[Federal Register Volume 77, Number 201 (Wednesday, October 17, 2012)]
[Rules and Regulations]
[Pages 63716-63719]
[FR Doc No: 2012-24953]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2012-0493; Directorate Identifier 2011-NM-180-AD;
Amendment 39-17213; AD 2012-20-07]
RIN 2120-AA64

Airworthiness Directives; Airbus Airplanes

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

ACTION: Final rule.

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SUMMARY: We are superseding an existing airworthiness directive (AD)
for all Airbus Model A318-111 and -112 airplanes; and all Model A319,
A320, and A321 series airplanes. That AD currently requires revising
the Airworthiness Limitations Section (ALS) of the Instructions for
Continued Airworthiness to incorporate new limitations for fuel tank
systems. This new AD requires revising the maintenance program to
incorporate revised fuel maintenance and inspection tasks, and adds
airplanes to the applicability. This AD was prompted by Airbus issuing
more restrictive maintenance requirements and/or airworthiness
limitations. We are issuing this AD to prevent the potential of
ignition sources inside fuel tanks, which, in combination with
flammable fuel vapors, could result in a fuel tank explosion and
consequent loss of the airplane.

DATES: This AD becomes effective November 21, 2012.
    The Director of the Federal Register approved the incorporation by
reference of a certain publication listed in this AD as of November 21,
2012.
    The Director of the Federal Register approved the incorporation by
reference of a certain publication listed in this AD as of December 14,
2009 (74 FR 62219, November 27, 2009).
    The Director of the Federal Register approved the incorporation by
reference of certain other publications listed in this AD as of August
28, 2007 (72 FR 40222, July 24, 2007).

ADDRESSES: You may examine the AD docket on the Internet at http://www.regulations.gov or in person at the U.S. Department of
Transportation, Docket Operations, M-30, West Building Ground Floor,
Room W12-140, 1200 New Jersey Avenue SE., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Sanjay Ralhan, Aerospace Engineer,
International Branch, ANM-116, Transport Airplane Directorate, FAA,
1601 Lind Avenue SW., Renton, WA 98057-3356; telephone<PHONE_NUMBER>;
fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Discussion

    We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR
part 39 to include an AD that would apply to the specified products.
That NPRM was published in the Federal Register on May 31, 2012 (77 FR
32060), and proposed to supersede AD 2007-15-06 R1, Amendment 39-16097
(74 FR 62219, November 27, 2009). That NPRM proposed to correct an
unsafe condition for the specified products. The MCAI states:

    The airworthiness limitations are currently published in the
Airbus A318/A319/A320/A321 Airworthiness Limitations Section (ALS).
    The Fuel Airworthiness Limitations (FAL) are specified in Airbus
A318/A319/A320/A321 FAL Document reference 95A.1931/05, which is
approved by the European Aviation Safety Agency (EASA) and
referenced in the Airbus A318/A319/A320/A321 ALS Part 5.
    The issue 4 of Airbus A318/A319/A320/A321 FAL Document
introduces more restrictive maintenance requirements and/or
airworthiness limitations. Failure to comply with these more
restrictive maintenance requirements and airworthiness limitations
contained in this document constitutes an unsafe condition.
    This [EASA] AD retains the requirement of EASA AD 2006-0203,
which is superseded, and requires the implementation of the new or
more restrictive maintenance requirements and/or airworthiness
limitations as specified in Airbus A318/A319/A320/A321 FAL Document
issue 4.

You may obtain further information by examining the MCAI in the AD
docket.

Comments

    We gave the public the opportunity to participate in developing
this AD. We have considered the comments received.

Support for the NPRM (77 FR 32060, May 31, 2012)

    US Airways stated it supports the intent of the NPRM (77 FR 32060,
May 31, 2012).

Request To Delay Release of the Final Rule

    US Airways requested that we postpone the release of the final rule
until Airbus revises Airbus A318/A319/A320/A321 ALS Part 5--Fuel
Airworthiness Limitations, dated February 28, 2006, as defined in
Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations, Document
95A.1931/05, Issue 1, dated December 19, 2005 (approved by EASA on
March 14, 2006), Section 1, ``Maintenance/Inspection Tasks,'' to delete
Task 470000-05-1. US Airways stated that, if Task 470000-05-1 is not
deleted, the recurring maintenance cost will substantially increase as
the air separation module (ASM) will have to be replaced at a cost of
$27,000 every 4,000 flight hours.
    We disagree with the request to delay release of this AD, since we
have determined that an unsafe condition exists and any delay in
releasing mitigation actions might not be in the interest of ensuring
the safety of the United States fleet. ALS Task 470000-05-1 does not
require replacement of the ASM every 4,000 flight hours, although it
does require operators to return the ASM to the vendor for a workshop
check. Airbus stated in their electronic mail referenced in US Airways'
comment that it needs to do some design changes (software change)
before it can revise ALS Task 470000-05-1. Therefore, operators may
apply for an alternative method of compliance (AMOC) as specified by
paragraph (l) of the AD if ALS Task 470000-05-1 is revised in the
future.

Conclusion

    We reviewed the available data, including the comments received,
and determined that air safety and the public interest require adopting
the AD as proposed, except for minor editorial changes. We have
determined that these minor changes:
     Are consistent with the intent that was proposed in the
NPRM (77 FR 32060, May 31, 2012) for correcting the unsafe condition;
and
     Do not add any additional burden upon the public than was
already proposed in the NPRM (77 FR 32060, May 31, 2012).

Costs of Compliance

    We estimate that this AD will affect about 745 products of U.S.
registry.
    The actions that are required by AD 2007-15-06 R1, Amendment 39-
16097 (74 FR 62219, November 27, 2009), and retained in this AD take
about 2 work-hours per product, at an average labor rate of $85 per
work-hour. Based on these figures, the estimated cost of the currently
required actions is $170 per product.
    We estimate that it will take about 2 work-hours per product to
comply with the new basic requirements of this AD. The average labor
rate is $85 per work-hour. Based on these figures, we estimate the cost
of this AD to the U.S. operators to be $126,650, or $170 per product.

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 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 the DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979);
    3. Will not affect intrastate aviation in Alaska; and
    4. 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 regulatory evaluation of the estimated costs to
comply with this AD and placed it in the AD docket.

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 the NPRM (77 FR 32060, May 31, 2012),
the regulatory evaluation, any comments received, and other
information. The street address for the Docket Operations office
(telephone<PHONE_NUMBER>) is in the ADDRESSES section. Comments will
be available in the AD docket shortly after receipt.

List of Subjects in 14 CFR Part 39

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

Adoption of the Amendment

    Accordingly, under the authority delegated to me by the
Administrator, the FAA 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 removing airworthiness directive (AD)
2007-15-06 R1, Amendment 39-16097 (74 FR 62219, November 27, 2009), and
adding the following new AD:

2012-20-07 Airbus: Amendment 39-17213. Docket No. FAA-2012-0493;
Directorate Identifier 2011-NM-180-AD.

(a) Effective Date

    This airworthiness directive (AD) becomes effective November 21,
2012.

(b) Affected ADs

    This AD supersedes AD 2007-15-06 R1, Amendment 39-16097 (74 FR
62219, November 27, 2009).

(c) Applicability

    (1) This AD applies to Airbus Model A318-111, -112, -121, and -
122 airplanes; Model A319-111, -112, -113, -114, -115, -131, -132,
and -133 airplanes; Model A320-111, -211, -212, -214, -231, -232,
and -233 airplanes; and Model A321-111, -112, -131, -211, -212, -
213, -231, and -232 airplanes; certificated in any category; all
serial numbers.

    (2) This AD requires revisions to certain operator maintenance
documents to include new actions (e.g., inspections and/or Critical
Design Configuration Control Limitations (CDCCLs). Compliance with
these actions is required by 14 CFR 91.403(c). For airplanes that
have been previously modified, altered, or repaired in the areas
addressed by these inspections, the operator may not be able to
accomplish the inspections described in the revisions. In this
situation, to comply with 14 CFR 91.403(c), the operator must
request approval for an alternative method of compliance (AMOC)
according to paragraph (l)(1) of this AD. The request should include
a description of changes to the required actions that will ensure
the continued operational safety of the airplane.

(d) Subject

    Air Transport Association (ATA) of America Code 05, Periodic
Inspections.

(e) Reason

    This AD was prompted by Airbus issuing more restrictive
maintenance requirements and/or airworthiness limitations. We are
issuing this AD to prevent the potential of ignition sources inside
fuel tanks, which, in combination with flammable fuel vapors, could
result in a fuel tank explosion and consequent loss of the airplane.

(f) Compliance

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

(g) Retained Revision of the Airworthiness Limitations Section (ALS) To
Incorporate Fuel Maintenance and Inspection Tasks

    This paragraph restates the requirements of paragraph (f) of AD
2007-15-06 R1, Amendment 39-16097 (74 FR 62219, November 27, 2009).
For Model A318-111 and -112 airplanes, and Model A319, A320, and
A321 airplanes: Within 3 months after August 28, 2007 (the effective
date of AD 2007-15-06, Amendment 39-15135 (72 FR 40222, July 24,
2007)), revise the ALS of the Instructions for Continued
Airworthiness to incorporate Airbus A318/A319/A320/A321 ALS Part 5-
Fuel Airworthiness Limitations, dated February 28, 2006, as defined
in Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations,
Document 95A.1931/05, Issue 1, dated December 19, 2005 (approved by
the European Aviation Safety Agency (EASA) on March 14, 2006),
Section 1, ``Maintenance/Inspection Tasks''; or Airbus A318/A319/
A320/A321 Fuel Airworthiness Limitations, Document 95A.1931/05,
Issue 2, dated July 8, 2008 (approved by the EASA on December 19,
2008), Section 1, ``Maintenance/Inspection Tasks.'' For all tasks
identified in Section 1 ``Maintenance/Inspection Tasks,'' of Airbus
A318/A319/A320/A321 Fuel Airworthiness Limitations, Document
95A.1931/05, Issue 1, dated December 19, 2005; or Issue 2, dated
July 8, 2008; the initial compliance times start from August 28,
2007 (the effective date of AD 2007-15-06), and the repetitive
inspections must be accomplished thereafter at the intervals
specified in Section 1, ''Maintenance/Inspection Tasks,'' of Airbus
A318/A319/A320/A321 Fuel Airworthiness Limitations, Document
95A.1931/05, Issue 1, dated December 19, 2005; or Issue 2, dated
July 8, 2008.

    Note 1 to paragraph (g) of this AD: Airbus Operator Information
Telex (OIT) SE 999.0076/06, dated June 20, 2006, provides guidance
on identifying the applicable sections of the Airbus A318/A319/A320/
A321 Airplane Maintenance Manual for accomplishing the tasks
specified in Section 1 ``Maintenance/Inspection Tasks,'' of Airbus
A318/A319/A320/A321 Fuel Airworthiness Limitations, Document
95A.1931/05, Issue 1, dated December 19, 2005; or Issue 2, dated
July 8, 2008.

(h) Retained Revision of the ALS to Incorporate CDCCLs

    This paragraph restates the requirements of paragraph (g) of AD
2007-15-06 R1, Amendment 39-16097 (74 FR 62219, November 27, 2009).
For Airbus Model A318-111 and -112 airplanes, and Model A319, A320,
and A321 airplanes: Within 12 months after August 28, 2007 (the
effective date of AD 2007-15-06, Amendment 39-15135 (72 FR 40222,
July 24, 2007)), revise the ALS of the Instructions for Continued
Airworthiness to incorporate Airbus A318/A319/A320/A321 ALS Part 5-
Fuel Airworthiness Limitations, dated February 28, 2006, as defined
in Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations,
Document 95A.1931/05, Issue 1, dated December 19, 2005 (approved by
the EASA on March 14, 2006), Section 2, ``Critical Design
Configuration Control Limitations''; or Airbus A318/A319/A320/A321
Fuel Airworthiness Limitations, Document 95A.1931/05, Issue 2, dated
July 8, 2008 (approved by EASA on December 19, 2008), Section 2,
``Critical Design Configuration Control Limitations.''

(i) Retained Requirement: No Alternative Inspections, Inspection
Intervals, or CDCCLs

    (1) This paragraph restates the requirements of paragraph (h) of
AD 2007-15-06 R1, Amendment 39-16097 (74 FR 62219, November 27,
2009). Except as provided by paragraph (l) of this AD: After
accomplishing the actions specified in paragraphs (g) and (h) of
this AD, no alternative inspections, inspection intervals, or CDCCLs
may be used.
    (2) Notwithstanding any other maintenance or operational
requirements, components that have been identified as airworthy or
installed on the affected airplanes before the revision of the ALS,
as required by paragraphs (g) and (h) of this AD, do not need to be
reworked in accordance with the CDCCLs. However, once the ALS has
been revised, future maintenance actions on these components must be
done in accordance with the CDCCLs.

(j) New Revision of the Maintenance Program

    Within 6 months after the effective date of this AD: Revise the
maintenance program to incorporate the new or revised tasks, life
limits, and CDCCLs specified in Airbus A318/A319/A320/A321 Fuel
Airworthiness Limitations, Document 95A.1931/05, Issue 4, dated
August 26, 2010, except as required in paragraph (j)(4) of this AD.
The initial compliance times and intervals are stated in this ALS
document, except as required in paragraphs (j)(1) through (j)(4) of
this AD, or within 6 months after the effective date of this AD,
whichever occurs later. For certain tasks, the compliance times
depend on the pre-modification and post-modification status of the
airplane. Incorporating the requirements of this paragraph
terminates the corresponding requirements of paragraphs (g) and (h)
of this AD.
    (1) For airplanes for which the first flight occurred before
August 28, 2007 (the effective date of AD 2007-15-06, Amendment 39-
15135 (72 FR 40222, July 24, 2007)), the first accomplishment of
Tasks 281800-01-1, Functional Check of Tank Vapour Seal and Vent
Drain System; and 281800-02-1, Detailed Inspection of Vapour Seal;
must be performed no later than 11 months after the effective date
of this AD.
    (2) The first accomplishment of Tasks 470000-01-1, Operational
Check of Dual Flapper Shutoff Valves (DFSOV), Dual Flapper Check
Valves and Nitrogen Enriched Air (NEA) Line for Leaks; 470000-02-1,
Operational Check of Both Dual Flapper Check Valves for Leaks;
470000-03-1, Operational Check of Dual Flapper Check Valves for
Reverse Flow and NEA Line for Leaks; 470000-04-1, Operational Check
of Dual Flapper Check Valves for Reverse Flow; and 470000-05-1,
Remove Air Separation Module (ASM) and Return to Vendor for Workshop
Check; must be calculated, in accordance with paragraph (j)(2)(i) or
(j)(2)(ii) of this AD.
    (i) From the airplane first flight for airplanes on which Airbus
modification 38062 or 38195 has been embodied in production.
    (ii) From the in-service installation of the fuel tank inerting
system specified in Airbus Service Bulletin A320-47-1001, Airbus
Service Bulletin A320-47-1002, Airbus Service Bulletin A320-47-1003,
Airbus Service Bulletin A320-47-1004, Airbus Service Bulletin A320-
47-1006, or Airbus Service Bulletin A320-47-1007.
    (3) Although Airbus A318/A319/A320/A321 Fuel Airworthiness
Limitations, Document 95A.1931/05, Issue 4, dated August 26, 2010,
does not refer to Airbus Service Bulletin A320-47-1006 and Airbus
Service Bulletin A320-47-1007, the tasks apply as specified in
paragraphs (j)(3)(i) through (j)(3)(iv) of this AD.
    (i) Tasks 470000-01-1, Operational Check of DFSOV, Dual Flapper
Check Valves and NEA Line for Leaks; and 470000-02-1, Operational
Check of Both Dual Flapper Check Valves for leaks; apply to
airplanes that have previously accomplished the actions specified in
Airbus Service Bulletin A320-47-1007.
    (ii) Task 470000-03-1, Operational Check of Dual Flapper Check
Valves for Reverse Flow and NEA Line for Leaks, applies to airplanes
that have previously accomplished the actions specified in Airbus
Service Bulletin A320-47-1006, and that have not accomplished the
actions specified in Airbus Service Bulletin A320-47-1007.
    (iii) Task 470000-04-1, Operational Check of Dual Flapper Check
Valves for Reverse

Flow, applies to airplanes in post-modification 38195 configuration
and that have not accomplished the actions specified in Airbus
Service Bulletin A320-47-1007.
    (iv) Task 470000-05-1, Remove ASM and return to Vendor for
Workshop Check, applies to airplanes that have previously
accomplished the actions specified in Airbus Service Bulletin A320-
47-1007, and are in pre-modification 151529 configuration.
    (4) Replace each ASM identified in table 1 to paragraph (g)(4)
of this AD in accordance with a method approved by either the
Manager, International Branch, ANM-116, Transport Airplane
Directorate, FAA; or EASA (or its delegated agent). The compliance
time for the replacement is before the accumulation of 27,000 total
flight hours (component time)--i.e., the life limitation.

    Note 2 to paragraph (g)(4) of this AD: Airbus A318/A319/A320/
A321 Aircraft Maintenance Manual Task 47-10-43-920-001-A, Air
Separation Module Replacement, is an additional source of guidance
for accomplishment of the removal and replacement of the ASM.

         Table 1 to Paragraph (g)(4) of This AD--ASM Replacement
------------------------------------------------------------------------
         ASM Part Number--            Affected Airplane Configuration--
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2060017-101.......................  Post-modification 38062, or
                                    Post-Airbus Service Bulletin A320-47-
                                     1002, or
                                    Post-Airbus Service Bulletin A320-47-
                                     1004, or
                                    Post-Airbus Service Bulletin A320-47-
                                     1007
2060017-102.......................  Post-modification 152033, or
                                    Post-Airbus Service Bulletin A320-47-
                                     1011
------------------------------------------------------------------------

(k) New Requirement: No Alternative Actions, Intervals, and/or CDCCLs

    After accomplishing the revisions required by paragraph (j) of
this AD, no alternative actions (e.g., inspections), intervals, and/
or CDCCLs may be used other than those specified in Airbus A318/
A319/A320/A321 ALS Part 5-Fuel Airworthiness Limitations, dated
February 28, 2006, as defined in Airbus A318/A319/A320/A321 Fuel
Airworthiness Limitations, Document 95A.1931/05, Issue 4, dated
August 26, 2010, unless the actions, intervals, and/or CDCCLs are
approved as an AMOC in accordance with the procedures specified in
paragraph (l)(1) of this AD.

(l) Other FAA AD Provisions

    The following provisions also apply to this AD:
    (1) Alternative Methods of Compliance (AMOCs): The Manager,
International Branch, ANM-116, has the authority to approve AMOCs
for this AD, if requested using the procedures found in 14 CFR
39.19. In accordance with 14 CFR 39.19, send your request to your
principal inspector or local Flight Standards District Office, as
appropriate. If sending information directly to the International
Branch, send it to ATTN: Sanjay Ralhan, Aerospace Engineer,
International Branch, ANM-116, Transport Airplane Directorate, FAA,
1601 Lind Avenue SW., Renton, WA 98057-3356; telephone (425) 227-
1405; fax<PHONE_NUMBER>. Information may be emailed to<EMAIL_ADDRESS>Before using any approved AMOC, notify your
appropriate principal inspector, or lacking a principal inspector,
the manager of the local flight standards district office/
certificate holding district office. The AMOC approval letter must
specifically reference this AD.
    (2) Airworthy Product: For any requirement in this AD to obtain
corrective actions from a manufacturer or other source, use these
actions if they are FAA-approved. Corrective actions are considered
FAA-approved if they are approved by the State of Design Authority
(or their delegated agent). You are required to assure the product
is airworthy before it is returned to service.

(m) Related Information

    Refer to MCAI EASA Airworthiness Directive 2011-0155, dated
August 25, 2011, and the service information specified in paragraphs
(m)(1) through (m)(4) of this AD, for related information.
    (1) Airbus A318/A319/A320/A321 ALS Part 5-Fuel Airworthiness
Limitations, dated February 28, 2006.
    (2) Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations,
Document 95A.1931/05, Issue 1, dated December 19, 2005.
    (3) A318/A319/A320/A321 Fuel Airworthiness Limitations, Document
95A.1931/05, Issue 2, dated July 8, 2008.
    (4) Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations,
Document 95A.1931/05, Issue 4, dated August 26, 2010.

(n) Material Incorporated by Reference

    (1) The Director of the Federal Register approved the
incorporation by reference (IBR) of the service information listed
in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
    (2) You must use this service information as applicable to do
the actions required by this AD, unless the AD specifies otherwise.
    (3) The following service information was approved for IBR on
November 21, 2012.
    (i) Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations,
Document 95A.1931/05, Issue 4, dated August 26, 2010.
    (ii) Reserved.
    (4) The following service information was approved for IBR on
December 14, 2009 (74 FR 62219, November 27, 2009).
    (i) Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations,
Document 95A.1931/05, Issue 2, dated July 8, 2008.
    (ii) Reserved.
    (5) The following service information was approved for IBR on
August 28, 2007 (72 FR 40222, July 24, 2007).
    (i) Airbus A318/A319/A320/A321 Fuel Airworthiness Limitations,
Document 95A.1931/05, Issue 1, dated December 19, 2005.
    (ii) Airbus A318/A319/A320/A321 ALS Part 5-Fuel Airworthiness
Limitations, dated February 28, 2006.
    (6) For service information identified in this AD, contact
Airbus, Airworthiness Office--EAS, 1 Rond Point Maurice Bellonte,
31707 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5
61 93 44 51; email<EMAIL_ADDRESS>Internet http://www.airbus.com.
    (7) You may review copies of the service information at the FAA,
Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA.
For information on the availability of this material at the FAA,
call<PHONE_NUMBER>.
    (8) You may view this service information that is incorporated
by reference at the National Archives and Records Administration
(NARA). For information on the availability of this material at
NARA, call<PHONE_NUMBER>, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued in Renton, Washington, on October 2, 2012.
John P. Piccola,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2012-24953 Filed 10-16-12; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 84, Number 205 (Wednesday, October 23, 2019)]
[Notices]
[Pages 56864-56868]
[FR Doc No: 2019-23051]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87329; File No. SR-NYSE-2019-54]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Permit the Exchange To List
and Trade Exchange Traded Products

October 17, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 3, 2019, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to permit the Exchange to list and trade
Exchange Traded Products that have a component NMS Stock listed on the
Exchange or that are based on, or represent an interest in, an
underlying index or reference asset that includes an NMS Stock listed
on the Exchange. The proposed rule change is available on the
Exchange's website at www.nyse.com, 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 self-regulatory organization
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 parts of such statements.

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

1. Purpose
    The Exchange proposes to permit the Exchange to list and trade
Exchange Traded Products (``ETPs'') \4\ that have a component NMS Stock
\5\ listed on the Exchange or that are based on, or represent an
interest in, an underlying index or reference asset that includes an
NMS Stock listed on the Exchange.
---------------------------------------------------------------------------

    \4\ Rule 1.1P(k) defines ``Exchange Traded Product'' as a
security that meets the definition of ``derivative securities
product'' in Rule 19b-4(e) under the Act. ETPs include, for example,
securities listed and traded on the Exchange pursuant to the
following Exchange rules: Rule 5.2(j)(3) (Investment Company Units);
Rule 5.2(j)(5) (Equity Gold Shares); Rule 5.2(j)(6) (Index-Linked
Securities); Rule 8.100 (Portfolio Depositary Receipts); Rule 8.200
(Trust Issued Receipts); Rule 8.201 (Commodity-Based Trust Shares);
Rule 8.202-E (Currency Trust Shares); Rule 8.203 (Commodity Index
Trust Shares); Rule 8.204 (Commodity Futures Trust Shares); Rule
8.600 (Managed Fund Shares); and Rule 8.700 (Managed Trust
Securities).
    \5\ NMS Stock is defined in Rule 600 of Regulation NMS, 17 CFR
242.600(b)(48) as ``any NMS security other than an option.'' ``NMS
Security'' means any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in listed
options.'' See 17 CFR 242.600(b)(47). As the Commission has
explained, the term ``NMS Security'' refers to ``exchange-listed
equity securities and standardized options, but does not include
exchange-listed debt securities, securities futures, or open-end
mutual funds, which are not currently reported pursuant to an
effective transaction reporting plan.'' See Question 1.1 in the
``Responses to Frequently Asked Questions Concerning Large Trader
Reporting,'' available at https://www.sec.gov/divisions/marketreg/large-trader-faqs.htm.
---------------------------------------------------------------------------

Background
    Currently, the Exchange trades securities, including ETPs, on its
Pillar trading platform on an unlisted trading privileges (``UTP'')
basis, subject to Pillar Platform Rules 1P-13P.\6\ ETPs traded on a UTP
basis on the Exchange are not assigned to a Designated Market Maker
(``DMM'') but are available for Floor brokers to trade in Floor-based
crossing transactions.\7\
---------------------------------------------------------------------------

    \6\ ``UTP Security'' is defined as a security that is listed on
a national securities exchange other than the Exchange and that
trades on the Exchange pursuant to unlisted trading privileges. See
Rule 1.1.
    \7\ See Securities Exchange Act Release No. 82945 (March 26,
2018), 83 FR 13553, 13568 (March 29, 2018) (SR-NYSE-2017-36)
(approving Exchange rules to trade securities on a UTP basis on the
Pillar trading platform).
---------------------------------------------------------------------------

    The Exchange's rules also permit it to list ETPs under Rules 5P and
8P. Specifically, Rules 5P (Securities Traded) and 8P (Trading of
Certain Exchange Traded Products) provide for the listing of certain
ETPs on the Exchange that (1) meet the applicable requirements set
forth in those rules, and (2) do not have any component NMS Stock that
is listed on the Exchange or is based on, or represents an interest in,
an underlying index or reference asset that includes an NMS Stock
listed on the Exchange. ETPs listed under Rules 5P and 8P would be
``Tape A'' listings and would be traded pursuant to the rules
applicable to NYSE-listed securities.
    Accordingly, once an ETP is listed, it will be assigned to a DMM
pursuant to Rule 103B and the assigned DMM will have obligations vis-
[agrave]-vis such securities as specified in Rule 104, including
facilitating the opening, reopening, and closing of such securities.\8\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 87056 (September 23,
2019), 84 FR 51205 (September 27, 2019) (SR-NYSE-2019-34) (order
approving amendments to Rule 104 to specify DMM requirements for
ETPs listed on the Exchange pursuant to Rules 5P and 8P).
---------------------------------------------------------------------------

Proposed Rule Change
    The Exchange proposes to expand the ETPs that would be eligible to
list and trade on the Exchange to include ETPs that have a component
NMS Stock or that are based on, or represent an interest in, an
underlying index or reference asset that includes an NMS

Stock listed on the Exchange. To effectuate this change, the Exchange
proposes to delete the preambles to Rules 5P and 8P currently providing
that the Exchange will not list such ETPs.
    The proposal would permit the Exchange to list and trade on the
NYSE Trading Floor \9\ both ETPs and one or more component NMS Stocks
forming part of the underlying ETP index or portfolio (``side-by-side
trading'' \10\). Because listed securities are assigned to DMMs, the
proposed elimination of the current restriction could result in DMMs
being assigned ETPs that may have one or more component NMS Stocks
forming part of the underlying ETP index or portfolio that are also
assigned to the DMM (``integrated market making'' \11\). The Commission
has approved integrated market making and side-by-side trading for
``broad-based'' ETPs and related options.\12\ The test for whether a
product is ``broad-based'', and therefore is not readily susceptible to
manipulation, is whether the individual components of the ETP are
sufficiently liquid and well-capitalized and the product is not over-
concentrated.\13\ When an ETP meets both criteria, and therefore can be
considered ``broad-based,'' the Commission has explicitly permitted
integrated market making and side-by-side trading in both the ETP and
related options, with no requirement for information barriers or
physical or organizational separation.\14\
---------------------------------------------------------------------------

    \9\ The term ``Trading Floor'' is defined in Rule 6A to mean the
restricted-access physical areas designated by the Exchange for the
trading of securities, commonly known as the ``Main Room'' and the
``Buttonwood Room.''
    \10\ ``Side-by-side trading'' refers to the trading of an equity
security and its related derivative product at the same physical
location, though ``not necessarily by the same specialist or
specialist firm.'' Securities Exchange Act Release No. 46213 (July
16, 2002), 67 FR 48232, 48233 (July 23, 2002) (SR-Amex-002-21)
(``Release No. 46213'') (order approving side-by-side trading and
integrated market making of broad index-based ETFs and related
options); see also Securities Exchange Act Release No. 45454
(February 15, 2002), 67 FR 8567, 8568 n. 7 (February 25, 2002) (SR-
NYSE-2001-43) (``Release No. 45454'') (order approving approved
person of a specialist to act as a specialist or primary market
maker with respect to an option on a stock in which the NYSE
specialist is registered on the Exchange).
    \11\ ``Integrated market making'' refers to the practice of the
same person or firm making markets in an equity security and its
related option. See Release No. 45454, 67 FR at 8568 n. 7.
    \12\ See Release No. 46213, 67 FR at 48232 (approving side-by-
side trading and integrated market making for certain Exchange
Traded Funds (``ETF'') and Trust Issued Receipts (``TIR'') and
related options); see also Securities Exchange Act Release No. 62479
(July 9, 2010), 75 FR 41264 (July 15, 2010) (SR-Amex-2010-31)
(``Release No. 62479'') (order approving side-by-side trading and
integrated market making in the QQQ ETF and certain of its component
securities where the QQQs met the composition and concentration
measures to be classified as a broad-based ETF).
    \13\ See Release No. 62479, id., 75 FR at 41272. The Commission
has expressed its belief ``that, when the securities underlying an
ETF consist of a number of liquid and well-capitalized stocks, the
likelihood that a market participant will be able to manipulate the
price of the ETF is reduced.'' See id. See generally Securities
Exchange Act Release Nos. 56633 (October 9, 2007), 72 FR 58696
(October 16, 2007) (SR-ISE-2007-60) (order approving generic listing
standards for ETFs based on both U.S. and international indices,
noting they are ``sufficiently broad-based in scope to minimize
potential manipulation.''); 55621 (April 12, 2007), 72 FR 19571
(April 18, 2007) (SR-NYSEArca-2006-86) (same); 54739 (November 9,
2006), 71 FR 66993 (November 17, 2006) (SR-Amex-2006-78) (same);
57365 (February 21, 2008), 73 FR 10839 (February 28, 2008) (SR-CBOE-
2007-109) (order approving generic listing standards for ETFs based
on international indices, noting they are ``sufficiently broad-based
in scope to minimize potential manipulation.''); 56049 (July 11,
2007), 72 FR 39121 (July 17, 2007) (SR-Phlx-2007-20) (same); 55113
(January 17, 2007), 72 FR 3179 (January 24, 2007) (SR-NYSE-2006-101)
(same); and 55269 (February 9, 2007), 72 FR 7490 (February 15, 2007)
(SR-Nasdaq-2006-50) (same).
    \14\ See note 12, supra.
---------------------------------------------------------------------------

    In making a determination of whether an ETP is broad-based, the
Commission has relied on an exchange's listing standards. For instance,
in permitting integrated market making and side-by-side trading for two
types of ETPs and their related options, the Commission looked to the
American Stock Exchange LLC's listing standards that, as described
below, are very similar to the Exchange's current listing standards.
    Specifically, the Commission observed that the ETPs at issue, an
ETF and a TIR, were securities based on ``groups of stocks'' whose
prices were based on the prices of their component securities. As such,
the Commission was of the view that a market participant's ability to
manipulate the price of ETPs or the related options would be
``limited.'' \15\ Moreover, the Commission noted that the listing
standards required (1) each product to have a minimum of 13 securities
in the underlying portfolio, (2) that the most heavily weighted
component securities could not exceed 25% of the weight of the
portfolio, and (3) that the five most heavily weighted component
securities could not exceed 65% of the weight of the portfolio. As the
Commission concluded,
---------------------------------------------------------------------------

    \15\ Release No. 46213, 67 FR at 48235.

[b]y limiting the proposal to broad-based ETFs and TIRs, concerns
regarding informational advantages about individual securities are
lessened.\16\
---------------------------------------------------------------------------

    \16\ Id.

    Finally, the Commission noted that the capitalization and liquidity
requirements imposed by the listing standards--for example, the
component securities that in the aggregate account for at least 90% of
the weight of the portfolio must have a minimum market value of at
least $75 million and the component securities representing 90% of the
weight of the portfolio each must have a minimum trading volume during
each of the last six month of at least 250,000 shares--``should reduce
the likelihood that any market participant has an unfair information
advantage about the ETF, TIR, its related options, or its component
securities, or that a market participant would not be able to
manipulate the prices of the ETFs, TIRs, or their related options.''
\17\ The Exchange believes that the same conclusions are warranted here
for all ETPs with underlying NMS Stock components listed under the
Exchange's generic listing standards.
---------------------------------------------------------------------------

    \17\ Id.
---------------------------------------------------------------------------

    The Exchange notes that the relationship between an ETP and its
underlying listed NMS Stock component or components is fundamentally
different than that between an ETP and its related option. In the
latter case, a small move in the price of the listed security can
trigger a large move in the price of the related option, increasing the
incentive for a market maker or specialist to manipulate the security
or coordinate trading with the options market maker or specialist.
Here, there is no similar outsized correlation between a move in the
price of a listed ETP and one or more of its underlying NMS Stock
components. Indeed, as discussed below, the potential for manipulation
or coordinated trading is significantly attenuated for listed ETPs and
their underlying NMS Stock components because the Exchange's generic
listed standards are designed to ensure that the Exchange will only
list ETPs that are ``broad-based''--that is, the ETP's underlying
component securities must be sufficiently liquid and well-capitalized,
and the ETP must not be unduly concentrated.
    As set forth in Supplementary Material .01 of Rule 5.2(j)(3), the
index components for investment company units (``Units'') consisting
solely of US Component Stocks \18\ or US Component Stocks and cash must
meet the following criteria initially and on a continuing basis:
---------------------------------------------------------------------------

    \18\ The term ``US Component Stock'' means an equity security
that is registered under Sections 12(b) or 12(g) of the Securities
Exchange Act of 1934 or an American Depositary Receipt, the
underlying equity security of which is registered under Sections
12(b) or 12(g) of the Securities Exchange Act of 1934. See Rule
5.2(j)(3).
---------------------------------------------------------------------------

     Component stocks (excluding Units and securities defined
in Section 2 of Rule 8P) that in the aggregate account

for at least 90% of the equity weight of the portfolio (excluding Units
and securities defined in Section 2 of Rule 8P) each must have a
minimum market value of at least $75 million; \19\
---------------------------------------------------------------------------

    \19\ See Rule 5.2(j)(3), Supp. Material .01(a)(A)(1).
---------------------------------------------------------------------------

     Component stocks (excluding Units and securities defined
in Section 2 of Rule 8P) that in the aggregate account for at least 70%
of the equity weight of the portfolio (excluding Units and securities
defined in Section 2 of Rule 8P) each must have a minimum monthly
trading volume of 250,000 shares, or minimum notional volume traded per
month of $25,000,000, averaged over the last six months; \20\
---------------------------------------------------------------------------

    \20\ See id. at (a)(A)(2).
---------------------------------------------------------------------------

     The most heavily weighted component stock (excluding Units
and securities defined in Section 2 of Rule 8P) cannot exceed 30% of
the equity weight of the portfolio, and, to the extent applicable, the
five most heavily weighted component stocks (excluding Units and
securities defined in Section 2 of Rule 8P) cannot exceed 65% of the
equity weight of the portfolio; \21\
---------------------------------------------------------------------------

    \21\ See id. at (a)(A)(3).
---------------------------------------------------------------------------

     Where the equity portion of the portfolio does not include
Non-US Component Stocks,\22\ the equity portion of the portfolio must
include a minimum of 13 component stocks; \23\ and
---------------------------------------------------------------------------

    \22\ The term ``Non-US Component Stock'' means an equity
security that is not registered under Sections 12(b) or 12(g) of the
Securities Exchange Act of 1934 and that is issued by an entity that
(a) is not organized, domiciled or incorporated in the United
States, and (b) is an operating company (including Real Estate
Investment Trusts (REITS) and income trusts, but excluding
investment trusts, unit trusts, mutual funds, and derivatives). See
Rule 5.2(j)(3).
    \23\ See id. at (a)(A)(4). There is no minimum number of
component stocks if (a) one or more series of Units or Portfolio
Depositary Receipts (as defined in Section 2 of Rule 8P) constitute,
at least in part, components underlying a series of Managed Fund
Shares, or (b) one or more series of such ETPs account for 100% of
the US Component Stocks portion of the weight of the index or
portfolio. See id.
---------------------------------------------------------------------------

     All securities in the index or portfolio will be US
Component Stocks listed on a listed on a national securities exchange
and be NMS Stocks as defined in Rule 6000 of Regulation NMS.\24\
---------------------------------------------------------------------------

    \24\ See id. at (a)(A)(5).
---------------------------------------------------------------------------

    The listing standards for Units based on an index of both US
Component Stocks and Non-US Component Stocks; \25\ Equity-Index Linked
securities (commonly referred to as Exchange Traded Notes or ``ETNs'');
\26\ Portfolio Depositary Receipts under Rule 8.100 with underlying
component stocks consisting of an index or portfolio of US Component
Stocks; \27\ and actively managed funds under Rule 8.600 \28\ are all
broadly similar. The Exchange could not list an ETP that does not meet
these generic listing requirements without a proposed rule change being
filed with the Commission.
---------------------------------------------------------------------------

    \25\ See Rule 5.2(j)(3), Supp. Material .01(a)(B)(1)-(5). The
index or portfolio must include a minimum of 20 component stocks.
    \26\ See Rule 5.2(j)(6)(B)(I).
    \27\ See Rule 8.100.
    \28\ See Rule 8.600.
---------------------------------------------------------------------------

    By virtue of the numerous restrictions in the Exchange's generic
listing standards relating to market cap, trading volume, and diversity
requirements, among others, that the underlying components must meet to
list on the Exchange, the generic listing standards are, among other
things,

intended to reduce the potential for manipulation by assuring that
the ETP is sufficiently broad-based, and that the components of an
index or portfolio underlying an ETP are adequately capitalized,
sufficiently liquid, and that no one stock dominates the index.\29\
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 80189 (March 9,
2017), 82 FR 13889, 13892 (March 15, 2017) (SR-NYSEArca-2017-01)
(order approving amendment of NYSE Arca, Inc. (``NYSE Arca'') Rule 5
and 8 Series to add specific continued listing standards for ETPs
and to specify the delisting procedures for these products). See
generally id. n. 28 & authorities cited therein.

    The Exchange believes that listed ETPs meeting these composition
and concentration measures would be sufficiently broad-based to allow
integrated market making and side-by-side trading in both the ETP and
the component NMS securities with no requirement for information
barriers or physical or organizational separation.
    As noted, equity-based ETPs that do not meet the applicable generic
listing standards would require a rule filing with the Commission prior
to commencement of Exchange listing or trading. The rule filing would
set forth the initial and continued listing requirements in order for
such a product to be listed and traded on the Exchange. In order for a
rule proposal to be consistent with the Act, it must, among other
things, further the objectives of Section 6(b)(5) of the Act \30\ in
that it is designed to prevent fraudulent and manipulative acts and
practices. The Exchange believes that equity-based ETPs whose
underlying component composition varies greatly from the generic
listing standards, i.e., an ETP whose components are insufficiently
liquid or well-capitalized or unduly concentrated, would be unlikely to
meet this requirement.\31\ Accordingly, the Exchange believes that ETPs
listed and traded via the rule filing process would also be
sufficiently broad-based in order to minimize potential manipulation,
thus justifying integrated market making and side-by-side trading in
both the ETP and the component NMS securities.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b)(5).
    \31\ For examples of equity-based ETPs that did not meet the
generic listing standards on the Exchange's affiliate NYSE Arca and
for which a rule filing was required, see, e.g., Securities Exchange
Act Release No. 56987 (December 18, 2007), 72 FR 73397 (December 27,
2007) (SR-NYSEArca-2007-119) (proposal to list and trade the
BearLinxSM Alerian master limited partnership (``MLP'') Select Index
ETNs linked to the performance of the Alerian MLP Select Index);
Securities Exchange Act Release No. 58437 (August 28, 2008), 73 FR
51684 (September 4, 2008) (SR-NYSEArca-2008-77) (proposal to list
and trade shares of the Barclays Middle East Equities (MSCI GCC) Non
Exchange Traded Notes Due 2038, which are linked to the MSCI Gulf
Cooperation Council (GCC) Countries ex-Saudi Arabia Net Total Return
Index, and index comprised of all of the equity securities included
in the five individual Middle Eastern country indices); Securities
Exchange Act Release No. 57320 (February 13, 2008), 73 FR 9395
(February 20, 2008) (SR-NYSEArca-2008-15) (proposal to continue to
list a and trade the iShares MSCI Mexico Index Fund that corresponds
to the price and yield performance of publicly traded securities in
the aggregate in the Mexican market as represented by the MSCI
Mexico Investable Market Index); Securities Exchange Act Release No.
60137 (June 18, 2009), 74 FR 30340 (June 25, 2009) (SR-NYSEArca-
2009-54) (proposal to list and trade the iShares MSCI All Peru
Capped Index Fund that corresponds to the MSCI All Peru Capped
Index, which measures the performance of the ``Broad Peru Equity
Universe'' which includes Peruvian equity securities classified in
Peru according to the MSCI Global Investable Market Indices
Methodology and securities of companies headquartered in Peru and
that have the majority of their operations based in Peru).
---------------------------------------------------------------------------

    While the ``broad-based'' nature of listed ETPs under either the
generic listing standards or via a rule filing makes manipulation less
likely, the Exchange also believes that the potential for manipulation
of listed ETPs is minimal because ETP pricing is based on an
``arbitrage function'' performed by market participants that affects
the supply of and demand for ETP shares and, thus, ETP prices. This
``arbitrage function'' is effectuated by creating new ETP shares and
redeeming existing ETP shares based on investor demand; thus, ETP
supply is open-ended. As the Commission has acknowledged, the arbitrage
function helps to keep an ETP's price in line with the value of its
underlying portfolio, i.e., it minimizes deviation from NAV.\32\
Generally, the higher the liquidity and trading volume

of an ETP, the more likely the ETP's price will not deviate from the
value of its underlying portfolio. Market makers registered in ETPs
play a key role in this arbitrage function and DMMs, along with other
market participants, would perform this role for ETPs listed on the
Exchange. In short, the Exchange believes that the arbitrage mechanism
is an effective and efficient means of ensuring that intraday pricing
in ETPs closely tracks the value of the underlying portfolio or
reference assets.\33\
---------------------------------------------------------------------------

    \32\ See Securities Exchange Act Release No. 75165, 80 FR 34729,
34733 (June 17, 2015) (S7-11-15) (arbitrage ``generally helps to
prevent the market price of ETP Securities from diverging
significantly from the value of the ETP's underlying or reference
assets''). See also generally id., 80 FR at 34739 (``In the
Commission's experience, the deviation between the daily closing
price of ETP Securities and their NAV, averaged across broad
categories of ETP investment strategies and over time periods of
several months, has been relatively small[,]'' although it had been
``somewhat higher'' in the case of ETPs based on international
indices.).
    \33\ See Securities Exchange Act Release No. 87056, supra note
8.
---------------------------------------------------------------------------

    The Exchange believes that the price regulating function played by
the arbitrage mechanism renders attempts to influence or manipulate the
price of an ETP more difficult and more susceptible to immediate
detection and correction. The fact that an ETP and one or more of its
underlying components are traded in the same physical space on the
Exchange or by the same DMM on the Exchange does not alter this dynamic
in the slightest, nor does it make price manipulation more likely.
Rather, the Exchange believes the arbitrage mechanism would make price
manipulation more difficult and, thus, less likely. Attempts by Floor-
based market participants to influence the price of an ETP by, for
instance, manipulating or [sic] one or more of component securities
would be reflected in the deviation of the price from the NAV just as
similar attempts today by upstairs traders would be reflected in the
deviation of the price from the NAV. Moreover, a broad-based ETP would,
as shown above, be even less susceptible to price manipulation. The
Exchange thus believes that the type of broad-based equity ETPs
eligible for listing under the generic listing standards, coupled with
the arbitrage mechanism, sufficiently minimize the potential for
manipulation of ETPs listed and traded on the Trading Floor.
    With respect to integrated market making, the Commission has
approved changes to Rule 98 that permit a DMM unit to engage in
integrated market making with off-Floor market making units in related
products.\34\ Rule 98(c)(6) prohibits DMM units from operating as a
specialist or market maker on the Exchange in related products, unless
specifically permitted in Exchange rules. Rule 98(b)(7) defines
``related products'' as ``any derivative instrument that is related to
a DMM security.'' \35\ Accordingly, consistent with the proposal, the
Exchange proposes to amend Rule 98(b)(7) to specifically exclude ETPs
from the definition of ``related products.'' As discussed above, the
Exchange believes that ETPs are different from other types of related
products such as single-stock options or futures and that, given the
broad-based nature of listed ETPs, integrated market making and side-
by-side trading in both the ETP and underlying NMS stock components is
appropriate with no requirement for information barriers or physical or
organizational separation.
---------------------------------------------------------------------------

    \34\ See Securities Exchange Act Release No. 58328 (August 7,
2008), 73 FR 48260 (August 18, 2008) (SR-NYSE-2008-45) (order
approving amendments to Rule 98 that permit specialist firms to
integrate with off-Floor trading desks that trade in ``related
products,'' as that term is defined in Rule 98).
    \35\ Under Rule 98(b)(7), derivative instruments include
options, warrants, hybrid securities, single-stock futures,
security-based swap agreement, a forward contract, or ``any other
instrument that is exercisable into or whose price is based upon or
derived from a security traded at the Exchange.''
---------------------------------------------------------------------------

    Finally, trading on the Exchange is subject to a comprehensive
regulatory program that includes a suite of surveillances and routine
examinations that review trading by DMMs and other market participants
on the Exchange's trading Floor. Market participants on the trading
Floor, including DMMs, are also required to implement policies and
procedures reasonably designed to detect and deter inappropriate
conduct and prevent the misuse of material, non-public information or
disclosure of Floor-based non-public order information.\36\
---------------------------------------------------------------------------

    \36\ See, e.g., Rule 98(c)(3) (setting forth restrictions on
trading for member organizations operating a DMM unit).
---------------------------------------------------------------------------

    For all of the reasons stated above, the proposal is therefore
consistent with the requirements of the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\37\ in general, and furthers the objectives of
Sections 6(b)(5) of the Act,\38\ in particular, because it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to, and perfect the mechanisms of,
a free and open market and a national market system and, in general, to
protect investors and the public interest and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b).
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that listing and trading ETPs
that have a component NMS Stock or are based on, or represent an
interest in, an underlying index or reference asset that includes an
NMS stock listed on the Exchange would remove impediments to and
perfect the mechanism of a free and open market and a national market
system by facilitating the listing and trading a broader range of ETPs
consistent with the Exchange's current structure to trade listed
securities. The Exchange believes that removal of the current exclusion
of listed ETPs with NMS Stock components and the exclusion of ETPs from
the definition of related products would not be inconsistent with the
public interest and the protection of investors because listed ETPs
that include equity securities as components are subject to listing
requirements--whether the generic listing standards or those approved
by individual rule filing--that are designed to ensure that underlying
indices or portfolios are sufficiently broad-based and well-diversified
to protect against manipulation. Moreover, the Exchange believes that
potential manipulation of listed ETPs is also minimal because of ETPs
reliance on an ``arbitrage function'' performed by market participants
that influences the supply and demand of shares and, thus, trading
prices relative to NAV. The Exchange believes that these safeguards
would continue to serve to prevent fraudulent and manipulative acts and
practices, as well as to protect investors and the public interest from
concerns that may be associated with integrated market making and any
possible misuse of non-public information.
    For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\39\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The Exchange believes that the proposed change
would promote competition by facilitating the listing and trading of a
broader range of ETPs on the Exchange. The Exchange believes that the
proposed rule change would facilitate the trading of Exchange-listed
ETPs by DMMs on Pillar, which would enable the Exchange to further
compete with unaffiliated exchange competitors that also list and trade
ETPs. The proposed rule changes would also provide issuers with greater
choice in potential listing

venues for their ETP products to include an exchange model that
includes a DMM assigned to their security and related benefits to an
issuer as a result of the Exchange's high-touch trading model.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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

    No written comments were solicited or received with respect to the
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or such longer period up to 90 days (i) as the
Commission may designate 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 or disapprove the 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 email to<EMAIL_ADDRESS>Please include
File Number SR-NYSE-2019-54 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2019-54. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2019-54 and should be submitted on
or before November 13, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23051 Filed 10-22-19; 8:45 am]
 BILLING CODE 8011-01-P