[Federal Register: August 11, 2009 (Volume 74, Number 153)]
[Notices]
[Page 40265-40269]
[DOCID:fr11au09-137]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60431; File No. SR-Phlx-2009-59]

Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing of Proposed Rule Change, and Amendment No. 1 Thereto, Relating
to the Exchange's By-Laws, Regulatory Oversight Committee and Referee
Program

August 4, 2009.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that, on July 27, 2009, NASDAQ OMX PHLX, Inc. (``Phlx''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. On July
30, 2009, the Exchange filed Amendment No. 1 to the proposed rule
change.\3\ 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\ By Amendment No. 1, the Exchange updated its proposal to
reflect that The NASDAQ Stock Market LLC and NASDAQ OMX BX, Inc.
have already eliminated their audit committees.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend its By-Laws to establish a
regulatory oversight committee of the Board of Governors (the
``Board''); describe the office and responsibilities of the chief
regulatory officer in the By-Laws; eliminate the audit committee and
compensation committee of the Board, with their duties being assigned
to other board committees of Phlx or its parent corporation, The NASDAQ
OMX Group, Inc. (``NASDAQ OMX''); amend the Exchange's By-Laws to
delete the Referee process and establish a new Options Trade Review
Committee in

lieu thereof; and make conforming changes to the Exchange's Rules and
Options Floor Procedure Advice.
    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/
Filings/, 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 those 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
Modifications to the Regulatory Oversight Structure of the Board of
Governors
    On July 24, 2008, Phlx was acquired by NASDAQ OMX. Following that
acquisition, Phlx has been assessing means to improve its governance
structure and conform it more closely to that of The NASDAQ Stock
Market LLC (the ``NASDAQ Exchange''), an effort that has already
resulted in the submission of several proposed rule changes to the
Commission.\4\ In addition, Phlx--together with the NASDAQ Exchange and
NASDAQ OMX BX, Inc. (formerly the Boston Stock Exchange, and also an
exchange subsidiary of NASDAQ OMX)--has been evaluating means to
realize synergies in the operations of these three exchanges while
maintaining the separate identity and member representation structures
of each.
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    \4\ See Securities Exchange Act Release No. 59764 (April 20,
2009), 74 FR 18761 (April 24, 2009) (SR-Phlx-2009-17) (approving
proposal to modify the process for nominating Governors of the
Exchange); Securities Exchange Act Release No. 59697 (April 4,
2009), 74 FR 16249 (April 9, 2009) (SR-Phlx-2009-23) (proposing to
eliminate various standing committees of the Exchange and making
other miscellaneous changes). The Commission notes that the latter
filing was approved by the Commission on May 14, 2009. See
Securities Exchange Act Release No. 59924 (May 14, 2009), 74 FR
23759 (May 20, 2009).
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    In making this evaluation, Phlx and its sister exchanges have given
consideration to the experiences of their respective boards and have
reviewed the governance documents of other exchanges. In particular,
Phlx and the other exchanges have reviewed the board structures
established by NYSE Euronext and its exchange subsidiaries. In
Securities Exchange Act Release No. 55293,\5\ the Commission approved a
structure in which certain committees of the board of directors of NYSE
Euronext, the public holding company, perform functions for exchange
subsidiaries, which do not themselves have these committees.
Specifically, the Commission's approval order states that ``the NYSE
Euronext board of directors will have an audit committee, a human
resource and compensation committee, and a nominating and governance
committee. Each of the audit committee, human resource and compensation
committee, and nominating and governance committee of the NYSE Euronext
board of directors will consist solely of directors meeting the
independence requirements of NYSE Euronext.
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    \5\ Securities Exchange Act Release No. 55293 (February 14,
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
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    These committees also will perform relevant functions for NYSE
Group,\6\ the Exchange,\7\ NYSE Market,\8\ NYSE Regulation,\9\
Archipelago,\10\ NYSE Arca,\11\ and NYSE Arca Equities,\12\ as well as
other subsidiaries of NYSE Euronext, except that the board of directors
of NYSE Regulation will continue to have its own compensation committee
and nominating and governance committee.''
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    \6\ NYSE Group, Inc., the former public holding company of NYSE
Euronext's U.S. exchanges.
    \7\ New York Stock Exchange LLC (``NYSE''), a registered
national securities exchange.
    \8\ NYSE Market, Inc., a subsidiary of NYSE to which it has
delegated certain operational authority.
    \9\ NYSE Regulation, Inc., a subsidiary of NYSE to which it has
delegated certain operational authority.
    \10\ Archipelago Holdings, Inc., formerly the public holding
company of the entities now known as NYSE Arca, Inc. and NYSE Arca
Equities, Inc.
    \11\ NYSE Arca, Inc., a registered national securities exchange.
    \12\ NYSE Arca Equities, Inc., a subsidiary of NYSE Arca to
which it has delegated certain operational authority.
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    Phlx and the other exchanges owned by NASDAQ OMX have also
considered the experience of the NASDAQ Exchange in operating as a
subsidiary of a public company since 2006. During the period, the board
of each of the NASDAQ Exchange and its parent corporation (currently
NASDAQ OMX, and formerly The Nasdaq Stock Market, Inc.) has appointed
its own audit committee and management compensation committee. However,
these committees at the NASDAQ Exchange level have generally found
themselves duplicating the work of other committees at the exchange or
holding company level. The NASDAQ OMX audit committee has broad
authority to review the financial information that will be provided to
shareholders and others, systems of internal controls, and audit,
financial reporting and legal and compliance processes. Because NASDAQ
OMX's financial statements are prepared on a consolidated basis that
includes the financial results of NASDAQ OMX's subsidiaries, including
Phlx and the other exchange subsidiaries, the NASDAQ OMX audit
committee's purview necessarily includes these subsidiaries. The
committee is composed of four or five directors, all of whom must be
independent under the standards established by Section 10A(m) of the
Act \13\ and Rule 4200(a) of the NASDAQ Exchange. All committee members
must be able to read and understand financial statements, and at least
one member must have past employment experience in finance or
accounting, requisite professional certification in accounting, or any
other comparable experience or background that results in the
individual's financial sophistication.
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    \13\ 15 U.S.C. 78j-1(m).
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    By contrast, the audit committee of the NASDAQ Exchange has a more
limited role, focused solely on the exchange entity and its
subsidiaries that operate as facilities of the NASDAQ Exchange. As
described in the current By-Laws of the NASDAQ Exchange (which are, in
this respect, virtually identical to the current By-Laws of Phlx), the
primary functions of the audit committee are (i) oversight over
financial reporting, (ii) oversight over the systems of internal
controls established by management and the Board and the legal and
compliance process, (iii) selection and evaluation of independent
auditors, and (iv) direction and oversight of the internal audit
function. However, to the extent that the committee reviews financial
and accounting matters, its activities are duplicative of the
activities of the NASDAQ OMX audit committee, which is also charged
with providing oversight over financial reporting and independent
auditor selection for NASDAQ OMX and all of its subsidiaries, including
the NASDAQ Exchange, BX, and Phlx and their subsidiaries. Similarly,
the NASDAQ

OMX audit committee has general responsibility for oversight over
internal controls and direction and oversight over the internal audit
function for NASDAQ OMX and all of its subsidiaries. Thus, the
responsibilities of the exchanges' audit committees are fully
duplicated by the responsibilities of the NASDAQ OMX audit committee.
Accordingly, the NASDAQ Exchange has eliminated its audit committee by
amending Article III, Section 5 of the By-Laws.\14\
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    \14\ Securities Exchange Act Release No. 60276 (July 9, 2009),
74 FR 34840 (July 17, 2009) (SR-NASDAQ-2009-042) (``Release No. 34-
60276''). Similarly, BX has eliminated its audit committee.
Securities Exchange Act Release No. 60247 (July 17, 2009), 74 FR
33495 (July 13, 2009) (SR-BX-2009-021) (``Release No. 34-60247'').
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    Similarly, drawing upon the model established by NYSE Euronext and
the experience of the NASDAQ Exchange, Phlx is proposing to amend
Section 10-9 of its By-Laws to eliminate its audit committee. While the
committee formerly played a vital role in oversight of the preparation
of Phlx's financial statements when Phlx was owned by a group of
investors and sat at the top of a holding company structure, that role
has been assumed by the NASDAQ OMX audit committee now that Phlx is a
wholly owned subsidiary. Moreover, since Phlx does not currently have a
regulatory oversight committee, Phlx is now proposing to establish such
a committee so that regulatory oversight functions formerly performed
by the audit committee may be assumed by the new committee.\15\ The new
committee will oversee the adequacy and effectiveness of Phlx's
regulatory and self-regulatory organization responsibilities; assess
Phlx's regulatory performance; and assist the Board and its standing
committees in reviewing the regulatory plan and the overall
effectiveness of Phlx's regulatory functions. In furtherance of its
functions, the committee shall (a) review Phlx's regulatory budget and
specifically inquire into the adequacy of resources available in the
budget for regulatory activities; (b) meet regularly with Phlx's chief
regulatory officer in executive session; and (c) be informed about the
compensation and promotion or termination of the chief regulatory
officer and the reasons therefor.\16\ The committee shall consist of
three members, each of whom shall be an independent governor.\17\
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    \15\ Section 10-9 of the By-Laws.
    \16\ The audit committee also currently performs functions
relating to the Referee, who has authority to review certain
decisions of Options Exchange Officials. As described below, the
Exchange proposes to replace the Referee with a new Options Trade
Review Committee.
    \17\ An independent governor is one who has no material
relationship with Phlx or any affiliate of Phlx, any member of Phlx
or any affiliate of such member, or any issuer of securities that
are traded on Phlx or a facility of Phlx.
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    Phlx believes that even in light of the NASDAQ OMX audit
committee's overall responsibilities for internal controls and the
internal audit function, it is nevertheless important for the Phlx
Board to maintain its own independent oversight over Phlx's controls
and internal audit matters relating to Phlx's operations. In this
regard, Phlx notes that its regulatory oversight committee, like the
NASDAQ Exchange's regulatory oversight committee, will have broad
authority to oversee the adequacy and effectiveness of Phlx's
regulatory and self-regulatory organization responsibilities, and will
therefore be able to maintain oversight over controls in tandem with
the NASDAQ OMX audit committee's overall control oversight
responsibilities. Similarly, it is already the practice of NASDAQ OMX's
Internal Audit Department, which performs internal audit functions for
all NASDAQ OMX subsidiaries, to report to the Phlx Board on all
internal audit matters relating to Phlx. This practice will be formally
reflected in the Department's written procedures, which will now direct
such reports to the regulatory oversight committee. In addition, to
ensure that the Phlx Board retains authority to direct the Department's
activities with respect to Phlx, the Department's written procedures
will be amended to stipulate that the Phlx regulatory oversight
committee may, at any time, direct the Department to conduct an audit
of a matter of concern to it and report the results of the audit both
to the Phlx regulatory oversight committee and the NASDAQ OMX audit
committee. Finally, although language regarding the audit committee's
authority to conduct special reviews of any alleged improper conduct is
being removed, Phlx believes that such authority is inherent in the
powers of its Board, the NASDAQ OMX Board, and their respective
committees. Accordingly, retaining this language for a specific
committee is unnecessary.\18\
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    \18\ Phlx also notes that authority of the audit committee with
respect to the Exchange's Code of Conduct and whistleblowing
regarding accounting practices have been assumed by NASDAQ OMX,
which, as a public company, maintains a Code of Ethics program and
anonymous whistleblower hotline for NASDAQ OMX and its subsidiaries
in compliance with the requirements of the Sarbanes-Oxley Act, 15
U.S.C. 78j-1, 7264.
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    Although the position of chief regulatory officer has long existed,
Phlx has concluded that the position should be formally described in
the By-Laws. Accordingly, new Section 5-6 of the By-Laws will provide
that the chief regulatory officer will have general supervision of
Phlx's regulatory operations, including the responsibility for
overseeing its surveillance, examination, and enforcement functions and
for administering any regulatory services agreements with another self-
regulatory organization to which Phlx is a party. The chief regulatory
officer shall meet with the regulatory oversight committee in executive
session at regularly scheduled meetings, and at any time upon request
of the chief regulatory officer or any member of the committee.
    Phlx also proposes to amend Section 4-13 of the By-Laws in order to
follow the NYSE Euronext model with respect to allowing the elimination
of its compensation committee and the performance of its function by
the NASDAQ OMX compensation committee and/or subsidiary boards.\19\ The
NASDAQ OMX By-Laws provide that its compensation committee considers
and recommends compensation policies, programs, and practices for
employees of NASDAQ OMX. Because many employees performing work for
Phlx are also employees of NASDAQ OMX, its compensation committee
already performs these functions for such employees. Moreover, certain
of its senior officers are also officers of NASDAQ OMX and other NASDAQ
OMX subsidiaries because their responsibilities relate to multiple
entities within the NASDAQ OMX corporate structure. Accordingly, NASDAQ
OMX pays these individuals and establishes compensation policy for
them. Most notably, the former Chief Executive Officer of Phlx was also
an ``executive officer'' of NASDAQ OMX within the meaning of NASDAQ
Exchange Rule 4350.\20\ Under that rule, the compensation of executive
officers of an issuer of securities, such as the common stock of NASDAQ
OMX, that is listed on the NASDAQ Exchange, must be determined by, or
recommended to the board of directors for determination by, a majority
of independent directors or a compensation committee comprised

solely of independent directors. Accordingly, the NASDAQ OMX board of
directors and/or its compensation committee was legally required to
establish the compensation for this individual. Although the individual
recently resigned his positions with NASDAQ OMX and its subsidiaries in
order to pursue another opportunity, it is likely that his successor as
Chief Executive Officer of Phlx will serve in a similar position at
NASDAQ OMX and therefore be subject to comparable compensation
requirements. To the extent that policies, programs, and practices must
also be established for any Phlx officers or employees who are not also
NASDAQ OMX officers or employees, the Phlx Board will perform such
actions without the use of a compensation committee (but subject to the
recusal of the Chief Executive Officer and the Stockholder
Governor).\21\
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    \19\ The Commission notes that it recently approved proposals by
BX and the NASDAQ Exchange to eliminate their compensation
committees. See Release Nos. 34-60247 and 60276, supra note 14.
These exchanges have eliminated those committees. See e-mail from
Edith Hallahan, Counsel, Phlx, to Nancy Burke-Sanow, Assistant
Director, Commission, dated August 3, 2009.
    \20\ The position of Chief Executive Officer of Phlx is
currently vacant, pending selection of a successor.
    \21\ Two seats on the Phlx Board are reserved for the Chief
Executive Officer and an officer, designee, director, or employee of
NASDAQ OMX. To the extent that these Governors are officers or
employees of both Phlx and NASDAQ OMX, they would be permitted to
participate in discussions concerning compensation of Phlx
employees, since the Phlx Board would not be responsible for setting
their compensation. They would, however, recuse themselves from a
vote on the subject to allow the determination to be made by
directors that are not officers or employees of Phlx. If one of
these Governors was an officer or employee of Phlx but not of NASDAQ
OMX, that Governor would also absent himself or herself from any
deliberations regarding his or her compensation.
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Replacement of the Exchange's Referee With an Options Trade Review
Committee
    The Exchange proposes to replace the current Referee process with
an Options Trade Review Committee, which is similar to the processes of
other exchanges, including the NASDAQ Exchange.\22\ As explained
further below, the Exchange believes that this committee should
effectively provide fair and neutral review of Options Exchange
Officials' rulings.
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    \22\ See NASDAQ Exchange By-Laws, Article III, Section 6(d).
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    Currently, the Exchange's By-Laws and rules provide that the
Referee is an Exchange employee (or independent contractor), supervised
by the audit committee,\23\ who reviews Options Exchange Official
rulings concerning the nullification and/or adjustment of transactions.
In addition, the Referee can act in the capacity of an Options Exchange
Official respecting initial rulings concerning requests for relief from
the requirements of certain Exchange rules, Equity Floor Procedure
Advices and Option Floor Procedure Advices.\24\
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    \23\ For the establishment of the Referee program, see
Securities Exchange Act Release No. 54009 (June 16, 2006), 71 FR
36592 (June 27, 2006) (SR-Phlx-2005-42).
    \24\ See Rule 124.02(a)(i)-(iv).
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    The Exchange proposes to eliminate the Referee and replace that
function with an Options Trade Review Committee, which will review
Options Exchange Official rulings. Even though the Referee was able to,
the Options Trade Review Committee will not act in the capacity of an
Options Exchange Official; its function will be limited to reviewing
such rulings.
    In order to implement the Options Trade Review Committee, the
Exchange is proposing to delete the By-Law provision that currently
vests supervision over the Referee in the audit committee and generally
defines the Referee's role and background.\25\ Because the Exchange is
proposing to eliminate its audit committee, and because appeals will
now be handled by a committee, rather than an exchange employee (or
independent contractor), the Exchange believes that the Options Trade
Review Committee should be sufficiently neutral and independent of the
regulatory processes and Options Exchange Officials. The Options Trade
Review Committee will be appointed by the Board pursuant to new By-Law
Article X, Section 10-10 as a standing committee of the Board and shall
include a number of Member Representative members \26\ that is equal to
at least 20 percent of the total number of members of the Committee;
furthermore, no more than 50 percent of its members shall be engaged in
market making activity or employed by an Exchange Member Organization
whose revenues from market making activity exceed ten percent of its
total revenues.\27\
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    \25\ See By-Law Article X, Section 10-9(d).
    \26\ See By-Law Article I, Section 1-1(pp).
    \27\ See proposed By-Law Article X, Section 10-10.
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    In addition, the Exchange proposes to amend various rules that
refer to the Referee, including Rule 124, which currently outlines in
detail the responsibilities of the Referee. Specifically, Rule 124 is
being amended to establish the Options Trade Review Committee's role.
In addition to the language in By-Law Article X, Section 10-10,
proposed new language in Rule 124 will state that the Options Trade
Review Committee may act through a panel with a minimum of three
Committee members, of which no more than 50% can be engaged in market
making activity or employed by an Exchange Member Organization whose
revenues from market making activity exceed ten percent of its total
revenues.\28\ The Exchange anticipates that in light of the time
sensitivity of rendering decisions in the trading context, neither the
entire Options Trade Review Committee nor a quorum thereof should be
required. The Exchange also anticipates that the panel will be selected
by Exchange regulatory staff from the Committee members on a rotating
basis, taking into consideration availability and prompt response as
well as frequency of service, keeping in mind the importance of
assembling a panel quickly. The staff is likely to use electronic means
to do so, and the panels would convene via conference call. In
addition, all appeals will be presented to the panel on an anonymous
basis to reduce the risk of conflict or bias. The staff would provide
to the panel a verbal and/or written information packet containing
relevant documents. Member firm-identifying information within the
packet would be redacted to make it difficult or impossible to identify
the parties to the appeal. Regulatory staff will present the
information included in the kit to the participants anonymously, which
may include written information provided by any parties to the appeal.
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    \28\ See NASDAQ Stock Market Rule 11890 and IM-11890-20 (Review
by Panels of the MORC).
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    Commentary .02 to Rule 124 is proposed to be deleted, because it
details the role of the Referee. The details regarding who can serve as
Referee, how the Referee is appointed, designation of a Backup Referee,
what additional functions the Referee can perform, and how the Referee
is supervised and evaluated are no longer needed.
    Other than the role of the Referee, most aspects of the review
process in Rule 124 are not being changed; for example, the time period
to request a review, the fee for a review that sustains the ruling, and
that rulings may be sustained, overturned or modified all remain
unchanged. Decisions of the Options Trade Review Committee, like the
Referee's decisions, would not be appealable. Because Advice F-27
corresponds to Rule 124, corresponding changes to Advice F-27 are also
proposed.
    Minor changes to Rule 124 include: (i) [sic] removing references to
Referee decisions from Rule 124(b) in the sentence that deals with
rulings being effective immediately and being complied with promptly,
because the provision that Options Trade Review Committee decisions are
effective immediately and must be complied with promptly will appear
instead in the paragraph governing the Options Trade

Review Committee, in proposed sub-paragraph (d)(v). In addition, sub-
paragraph (d)(vi) is proposed to be deleted, because it duplicates a
provision in paragraph (b). The Exchange is deleting the provision that
an Options Exchange Official that fails to make any ruling in
accordance with Exchange rules may be subject to possible disciplinary
action by the Exchange, because this provision governs the Exchange's
own personnel policies, which typically do not appear in exchange
rules.
    Rule 1092 is also being changed to refer to the Options Trade
Review Committee, rather than the Referee in paragraphs (f)(iv) and
(g), which relate to requesting a review of obvious error and
catastrophic error determinations.
    The changes to the remaining provisions are minor. Rule 1,
Definitions, is being amended to state that the list of Options
Exchange Officials will be maintained by the Chief Regulatory Officer
rather than the Referee.\29\ Rule 163, Erroneous Transactions, is also
being amended to replace the Referee with the Options Trade Review
Committee, but, as a practical matter, is not significant, because the
Exchange no longer operates an equity trading system for which Rule 163
was adopted, such that Rule 163 cannot currently be invoked.
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    \29\ Rule 1(pp) is also being amended to delete reference to the
specific Web site address where the list of Options Exchange
Officials is maintained, which has changed. The Exchange will
continue to post the list on its Web site, but would prefer not to
put the actual Web site address into the rule text.
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    In summary, the Exchange believes that, under this proposal, the
Options Trade Review Committee should further the goal of impartial,
objective decisions, which should, in turn, result in fairness and
certainty in the overall process of resolving trading disputes.
2. Statutory Basis
    Phlx believes that its proposal is consistent with Section 6(b) of
the Act \30\ in general, and furthers the objectives of: (1) Section
6(b)(1) of the Act,\31\ which requires a national securities exchange
to be so organized and have the capacity to carry out purposes of the
Act and to enforce compliance by its members and persons associated
with its members with the provisions of the Act; and (2) Section
6(b)(5) of the Act,\32\ in that it is 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.
Specifically, the proposed rule change will eliminate two Board
committees whose roles have been diminished by Phlx's new status as a
wholly owned subsidiary of NASDAQ OMX, thereby allowing governors to
focus greater attention on matters falling directly within the purview
of the Board, including regulatory quality, market structure, new
product initiatives, and review of proposed rule changes. In addition,
the creation of a regulatory oversight committee and the inclusion of
the chief regulatory officer in the By-Laws will underscore the
importance of Phlx's regulatory function and specifically empower an
independent committee of the Board to oversee regulation and meet
regularly with the chief regulatory officer. Finally, the Exchange
believes that replacing the Referee with a new Options Trade Review
Committee should provide a prompt and objective process for reviewing
rulings on trading disputes.
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    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78(b)(1).
    \32\ 15 U.S.C. 78f(b)(5).
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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
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

    No written comments were either solicited or 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 Exchange consents, the Commission shall: (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 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-Phlx-2009-59 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2009-59. 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, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 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; 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-Phlx-2009-59 and should be
submitted on or before September 1, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19143 Filed 8-10-09; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register Volume 78, Number 37 (Monday, February 25, 2013)]
[Notices]
[Page 12750]
[FR Doc No: 2013-04271]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. RC13-4-000]

South Louisiana Electric Cooperative Association; Notice of
Filing

    Take notice that on January 29, 2013, South Louisiana Electric
Cooperative Association (SLECA) filed an appeal of the January 16, 2013
Decision of North American Electric Reliability Corporation (NERC)
Board of Trustees Compliance Committee denying SLECA's request to be
removed from the Compliance Registry. In addition, on February 14, 2013
SLECA filed a supplement in support of its January 29, 2013 appeal.
    Any person desiring to intervene or to protest this filing must
file in accordance with Rules 211 and 214 of the Commission's Rules of
Practice and Procedure (18 CFR 385.211, 385.214). Protests will be
considered by the Commission in determining the appropriate action to
be taken, but will not serve to make protestants parties to the
proceeding. Any person wishing to become a party must file a notice of
intervention or motion to intervene, as appropriate. Such notices,
motions, or protests must be filed on or before the comment date. On or
before the comment date, it is not necessary to serve motions to
intervene or protests on persons other than the Applicant.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper using the ``eFiling'' link at http://www.ferc.gov. Persons unable to file electronically should submit an
original and 14 copies of the protest or intervention to the Federal
Energy Regulatory Commission, 888 First Street NE., Washington, DC
20426.
    This filing is accessible on-line at http://www.ferc.gov, using the
``eLibrary'' link and is available for review in the Commission's
Public Reference Room in Washington, DC. There is an ``eSubscription''
link on the web site that enables subscribers to receive email
notification when a document is added to a subscribed docket(s). For
assistance with any FERC Online service, please email
<EMAIL_ADDRESS>or call<PHONE_NUMBER> (toll free). For
TTY, call<PHONE_NUMBER>.
    Comment Date: 5:00 p.m. Eastern Time on March 18, 2013.

    Dated: February 19, 2013.
Kimberly D. Bose,
Secretary.
[FR Doc. 2013-04271 Filed 2-22-13; 8:45 am]
BILLING CODE 6717-01-P


The Motor Vehicle Manufacturing Industry Applying Aluminum Parts --

Leachable Hexavalent Chromium Data

Facility Name	City	State	Sample Date	Sample ID	Duplicate Indicator Constituent Name	Leachable Actual or Calculated	Analytical Method Leachable Result	Units	Leachable Non-Detect Indicator	Leachable Detection Limit mg/L	Leachable Detection Limit Data Qualifier Description

GM Lansing Assembly Center	LANSING	MI	12/19/1997	LAN-S01-01	N	hexavalent chromium	actual	Method 6020	0.003	mg/L

	J	Estimate

GM Oklahoma City	OKLAHOMA CITY	OK	12/16/1997	OKL-S01-02	N	hexavalent chromium	actual

0.008	mg/L

	J	Estimate

GM Oklahoma City	OKLAHOMA CITY	OK	12/16/1997	OKL-S01-03	N	hexavalent chromium	actual

0.007	mg/L

	J	Estimate

GM Oklahoma City	OKLAHOMA CITY	OK	12/16/1997	OKL-S01-04	N	hexavalent chromium	actual

0.007	mg/L

	J	Estimate

n 	4

	df	3

	MAXIMUM	0.008

	MEAN	0.00625

	MEDIAN	0.007

	Std. Dev.	0.002217356

	90th Percentile	0.0077

	50th Percentile	0.007


[Federal Register Volume 82, Number 103 (Wednesday, May 31, 2017)]
[Rules and Regulations]
[Pages 24840-24843]
[FR Doc No: 2017-11159]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 25

[Docket No. FAA-2017-0357; Special Conditions No. 25-685-SC]

Special Conditions: Embraer S.A., Model ERJ 190-300 Airplane;
Non-Rechargeable Lithium Battery Installations

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final special conditions; request for comment.

-----------------------------------------------------------------------

SUMMARY: These special conditions are issued for non-rechargeable
lithium battery installations on the Embraer S.A. (Embraer) Model ERJ
190-300 airplane. Non-rechargeable lithium batteries are a novel or
unusual design feature when compared to the state of technology
envisioned in the airworthiness standards for transport category
airplanes. The applicable airworthiness regulations do not contain
adequate or appropriate safety standards for this design feature. These
special conditions contain the additional safety standards that the
Administrator considers necessary to establish a level of safety
equivalent to that established by the existing airworthiness standards.

DATES: This action is effective on Embraer on May 31, 2017. We must
receive your comments by July 17, 2017.

ADDRESSES: Send comments identified by docket number [FAA-2017-0357]
using any of the following methods:
     Federal eRegulations Portal: Go to http://www.regulations.gov/ and follow the online instructions for sending
your comments electronically.
     Mail: Send comments to Docket Operations, M-30, U.S.
Department of Transportation (DOT), 1200 New Jersey Avenue SE., Room
W12-140, West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Take comments to Docket
Operations in Room W12-140 of the West Building Ground Floor at 1200
New Jersey Avenue SE., Washington, DC, between 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 Web site, anyone can find and read the electronic form of all
comments received into any FAA docket, including the name of the
individual sending the comment (or signing the comment for an
association, business, labor union, etc.). DOT's complete Privacy Act
Statement can be found in the Federal Register published on April 11,
2000 (65 FR 19477-19478), as well as at http://DocketsInfo.dot.gov/.
    Docket: Background documents or comments received may be read at
http://www.regulations.gov/ at any time. Follow the online instructions
for accessing the docket or go to 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: Nazih Khaouly, Airplane and Flight
Crew Interface Branch, ANM-111, Transport Airplane Directorate,
Aircraft Certification Service, 1601 Lind Avenue SW., Renton,
Washington 98057-3356; telephone<PHONE_NUMBER>; facsimile<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Future Requests for Installation of Non-Rechargeable Lithium Batteries

    The FAA anticipates that non-rechargeable lithium batteries will be
installed in most makes and models of transport category airplanes. We
intend to require special conditions for certification projects
involving non-rechargeable lithium battery

installations to address certain safety issues until we can revise the
airworthiness requirements. Applying special conditions to these
installations across the range of transport category airplanes will
ensure regulatory consistency.
    Typically, the FAA issues special conditions after receiving an
application for type certificate approval of a novel or unusual design
feature. However, the FAA has found that the presence of non-
rechargeable lithium batteries in certification projects is not always
immediately identifiable, since the battery itself may not be the focus
of the project. Meanwhile, the inclusion of these batteries has become
virtually ubiquitous on in-production transport category airplanes,
which shows that there will be a need for these special conditions.
Also, delaying the issuance of special conditions until after each
design application is received could lead to costly certification
delays. Therefore the FAA finds it necessary to issue special
conditions applicable to these battery installations on particular
makes and models of aircraft.
    On April 22, 2016, the FAA published special conditions no. 25-612-
SC in the Federal Register (81 FR 23573) applicable to Gulfstream
Aerospace Corporation for the GVI airplane. Those were the first
special conditions the FAA issued for non-rechargeable lithium battery
installations. We explained in that document our decision to make those
special conditions effective one year after publication in the Federal
Register, which is April 22, 2017. In those special conditions, the FAA
stated its intention to apply non-rechargeable lithium battery special
conditions to design changes on other makes and models applied for
after this same date.
    Section 1205 of the FAA Reauthorization Act of 1996 requires the
FAA to consider the extent to which Alaska is not served by
transportation modes other than aviation and to establish appropriate
regulatory distinctions when modifying airworthiness regulations that
affect intrastate aviation in Alaska. In consideration of this
requirement and the overall impact on safety, the FAA does not intend
to require non-rechargeable lithium battery special conditions for
design changes that only replace a 121.5 megahertz (MHz) emergency
locator transmitter (ELT) with a 406 MHz ELT that meets Technical
Standard Order C126b, or later revision, on transport airplanes
operating only in Alaska. This will support our efforts of encouraging
operators in Alaska to upgrade to a 406 MHz ELT. These ELTs provide
significantly improved accuracy for lifesaving services to locate an
accident site in Alaskan terrain. The FAA considers that the safety
benefits from upgrading to a 406 MHz ELT for Alaskan operations will
outweigh the battery fire risk.

Comments Invited

    The substance of these special conditions has been subjected to the
notice and comment period in prior instances and has been derived
without substantive change from those previously issued. It is unlikely
that prior public comment would result in a significant change from the
substance contained herein. Therefore, the FAA has determined that
prior public notice and comment are unnecessary and impracticable, and
good cause exists for adopting these special conditions upon
publication in the Federal Register. The FAA is requesting comments to
allow interested persons to submit views that may not have been
submitted in response to the prior opportunities for comment described
above.
    We invite interested people to take part in this rulemaking by
sending written comments, data, or views. The most helpful comments
reference a specific portion of the special conditions, explain the
reason for any recommended change, and include supporting data.
    We will consider all comments we receive by the closing date for
comments. We may change these special conditions based on the comments
we receive.

Background

    Embraer holds type certificate no. A57NM, which will be amended to
provide the certification basis for the ERJ 190-300 airplane. The ERJ
190-300 is a twin engine, transport category airplane with a passenger
seating capacity of 112 and a wing design with a high aspect ratio and
raked wingtip.
    The FAA is issuing these special conditions for non-rechargeable
lithium battery installations on the ERJ 190-300 airplane. The current
battery requirements in title 14, Code of Federal Regulations (14 CFR)
part 25 are inadequate for addressing an airplane with non-rechargeable
lithium batteries.

Type Certification Basis

    Under the provisions of 14 CFR 21.101, Embraer must show that the
ERJ 190-300 airplane meets the applicable provisions of the regulations
listed in type certificate no. A57NM or the applicable regulations in
effect on the date of application for the change, except for earlier
amendments as agreed upon by the FAA. In addition, the certification
basis includes certain special conditions, exemptions, or later amended
sections that are not relevant to these special conditions.
    If the Administrator finds that the applicable airworthiness
regulations (i.e., 14 CFR part 25) do not contain adequate or
appropriate safety standards for the ERJ 190-300 airplane because of a
novel or unusual design feature, special conditions are prescribed
under the provisions of Sec.  21.16.
    Special conditions are initially applicable to the airplane model
for which they are issued. Should the type certificate for that model
be amended later to include any other model that incorporates the same
novel or unusual design feature, or should any other model already
included on the same type certificate be modified to incorporate the
same novel or unusual design feature, these special conditions would
also apply to the other model under Sec.  21.101.
    In addition to the applicable airworthiness regulations and special
conditions, the ERJ 190-300 must comply with the fuel vent and exhaust
emission requirements of 14 CFR part 34 and the noise certification
requirements of 14 CFR part 36.
    The FAA issues special conditions, as defined in 14 CFR 11.19, in
accordance with Sec.  11.38, and they become part of the type
certification basis under Sec.  21.101.

Novel or Unusual Design Feature

    The novel or unusual design feature is the installation of non-
rechargeable lithium batteries.
    For the purpose of these special conditions, we refer to a battery
and battery system as a battery. A battery system consists of the
battery and any protective, monitoring, and alerting circuitry or
hardware inside or outside of the battery. It also includes vents
(where necessary) and packaging.

Discussion

    The FAA derived the current regulations governing installation of
batteries in transport category airplanes from Civil Air Regulations
(CAR) 4b.625(d) as part of the recodification of CAR 4b that
established 14 CFR part 25 in February 1965. This recodification
basically reworded the CAR 4b battery requirements, which are currently
in Sec.  25.1353(b)(1) through (4). Non-rechargeable lithium batteries
are novel and unusual with respect to the state of technology
considered when these requirements were codified. These batteries
introduce higher energy levels

into airplane systems through new chemical compositions in various
battery cell sizes and construction. Interconnection of these cells in
battery packs introduces failure modes that require unique design
considerations, such as provisions for thermal management.
    Recent events involving rechargeable and non-rechargeable lithium
batteries prompted the FAA to initiate a broad evaluation of these
energy storage technologies. In January 2013, two independent events
involving rechargeable lithium-ion batteries revealed unanticipated
failure modes. A National Transportation Safety Board (NTSB) letter to
the FAA, dated May 22, 2014, which is available at http://www.ntsb.gov,
filename A-14-032-036.pdf, describes these events.
    On July 12, 2013, an event involving a non-rechargeable lithium
battery in an emergency locator transmitter installation demonstrated
unanticipated failure modes. The United Kingdom's Air Accidents
Investigation Branch Bulletin S5/2013 describes this event.
    Some known uses of rechargeable and non-rechargeable lithium
batteries on airplanes include:
     Flight deck and avionics systems such as displays, global
positioning systems, cockpit voice recorders, flight data recorders,
underwater locator beacons, navigation computers, integrated avionics
computers, satellite network and communication systems, communication
management units, and remote-monitor electronic line-replaceable units;
     Cabin safety, entertainment, and communications equipment,
including emergency locator transmitters, life rafts, escape slides,
seatbelt air bags, cabin management systems, Ethernet switches, routers
and media servers, wireless systems, internet and in-flight
entertainment systems, satellite televisions, remotes, and handsets;
     Systems in cargo areas including door controls, sensors,
video surveillance equipment, and security systems.
    Some known potential hazards and failure modes associated with non-
rechargeable lithium batteries are:
     Internal failures: In general, these batteries are
significantly more susceptible to internal failures that can result in
self-sustaining increases in temperature and pressure (i.e., thermal
runaway) than their nickel-cadmium or lead-acid counterparts. The
metallic lithium can ignite, resulting in a self-sustaining fire or
explosion.
     Fast or imbalanced discharging: Fast discharging or an
imbalanced discharge of one cell of a multi-cell battery may create an
overheating condition that results in an uncontrollable venting
condition, which in turn leads to a thermal event or an explosion.
     Flammability: Unlike nickel-cadmium and lead-acid
batteries, lithium batteries use higher energy and current in an
electrochemical system that can be configured to maximize energy
storage of lithium. They also use liquid electrolytes that can be
extremely flammable. The electrolyte, as well as the electrodes, can
serve as a source of fuel for an external fire if the battery casing is
breached.
    Special condition no. 1 of these special conditions requires that
each individual cell within a non-rechargeable lithium battery be
designed to maintain safe temperatures and pressures. Special condition
no. 2 addresses these same issues but for the entire battery. Special
condition no. 2 requires the battery be designed to prevent propagation
of a thermal event, such as self-sustained, uncontrollable increases in
temperature or pressure from one cell to adjacent cells.
    Special conditions nos. 1 and 2 are intended to ensure that the
non-rechargeable lithium battery and its cells are designed to
eliminate the potential for uncontrollable failures. However, a certain
number of failures will occur due to various factors beyond the control
of the battery designer. Therefore, other special conditions are
intended to protect the airplane and its occupants if failure occurs.
    Special conditions 3, 7, and 8 are self-explanatory.
    Special condition no. 4 makes it clear that the flammable fluid
fire protection requirements of Sec.  25.863 apply to non-rechargeable
lithium battery installations. Section 25.863 is applicable to areas of
the airplane that could be exposed to flammable fluid leakage from
airplane systems. Non-rechargeable lithium batteries contain an
electrolyte that is a flammable fluid.
    Special condition no. 5 requires that each non-rechargeable lithium
battery installation not damage surrounding structure or adjacent
systems, equipment, or electrical wiring from corrosive fluids or gases
that may escape in such a way as to cause a major or more severe
failure condition.
    While special condition no. 5 addresses corrosive fluids and gases,
special condition no. 6 addresses heat. Special condition no. 6
requires that each non-rechargeable lithium battery installation have
provisions to prevent any hazardous effect on airplane structure or
systems caused by the maximum amount of heat the battery installation
can generate due to any failure of it or its individual cells. The
means of meeting special conditions nos. 5 and 6 may be the same, but
the requirements are independent and address different hazards.
    These special conditions apply to all non-rechargeable lithium
battery installations in lieu of Sec.  25.1353(b)(1) through (4) at
Amendment 25-123 or Sec.  25.1353(c)(1) through (4) at earlier
amendments. Those regulations remain in effect for other battery
installations.
    These special conditions contain the additional safety standards
that the Administrator considers necessary to establish a level of
safety equivalent to that established by the existing airworthiness
standards.

Applicability

    These special conditions are applicable to the ERJ 190-300
airplane. Should Embraer apply at a later date for a change to the type
certificate to include another model incorporating the same novel or
unusual design feature, these special conditions would apply to that
model as well.
    These special conditions are only applicable to design changes
applied for after the effective date.
    These special conditions are not applicable to changes to
previously certified non-rechargeable lithium battery installations
where the only change is either cosmetic or to relocate the
installation to improve the safety of the airplane and occupants.
Previously certified non-rechargeable lithium battery installations, as
used in this paragraph, are those installations approved for
certification projects applied for on or before the effective date of
these special conditions. A cosmetic change is a change in appearance
only, and does not change any function or safety characteristic of the
battery installation. These special conditions are also not applicable
to unchanged, previously certified non-rechargeable lithium battery
installations that are affected by a change in a manner that improves
the safety of its installation. The FAA determined that these
exclusions are in the public interest because the need to meet all of
the special conditions might otherwise deter these design changes that
improve safety.

Conclusion

    This action affects only a certain novel or unusual design feature
on one model of airplane. It is not a rule of general applicability.
    The substance of these special conditions has been subjected to the
notice and comment period in prior

instances and has been derived without substantive change from those
previously issued. It is unlikely that prior public comment would
result in a significant change from the substance contained herein.
Therefore, the FAA has determined that prior public notice and comment
are unnecessary and impracticable, and good cause exists for adopting
these special conditions upon publication in the Federal Register. The
FAA is requesting comments to allow interested persons to submit views
that may not have been submitted in response to the prior opportunities
for comment described above.

List of Subjects in 14 CFR Part 25

    Aircraft, Aviation safety, Reporting and recordkeeping
requirements.

    The authority citation for these special conditions is as follows:

    Authority:  49 U.S.C. 106(g), 40113, 44701, 44702, 44704.

The Special Conditions

    Accordingly, pursuant to the authority delegated to me by the
Administrator, the following special conditions are issued as part of
the type certification basis for the Embraer S.A. Model ERJ 190-300
airplane.

Non-Rechargeable Lithium Battery Installations

    In lieu of Sec.  25.1353(b)(1) through (4) at Amendment 25-123 or
Sec.  25.1353(c)(1) through (4) at earlier amendments, each non-
rechargeable lithium battery installation must:
    1. Be designed to maintain safe cell temperatures and pressures
under all foreseeable operating conditions to prevent fire and
explosion.
    2. Be designed to prevent the occurrence of self-sustaining,
uncontrollable increases in temperature or pressure.
    3. Not emit explosive or toxic gases, either in normal operation or
as a result of its failure, that may accumulate in hazardous quantities
within the airplane.
    4. Meet the requirements of Sec.  25.863.
    5. Not damage surrounding structure or adjacent systems, equipment,
or electrical wiring from corrosive fluids or gases that may escape in
such a way as to cause a major or more severe failure condition.
    6. Have provisions to prevent any hazardous effect on airplane
structure or systems caused by the maximum amount of heat it can
generate due to any failure of it or its individual cells.
    7. Have a failure sensing and warning system to alert the
flightcrew if its failure affects safe operation of the airplane.
    8. Have a means for the flightcrew or maintenance personnel to
determine the battery charge state if the battery's function is
required for safe operation of the airplane.

    Note:  A battery system consists of the battery and any
protective, monitoring, and alerting circuitry or hardware inside or
outside of the battery. It also includes vents (where necessary) and
packaging. For the purpose of these special conditions, a
``battery'' and ``battery system'' are referred to as a battery.

    Issued in Renton, Washington, on May 23, 2017.
Michael Kaszycki,
Assistant Manager, Transport Airplane Directorate, Aircraft
Certification Service.
[FR Doc. 2017-11159 Filed 5-30-17; 8:45 am]
 BILLING CODE 4910-13-P