engine
model -7B27/3 in the proposed AD, as it appears to be incorrect. ATA
states also that engine model -7B27/B3 is missing from the proposed AD.
    We agree. We corrected the -7B27/3 engine model in paragraph (g) to
read ``-7B27/B3''. We also corrected the typographical error in
paragraph (c)(1) so that engine model -7B27/3 is not duplicated. We
changed the duplicate model to read ``-7B27/B3''.

Request To Remove an Engine Model

    ATA requests that we remove engine model -7B27A from paragraph (f)
of the proposed AD, as it is not affected by the AD action.
    We agree and removed that engine model from the AD.

Previous Credit Paragraphs Added

    Since we issued the proposed AD, we became aware that we need to
allow previous credit for initial inspections done before the effective
date of the AD, using earlier versions of the applicable SBs. We added
two previous credit paragraphs to the compliance section of the AD.

Conclusion

    We have carefully reviewed the available data, including the
comments received, and determined that air safety and the public
interest require adopting the AD with the changes described previously.
We have determined that these changes will neither increase the
economic burden on any operator nor increase the scope of the AD.

Costs of Compliance

    We estimate that this AD will affect 1,228 CFM56-7B series turbofan
engines installed on airplanes of U.S. registry. We estimate that it
will take about 3 work-hours to perform an eddy current inspection of
an LP turbine rear frame. The average labor rate is $80 per work-hour.
A new replacement LP turbine rear frame costs about $275,000. We
estimate that all but the first of the recurrent inspections would
occur during normally scheduled maintenance. Therefore, the cost of
only the first inspection is included as directly attributable to this
AD and we included that cost in the first year. Also, while we estimate
that all 1,228 LP turbine rear frames will need replacement at some
point in their 30-year useful life, only the unused cost of the part is
attributable to this AD. Therefore, based on the service history of the
LP turbine rear frame, we estimate the total cost of the AD to U.S.
operators to be less than $11,266,490 annually based on a 30-year fleet
life expectation.

Authority for This Rulemaking

    Title 49 of the United States Code specifies the FAA's authority to
issue rules on aviation safety. Subtitle I, Section 106, describes the
authority of the FAA Administrator. Subtitle VII, Aviation Programs,
describes in more detail the scope of the Agency's authority.
    We are issuing this rulemaking under the authority described in
Subtitle VII, Part A, Subpart III, Section 44701, ``General
requirements.'' Under that section, Congress charges the FAA with
promoting safe flight of civil aircraft in air commerce by prescribing
regulations for practices, methods, and procedures the Administrator
finds necessary for safety in air commerce. This regulation is within
the scope of that authority because it addresses an unsafe condition
that is likely to exist or develop on products identified in this
rulemaking action.

Regulatory Findings

    We have determined that this AD will not have federalism
implications under Executive Order 13132. This AD will not have a
substantial direct effect on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.
    For the reasons discussed above, I certify that this AD:
    (1) Is not a ``significant regulatory action'' under Executive
Order 12866;
    (2) Is not a ``significant rule'' under DOT Regulatory Policies and
Procedures (44 FR 11034, February 26, 1979); and
    (3) Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.
    We prepared a summary of the costs to comply with this AD and
placed it in the AD Docket. You may get a copy of this summary at the
address listed under ADDRESSES.

List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.

Adoption of the Amendment

0
Accordingly, under the authority delegated to me by the Administrator,
the Federal Aviation Administration amends 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

0
1. The authority citation for part 39 continues to read as follows:

    Authority: 49 U.S.C. 106(g), 40113, 44701.

Sec.  39.13  [Amended]

0
2. The FAA amends Sec.  39.13 by adding the following new airworthiness
directive:

2010-01-05 CFM International, S.A: Amendment 39-16162. Docket No.
FAA-2009-0236; Directorate Identifier 2009-NE-06-AD.

Effective Date

    (a) This airworthiness directive (AD) becomes effective February
18, 2010.

Affected ADs

    (b) None.

Applicability

    (c) This AD applies to:
    (1) CFM International, S.A. CFM56-7B20; -7B22; -7B24; -7B26; -
7B27; -7B22/B1; -7B24/B1; -7B27/B1; -7B26/B1; -7B20/3; -7B22/3; -
7B24/3; -7B26/3; -7B27/3; -7B22/3B1; -7B24/3B1; -7B27/3B1; -7B26/
3B1; -7B26/3F; -7B27/B3; -7B27/3F; -7B27/3B1F; and -7B27/3B3
turbofan engines assembled with a low-pressure (LP) turbine rear
frame, part number (P/N) 340-166-254-0; 340-166-255-0; 340-166-256-
0; 340-166-257-0; 340-166-258-0; or 340-166-259-0; and
    (2) CFM International, S.A. CFM56-7B20/2; -7B22/2; -7B24/2; -
7B26/2; and -7B27/2 turbofan engines assembled with a dual annular
combustor and an LP turbine rear frame, P/N 340-177-551-0; 340-177-
552-0; 340-177-553-0; 340-177-554-0; 340-177-555-0; or 340-177-556-
0.
    (3) These engines are installed on, but not limited to, Boeing
737-600, 737-700, 737-800, and 737-900 series airplanes.

Unsafe Condition

    (d) This AD results from a refined life analysis by the engine
manufacturer that shows the need to identify an initial and
repetitive inspection threshold for inspecting certain LP turbine
rear frames. We are issuing this AD to prevent failure of the LP
turbine rear frame from low-cycle-fatigue cracks. Failure of the LP
turbine rear frame could result in engine separation from the
airplane, possibly leading to loss of control of the airplane.

Compliance

    (e) You are responsible for having the actions required by this
AD performed within the compliance times specified unless the
actions have already been done.

Inspections of LP Turbine Rear Frames

    (f) For CFM International, S.A. CFM56-7B20; -7B22; -7B24; -7B26;
-7B27; -7B22/B1; -7B24/B1; -7B27/B1; -7B20/3; -7B22/3; -7B24/3; -
7B26/3; -7B27/3; -7B22/3B1; -7B24/3B1; -7B27/3B1; -7B26/3F; -7B27/
3F; and -7B27/3B1F turbofan engines with an LP turbine rear frame,
P/N 340-166-254-0; 340-166-255-0; 340-166-256-0; 340-166-257-0; 340-
166-258-0; or 340-166-259-0, do the following:
    (1) Perform an initial eddy current inspection (ECI) of the LP
turbine rear frame within 25,000 cycles-since-new (CSN) on the LP
turbine rear frame.
    (2) For engines with unknown LP turbine rear frame CSN, perform
an initial ECI within 300 cycles from the effective date of this AD.
    (3) Perform repetitive ECIs of the LP turbine rear frame, using
the inspection intervals in paragraph 3.A. (8) of the Accomplishment
Instructions of CFM International, S.A. SB No. CFM56-7B S/B 72-0579,
Revision 5, dated March 30, 2009.
    (4) Use paragraphs 3.A. through 3.A. (7)(d) of the
Accomplishment Instructions of CFM International, S.A. Service
Bulletin (SB) No. CFM56-7B S/B 72-0579, Revision 5, dated March 30,
2009, to do the ECIs.
    (5) Remove LP turbine rear frames from service that have a total
cumulated crack length at any location, of 0.79 inch (20 mm) or
longer.
    (g) For CFM International, S.A. CFM56-7B26/B1; -7B27/B3; -7B26/
3B1; and -7B27/3B3 turbofan engines with an LP turbine rear frame,
P/N 340-166-254-0; 340-166-255-0; 340-166-256-0; 340-166-257-0; 340-
166-258-0; or 340-166-259-0, do the following:
    (1) Perform an initial ECI of the LP turbine rear frame within
19,000 CSN on the LP turbine rear frame.
    (2) For engines with unknown LP turbine rear frame CSN, perform
an initial ECI within 300 cycles from the effective date of this AD.
    (3) Perform repetitive ECIs of the LP turbine rear frame, using
the inspection intervals in paragraph 3.A. (9) of the Accomplishment
Instructions of CFM International, S.A. SB No. CFM56-7B S/B 72-0579,
Revision 5, dated March 30, 2009.
    (4) Use paragraphs 3.A. through 3.A. (7)(d) of the
Accomplishment Instructions of CFM International, S.A. Service
Bulletin (SB) No. CFM56-7B S/B 72-0579, Revision 5, dated March 30,
2009, to do the ECIs.
    (5) Remove LP turbine rear frames from service that have a total
cumulated crack length at any location, of 0.79 inch (20 mm) or
longer.
    (h) For CFM International, S.A. CFM56-7B20/2; -7B22/2; -7B24/2;
-7B26/2; and -7B27/2 turbofan engines assembled with a dual annular
combustor and an LP turbine rear frame, P/N 340-177-551-0; 340-177-
552-0; 340-177-553-0; 340-177-554-0; 340-177-555-0; or 340-177-556-
0, do the following:
    (1) Perform an initial ECI of the LP turbine rear frame within
16,350 CSN on the LP turbine rear frame.
    (2) For engines with unknown LP turbine rear frame CSN, perform
an initial ECI within 300 cycles from the effective date of this AD.
    (3) Perform repetitive ECIs of the LP turbine rear frame, using
the inspection intervals in paragraph 3.A. (8) of the Accomplishment
Instructions of CFM International, S.A. SB No. CFM56-7B S/B 72-0558,
Revision 3, dated March 30, 2009.
    (4) Use paragraphs 3.A. through 3.A. (7)(d) of the
Accomplishment Instructions of CFM International, S.A. SB No. CFM56-
7B S/B 72-0558, Revision 3, dated March 30, 2009, to do the ECIs.
    (5) Remove LP turbine rear frames from service that have a total
cumulated crack length at any location, of 0.43 inch (11 mm) or
longer.

Previous Credit

    (i) Initial inspection of LP turbine rear frames before the
effective date of this AD performed using the Accomplishment
Instructions of CFM International, S.A. SB No. CFM56-7B S/B 72-0579,
original issue, Revision 1, Revision 2, Revision 3, or Revision 4,
satisfy the requirements of paragraphs (f)(1), (f)(2), (g)(1), and
(g)(2) of this AD.
    (j) Initial inspection of LP turbine rear frames before the
effective date of this AD performed using the Accomplishment
Instructions of CFM International, S.A. SB No. CFM56-7B S/B 72-0558,
original issue, Revision 1, or Revision 2, satisfy the requirements
of paragraphs (h)(1) and (h)(2) of this AD.

Alternative Methods of Compliance

    (k) The Manager, Engine Certification Office, has the authority
to approve alternative methods of compliance for this AD if
requested using the procedures found in 14 CFR 39.19.

Related Information

    (l) European Aviation Safety Agency AD 2009-0009 (corrected),
dated January 27, 2009, also addresses the subject of this AD.
    (m) Contact Antonio Cancelliere, Aerospace Engineer, Engine
Certification Office, FAA, Engine and Propeller Directorate, 12 New
England Executive Park, Burlington, MA 01803; e-mail:
<EMAIL_ADDRESS>telephone<PHONE_NUMBER>; fax (781)
238-7199, for more information about this AD.

Material Incorporated by Reference

    (n) You must use the service information specified in the
following Table 1 to perform the inspections required by this AD.
The Director of the Federal Register approved the incorporation by
reference of the documents listed in the following Table 1 in
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact CFM
International, Technical Publications Department, 1 Neumann Way,
Cincinnati, OH 45215; telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>,
for a copy of this service information. You may review copies at the
FAA, New England Region, 12 New England Executive Park, Burlington,
MA; or at the National Archives and Records Administration (NARA).
For information on the availability of this material at NARA, call
202-741-6030, or go to: http://www.archives.gov/federal-register/
cfr/ibr-locations.html.

                                       Table 1--Incorporation by Reference
----------------------------------------------------------------------------------------------------------------
      Service Bulletin No.                     Page                  Revision                  Date
----------------------------------------------------------------------------------------------------------------
CFM56-7B S/B 72-0558...........  All............................               3  March 30, 2009.
    Total Pages: 22
CFM56-7B S/B 72-0579...........  All............................               5  March 30, 2009
    Total Pages: 23
----------------------------------------------------------------------------------------------------------------

    Issued in Burlington, Massachusetts, on December 23, 2009.
Francis A. Favara,
Manager, Engine and Propeller Directorate, Aircraft Certification
Service.
[FR Doc. E9-31043 Filed 1-13-10; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 85, Number 9 (Tuesday, January 14, 2020)]
[Notices]
[Pages 2139-2140]
[FR Doc No: 2020-00354]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

[Docket No. USCG-2019-0483]

National Towing Safety Advisory Committee; Initial Solicitation
for Members

AGENCY: Coast Guard, Department of Homeland Security.

ACTION: Request for applications.

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SUMMARY: The Coast Guard is requesting applications from persons
interested in serving as a member of the National Towing Safety
Advisory Committee (``Committee''). This recently established Committee
will advise the Secretary of the Department of Homeland Security on
matters relating to shallow-draft inland navigation, coastal waterway
navigation, and towing safety. Please read this notice for a
description of the 18 Committee positions we are seeking to fill.

DATES: Your completed application should reach the Coast Guard on or
before March 16, 2020.

ADDRESSES: Applicants should send a cover letter expressing interest in
an appointment to the National Towing Safety Advisory Committee and a
resume detailing the applicant's experience. We will not accept a
biography. Applications for members drawn from the general public must
be accompanied by a completed OGE Form 450 (see supplementary
information below).
    Applications should be submitted via one of the following methods:
     By Email<EMAIL_ADDRESS>(preferred).
     By Fax:<PHONE_NUMBER>; ATTN: Mr. Matthew Layman, Alternate
Designated Federal Officer; or
     By Mail: Mr. Matthew Layman, Alternate Designated Federal
Officer, Commandant (CG-OES-2), U.S. Coast

Guard Stop 7509, 2703 Martin Luther King Jr. Avenue SE, Washington, DC
20593-7509.

FOR FURTHER INFORMATION CONTACT: Mr. Matthew Layman, Alternate
Designated Federal Officer of the National Towing Safety Advisory
Committee; Telephone<PHONE_NUMBER>; or Email at
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: The National Towing Safety Advisory
Committee is a Federal advisory committee. It will operate under the
provisions of the Federal Advisory Committee Act, 5 United States Code,
Appendix, and the administrative provisions in Section 601 of the Frank
LoBiondo Coast Guard Authorization Act of 2018 (specifically, 46 U.S.C.
15109).
    The Committee was established on December 4, 2018, by the Frank
LoBiondo Coast Guard Authorization Act of 2018, which added section
15108, National Towing Safety Advisory Committee, to Title 46 of the
U.S. Code (46 U.S.C. 15108). The Committee will advise the Secretary of
Homeland Security on matters relating to shallow-draft inland
navigation, coastal waterway navigation, and towing safety.
    The Committee is required to hold meetings at least once a year in
accordance with 46 U.S.C. 15109(a). The meetings are generally held in
cities that have a high concentration of towing-industry and related
businesses.
    All members serve at their own expense and receive no salary or
other compensation from the Federal Government. Members may be
reimbursed, however, for travel and per diem in accordance with Federal
Travel Regulations.
    Under provisions in 46 U.S.C. 15109(f)(6), if you are appointed as
a member of the Committee, your membership term will expire on December
31 of the third full year after the effective date of your appointment.
In this initial solicitation for Committee members, we will consider
applications for all 18 positions:
     Seven members to represent the barge and towing industry,
reflecting a regional geographic balance;
     One member to represent the offshore mineral and oil
supply vessel industry;
     One member to represent masters and pilots of towing
vessels who hold active licenses and have experience on the Western
Rivers and the Gulf Intracoastal Waterway;
     One member to represent masters of towing vessels in
offshore service who hold active licenses;
     One member to represent masters of active ship-docking or
harbor towing vessels;
     One member to represent licensed and unlicensed towing
vessel engineers with formal training and experience;
     Two members to represent port districts, authorities, or
terminal operators;
     Two members to represent shippers and, of the two, one
engaged in the shipment of oil or hazardous materials by barge; and
     Two members drawn from the general public.
    Each member of the Committee must have particular expertise,
knowledge, and experience in matters relating to the function of the
Committee which is to advise the Secretary of Homeland Security on
matters relating to shallow-draft inland navigation, coastal waterway
navigation, and towing safety.
    If you are selected as a member drawn from the general public, you
will be appointed and serve as a Special Government Employee as defined
in section 202(a) of Title 18, United States Code. Applicants for
appointment as a Special Government Employee are required to complete a
Confidential Financial Disclosure Report (OGE Form 450) for new
entrants and if appointed as a member must submit Form 450 annually.
The Coast Guard may not release the reports or the information in them
to the public except under an order issued by a Federal Court or as
otherwise provided under the Privacy Act (5 U.S.C. 552a). Only the
Designated U.S. Coast Guard Ethics Official or his or her designee may
release a Confidential Financial Disclosure Report. Applicants can
obtain this form by going to the website of the Office of Government
Ethics (www.oge.gov), or by calling or emailing the individual listed
above in the FOR FURTHER INFORMATION CONTACT section.
    Registered lobbyists are not eligible to serve on Federal Advisory
Committees in an individual capacity. See ``Revised Guidance on
Appointment of Lobbyists to Federal Advisory Committees, Boards and
Commissions'' (79 FR 47482, August 13, 2014). Registered lobbyists are
``lobbyists,'' as defined in 2 U.S.C. 1602, who are required by 2
U.S.C. 1603 to register with the Secretary of the Senate and the Clerk
of the House of Representatives.
    The Department of Homeland Security does not discriminate in
selection of Committee members on the basis of race, color, religion,
sex, national origin, political affiliation, sexual orientation, gender
identity, marital status, disabilities and genetic information, age,
membership in an employee organization, or any other non-merit factor.
The Department of Homeland Security strives to achieve a widely diverse
candidate pool for all of its recruitment selections.
    If you are interested in applying to become a member of the
Committee, send your cover letter and resume to Mr. Matthew Layman,
Alternate Designated Federal Officer of the National Towing Safety
Advisory Committee via one of the transmittal methods in the ADDRESSES
section by the deadline in the DATES section of this notice. If you
send your application to us via email, we will send you an email
confirming receipt of your application.

    Dated: January 8, 2020.
Jeffrey G. Lantz,
Director of Commercial Regulations and Standards.
[FR Doc. 2020-00354 Filed 1-13-20; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register: October 31, 2006 (Volume 71, Number 210)]
[Notices]
[Page 63812-63814]
[DOCID:fr31oc06-97]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54650; File No. SR-NASD-2004-130]

Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment
Nos. 1 and 2 Relating to Amendments to Rule 2320(g) (Three Quote Rule)
and Corresponding Recordkeeping Requirements Under Rule 3110(b)

 October 25, 2006.
    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 27, 2004, the National Association of Securities Dealers,
Inc. (``NASD'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by NASD. On
May 8, 2006, NASD filed Amendment No. 1 to the proposed rule change.\3\
On October 19, 2006, NASD filed Amendment No. 2 to the proposed rule
change.\4\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superceded in its entirety the
text of the original filing.
    \4\ Amendment No. 2 replaced and superceded in its entirety the
text of the original filing, as amended.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    NASD is proposing to amend Rule 2320(g) (``Three Quote Rule'') and
the corresponding recordkeeping requirements under Rule 3110(b) to
exclude from the Three Quote Rule's coverage transactions in foreign
securities of a foreign issuer that are part of the FTSE All-World
Index.
    Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *

2320. Best Execution and Interpositioning

    (a) through (f) No Change.
    (g) (1) Except as provided in subparagraph (3) below, [Unless two
or more priced quotations for a non-exchange-listed security (as
defined in the Rule 6600 Series) are displayed in an inter-dealer
quotation system that permits quotation updates on a real-time basis,]
in any transaction for or with a customer pertaining to the execution
of an order in a non-exchange-listed security (as defined in the Rule
6600 Series), a member or person associated with a member shall contact
and obtain quotations from three dealers (or all dealers if three or
less) to determine the best inter-dealer market for the subject
security.
    (2) No Change.
    (3) The requirements described in subparagraph (1) above shall not
apply:
    (A) when two or more priced quotations for a non-exchange-listed
security are displayed in an inter-dealer quotation system that permits
quotation updates on a real-time basis; or
    (B) to any transaction pertaining to the execution of an order in a
non-exchange-listed security of a foreign issuer that is part of the
FTSE All-World Index if such transaction is executed during the regular
business hours of the foreign market for the foreign security and no
trading halt or other similar trading or quoting restriction is in
effect in any foreign market on which such foreign security is listed.
    (4) Definitions.
    For purposes of this paragraph (g): [,]
    (A) T[t]he term ``inter-dealer quotation system'' means any system
of general circulation to brokers or dealers that regularly
disseminates quotations of identified brokers or dealers.
    (B) [(4) For purposes of this paragraph,] T[t]he term ``quotation
medium'' means any inter-dealer quotation system or any publication or
electronic communications network or other device that is used by
brokers or dealers to make known to others their interest in
transactions in any security, including offers to buy or sell at a
stated price or otherwise, or invitations of offers to buy or sell.
    (5) No Change.
* * * * *

3110. Books and Records

    (a) No Change.
    (b) Marking of Customer Order Tickets
    A person associated with a member shall indicate on the memorandum
for each transaction in a non-exchange-listed security, as that term is
defined in the Rule 6600 Series, the name of each dealer contacted and
the quotations received to determine the best inter-dealer market;
however, the requirements of this subparagraph shall not apply if the
member can establish and has documented that:
    (1) two or more priced quotations for the security are displayed in
an inter-dealer quotation system, as defined in Rule 2320(g), that
permits quotation updates on a real-time basis for which NASD
[Regulation] has access to historical quotation information; or
    (2) the transaction is effected in compliance with Rule
2320(g)(3)(B).
    (c) through (j) No Change.
* * * * *

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

    In its filing with the Commission, NASD 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. NASD 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
Rule Filing History
    On August 27, 2004, NASD filed with the Commission proposed rule
change SR-NASD-2004-130, proposing amendments to Rule 2320(g) and Rule
3110(b) to exclude from the Three Quote Rule's coverage transactions in
foreign securities of a foreign issuer that are part of the FTSE World
Index. On May 8, 2006, NASD filed Amendment No. 1 to change the
proposed exclusion from the Three Quote Rule's coverage transactions in
foreign securities of a foreign issuer that are part of the FTSE All-
World Index, rather than the FTSE World Index.\5\
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    \5\ The FTSE World Index is a sub-set of the FTSE All-World
Index. The list of securities that comprise the FTSE All-World Index
are substantially similar to the list of securities that comprise
the FTSE World Index. The key difference is that the FTSE All-World
Index is comprised of securities from Developed, Advanced Emerging
and Secondary Emerging markets, whereas the FTSE World Index is
comprised of securities from Developed and Advanced Emerging market
segments only. The FTSE World Index, however, is no longer offered
other than to existing FTSE subscribers. Given that the FTSE World
Index would not be widely accessible, NASD amended its filing
accordingly. See Exhibit 2 to Amendment No. 2 for additional
details, available on the NASD's Web site at http://www.nasd.com.

    The information in this proposed rule change, as amended, and in
Exhibit 2 thereto relating to the FTSE All-World Index is based on
information published on FTSE's Web site at http://www.ftse.com, as well as

from conversations between NASD staff and FTSE staff.
---------------------------------------------------------------------------

    On June 30, 2006, the Commission approved SR-NASD-2005-087, which

amended certain NASD rules to reflect the separation of Nasdaq from
NASD upon the operation of the Nasdaq Exchange as a national securities
exchange.\6\ Among other amendments, SR-NASD-2005-087 amended Rules
2320(g) and 3110(b) to replace the term ``non-Nasdaq securities'' with
``non-exchange-listed securities.'' SR-NASD-2005-087 became effective
on August 1, 2006, the date upon which Nasdaq began operation as an
exchange for Nasdaq-listed securities.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 54084 (June 30,
2006), 71 FR 38935 (July 10, 2006).
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    Given the Commission's approval of SR-NASD-2005-087, NASD filed
Amendment No. 2. Amendment No. 2, which replaces and supersedes the
prior filings in their entirety, amends the proposed rule text and
description to reflect Nasdaq's operation as an exchange, among other
clarifying changes.
Proposal
    The Three Quote Rule originally was adopted on May 2, 1988,\7\ as
an amendment to NASD's best execution interpretation and generally
requires that members that execute transactions in non-exchange-listed
securities \8\ on behalf of customers contact a minimum of three
dealers (or all dealers if three or less) and obtain quotations, if
there are fewer than two quotations displayed on an inter-dealer
quotation system that permits quotation updates on a real-time basis.
The Three Quote Rule further defined a member's best execution
obligation to customers by setting forth additional requirements for
transactions in non-exchange-listed securities, particularly
transactions involving relatively illiquid securities with non-
transparent prices. The Three Quote Rule is a minimum standard, and
compliance with the rule, in and of itself, does not mean a member has
met its best execution obligations.
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    \7\ See Securities Exchange Act Release No. 25637 (May 2, 1988),
53 FR 16488 (May 9, 1988).
    \8\ The Three Quote Rule applies to transactions in all non-
exchange-listed securities. A non-exchange-listed security is
defined in NASD Rule 6610 as ``any equity security that is not
traded on any national securities exchange * * *.'' Therefore, the
rule by its terms applies to transactions effected on any foreign
exchange. The term ``national securities exchange'' is not defined
in NASD rules, but the requirements to qualify are set forth in
Sections 6(a) and 19(a) of the Act. See 15 U.S.C. 78f(a) and 78s(a).
See also Securities Exchange Act Release No. 39266 (October 22,
1997), 62 FR 56217 (October 29, 1997).
---------------------------------------------------------------------------

    Since the adoption of the Three Quote Rule, the market for non-
exchange-listed securities has changed significantly. NASD has found
that under certain circumstances, the Three Quote Rule often can
hinder, rather than further, best execution by causing significant
delays in obtaining executions of customer orders. For example, in
2000, NASD amended the Three Quote Rule to eliminate the requirement to
contact three market makers when there are at least two priced
quotations displayed in an inter-dealer quotation system that permits
quotation updates on a real-time basis.\9\ NASD concluded that, where
there were two transparent, firm quotes, the costs associated with
delayed executions resulting from compliance with the Three Quote Rule
were not outweighed by the benefits of obtaining three telephone
quotes.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 43319 (September 21,
2000), 65 FR 58589 (September 29, 2000). This rule change also
alleviated the corresponding recordkeeping requirements under Rule
3110(b) where NASD could validate and confirm compliance with
applicable requirements directly through its internal historical
data.
---------------------------------------------------------------------------

    Similar concerns have been raised with respect to the Three Quote
Rule's application in the area of orders in foreign securities of
foreign issuers. Certain members and other interested parties had
raised concerns that the Three Quote Rule was unnecessary and
potentially harmful to the customer's best interests when a member,
using reasonable diligence, has determined that the best market for a
foreign security is a foreign market where the securities trade with
sufficient liquidity and transparency.
    NASD staff agreed that the protections of the Three Quote Rule may
not be necessary with respect to all orders in foreign securities. In
fact, according to the NASD, the Commission, in its approval order
granting NASD exemptive authority with respect to the Three Quote Rule,
specifically indicated that exemptive relief may be appropriate for
transactions executed on a foreign exchange.\10\ The NASD noted that
the Commission stated that exemptive relief may be appropriate in such
circumstances because the foreign exchange may constitute the best
market for securities that are listed on that market and the time delay
involved in contacting three dealers may, therefore, hinder a member
from obtaining best execution for the customers.\11\
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 39266 (October 22,
1997), 62 FR 5617 (October 29, 1997).
    \11\ Id.
---------------------------------------------------------------------------

    Accordingly, NASD is proposing amendments that would exclude from
the Three Quote Rule's coverage transactions effected in foreign
securities of foreign issuers that are part of the FTSE All-World
Index.\12\ Therefore, under the proposed rule change, a member would
not be required to obtain three quotes in connection with transactions
in foreign securities that are part of the FTSE All-World Index. The
proposed rule change would not require that the transaction be executed
on a foreign market so as not to limit the member's ability to
determine, in fulfilling its best execution obligations, that a better
execution would be obtained off the foreign market. However, to qualify
for the exemption, the transaction must be executed during regular
business hours of the foreign market for the security and no trading
halt or other similar trading or quotation restriction may be in effect
in any foreign market on which for such foreign security is listed.\13\
---------------------------------------------------------------------------

    \12\ NASD states that the Financial Times and the London Stock
Exchange operate the FTSE All-World Index. The FTSE All-World Index
includes 48 different countries and approximately 3,000 stocks. See
Exhibit 2 to Amendment No. 2 for a detailed description of the
criteria used to determine the FTSE All-World Index.
    \13\ Contingent upon approval of the proposed rule change, NASD
staff plans to withdraw all existing exemptions it has granted to
the Three Quote Rule that relate to foreign securities. NASD staff
has granted seven exemptions for customer transactions in Canadian
securities executed on a Canadian exchange on an agency or riskless
principal basis. See, e.g., Letter to Mr. Kenneth W. Perlman,
General Counsel, Mayer & Schweitzer, Inc., from Alden S. Adkins,
Senior Vice President and General Counsel, NASD Regulation, Inc., on
May 29, 1998.
---------------------------------------------------------------------------

    NASD has selected the FTSE All-World Index in part because,
according to the NASD, Commission staff has deemed the foreign
securities that are listed on the FTSE World Index, a subset of the
FTSE All-World Index, as having a ``ready market'' and therefore
eligible to receive comparable favorable treatment to U.S. equity
securities under the securities haircut \14\ provisions of the SEC's
net capital rule.\15\ In addition, the Federal Reserve Board recognizes
the FTSE World Index for determining whether stocks are eligible for
margin treatment. NASD believes that the criteria used in determining
the composition of the FTSE World Index, which are substantially the
same for the FTSE All-World Index, helps to ensure that the securities
trade with a high

degree of liquidity, consistency, and price transparency.\16\
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    \14\ NASD notes that the Commission's net capital rule requires
broker-dealers, when computing net capital, to deduct from their net
worth certain percentages of the market value of their proprietary
securities positions, commonly referred to as ``haircuts.'' Haircuts
are calculated under paragraphs (c)(2)(vi), (c)(2)(vii), and
applicable appendices of the standard net capital rule, SEC Rule
15c3-1. 17 CFR 240.15c3-1.
    \15\ See 1993 SEC No-Act LEXIS 967 (August 13, 1993) (regarding
foreign equity issues listed on the FT-Actuaries World Index as
having a ready market with respect to the ready market and haircut
provisions of the SEC's net capital rule). NASD states that the
calculation of the FT/S&P Actuaries World Index was taken over by
FTSE in November 1999 and renamed the FTSE World Index, which is a
subset of the FTSE All-World Index.
    \16\ The FTSE All-World Index is based on a set of rules that
govern the construction and maintenance of the index. Stocks
comprising the FTSE All-World Index are screened to, among other
things, ensure there is sufficient liquidity and the availability of
accurate and timely data. Factors in determining liquidity include
the level of trading volume relative to shares outstanding. See
Exhibit 2 to Amendment No. 2 for further information.
---------------------------------------------------------------------------

    Importantly, while the proposed rule change would not require a
member to obtain three quotes in connection with transactions in
foreign securities that are part of the FTSE All-World Index, members
would continue to be required to comply with their best execution
obligations under Rule 2320, and to the extent applicable, their
suitability obligations under Rule 2310.
    The proposed rule change also would provide a corresponding
exclusion to the recordkeeping requirements set forth in Rule 3110(b)
relating to the Three Quote Rule if the member can establish and
document its reliance on this exclusion. Rule 3110(b) requires that
members indicate on the order ticket for each transaction in a non-
exchange-listed security the name of each dealer contacted and the
quotations received to determine the best inter-dealer market as
required by the Three Quote Rule.
    In addition, NASD no longer refers to its subsidiary, NASD
Regulation, Inc., using its full corporate name, ``NASD Regulation'' or
``NASD Regulation, Inc.'' Instead, NASD uses ``NASD'' unless otherwise
appropriate for corporate or regulatory reasons. Accordingly, the
proposed rule change replaces one reference to ``NASD Regulation'' in
the text of the proposed rule change with ``NASD.''
    Finally, NASD will announce the effective date of the proposed rule
change in a Notice to Members to be published no later than 60 days
following Commission approval. The effective date will be 30 days
following publication of the Notice to Members announcing Commission
approval.
2. Statutory Basis
    NASD believes that the proposed rule change, as amended, is
consistent with the provisions of Section 15A of the Act \17\ in
general, and with Section 15A(b)(6) of the Act \18\ in particular, in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. NASD believes
that the proposed rule change will reduce the time and effort necessary
in contacting three dealers in orders for foreign securities of certain
foreign issuers where it has been demonstrated that such securities are
trading with sufficient liquidity and price transparency.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78o-3.
    \18\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, 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 e-mail to<EMAIL_ADDRESS>Please include

File Number SR-NASD-2004-130 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NASD-2004-130. This
file number should be included on the subject line if e-mail 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 inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of NASD. 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 Number
SR-NASD-2004-130 and should be submitted on or before November 21,
2006.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-18250 Filed 10-30-06; 8:45 am]

BILLING CODE 8011-01-P