[Federal Register: September 7, 2007 (Volume 72, Number 173)]
[Notices]
[Page 51475-51479]
[DOCID:fr07se07-99]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27963; 812-13372]

SPA ETF Trust and SPA ETF Inc.; Notice of Application

August 31, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 24(d) of the Act and rule 22c-1
under the Act, and under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (a)(2) of the Act.

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Summary of Application: Applicants request an order that would permit
(a) series of open-end management investment companies, to issue shares
(``Shares'') that can be redeemed only in large aggregations
(``Creation Units''); (b) secondary market transactions in Shares to
occur at negotiated prices; (c) dealers to sell Shares to purchasers in
the secondary market unaccompanied by a prospectus when prospectus
delivery is not required by the Securities Act of 1933 (``Securities
Act''); and (d) certain affiliated persons of the series to deposit
securities into, and receive securities from, the series in connection
with the purchase and redemption of Creation Units.

Applicants: SPA ETF Trust (the ``Trust'') and SPA ETF Inc. (the
``Adviser'').

Filing Dates: The application was filed on March 14, 2007 and amended
on July 13, 2007. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in the notice.

Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on September 25, 2007, and should be accompanied by proof of
service on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F.
Street, NE., Washington, DC 20549-1090; Applicants, c/o Day Pitney, One
Canterbury Green, Stamford, CT 06901.

FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel at
(202) 551-6815, or Julia Kim Gilmer, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Office of Investment Company
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F.
Street, NE., Washington, DC 20549-0102, telephone<PHONE_NUMBER>.

Applicants' Representations

    1. The Trust is registered as an open-end management investment
company and is organized as a Delaware statutory trust authorized to
issue multiple series. The Trust intends to offer and sell shares of
multiple separate series (each an ``Index Fund'' or ``Fund''). The
Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the ``Advisers Act'') and will serve
as the investment adviser to each Index Fund. In the future, the
Adviser may enter into sub-advisory agreements with other investment
advisers to act as ``sub-advisers'' with respect to particular Index
Funds. Any sub-adviser will be registered under the Advisers Act or
exempt from registration. Foreside Fund Services, LLC
(``Distributor''), a broker-dealer registered under the Securities
Exchange Act of 1934 (the ``Exchange Act''), will serve as the
principal underwriter and distributor for the Index Funds.
    2. Each Index Fund will hold certain securities (``Portfolio
Securities'') selected to correspond generally to the price and yield
performance, before fees and expenses, of a specified equity securities
index (each an ``Underlying Index''). No entity that creates, compiles,
sponsors or maintains an Underlying Index is or will be an affiliated
person, as defined in section 2(a)(3) of the Act, or an affiliated
person of an affiliated person, of the Trust, the Adviser, the
Distributor, promoter or any sub-adviser to an Index Fund. The
Underlying Indexes for each Index Fund that will be initially offered
(the ``Initial Index Funds'') are: (i) MarketGrader 40 Index, (ii)
MarketGrader 100 Index, (iii) MarketGrader 200 Index, (iv) MarketGrader
Small Cap 100 Index, (v) MarketGrader Mid Cap 100 Index, and (vi)
MarketGrader Large Cap 100 Index. The Trust may offer additional Index
Funds in the future based on other Underlying Indexes (``Future Index
Funds,'' and together with the Initial Index Funds, ``Index Funds'').
Any Future Index Funds will (a) comply with the terms and conditions of
any order granted pursuant to the application and (b) be advised by the
Adviser or an entity controlling, controlled by or under common control
with the Adviser.
    3. The investment objective of each Index Fund will be to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of its Underlying Index. Intra-
day values of the Underlying Index will be disseminated every 15
seconds throughout the trading day. An Index Fund will utilize either a
``replication'' or ``representative sampling'' strategy which will be
disclosed with regard to each Index Fund in its prospectus
(``Prospectus'').\1\ An Index Fund using a ``replication'' strategy
will invest in substantially all of the Component Securities in its
Underlying Index in approximately the same weightings as in the
Underlying Index. An Index Fund using a ``representative sampling''
strategy will invest in some, but not all of the relevant Component
Securities.\2\ Applicants anticipate that an Index Fund that utilizes a
``representative sampling'' strategy will not track the performance of
its Underlying Index with the same degree of accuracy as an investment
vehicle that invests in every Component Security of the Underlying
Index in the same weighting as the Underlying Index. Applicants expect
that each Index Fund will have a tracking error relative to the
performance of its Underlying Index of no more than 5 percent.
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    \1\ Applicants represent that the Index Fund will normally
invest at least 90% of its total assets in the component securities
that comprise its Underlying Index (``Component Securities''). Each
Index Fund also may invest up to 10% of its total assets in money
market instruments, including repurchase agreements or other funds
which invest exclusively in money market instruments, convertible
securities, structured notes, swap agreements, options, and futures
contracts, as well as in stocks not included in its Underlying
Index, but which the Adviser believes will help the Index Fund track
its Underlying Index.
    \2\ Under the ``representative sampling'' strategy, the Adviser
will seek to construct an Index Fund's portfolio so that its market
capitalization, industry weightings, fundamental investment
characteristics (such as return variability, earnings valuation and
yield) and liquidity measures perform like those of the Underlying
Index.
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    4. Shares of the Index Funds will be sold in Creation Units of at
least 100,000 Shares. All orders to purchase Creation Units must be
placed with the Distributor by or through a party that has entered into
an agreement with the Trust and Distributor (``Authorized
Participant''). An Authorized Participant must be either: (a) A broker-
dealer or other participant in the continuous net settlement system of
the National Securities Clearing Corporation (``NSCC''), a clearing
agency registered with the Commission, or (b) a participant in the
Depository Trust Company (``DTC'', and such participant, ``DTC
Participant''). Shares of each Index Fund generally will be sold in
Creation Units in exchange for an in-kind deposit by the purchaser of a
portfolio of securities designated by the Adviser to correspond
generally to the price and yield performance, before fees and expenses,
of the relevant Underlying Index (the ``Deposit Securities''), together
with the deposit of a relatively small specified cash payment (``Cash
Component''). The Cash Component is generally an amount equal to the
difference between (a) The net asset value (``NAV'') (per Creation
Unit) of the Index Fund and (b) the total aggregate market value (per
Creation Unit) of the Deposit Securities.\3\ Applicants state that in
some circumstances it may not be practicable or convenient for an Index
Fund to operate exclusively on an ``in-kind'' basis. The Trust reserves
the right to permit, under certain circumstances, a purchaser of
Creation Units to substitute cash in lieu of depositing some or all of
the requisite Deposit Securities. An investor purchasing a Creation
Unit from an Index Fund will be charged a fee (``Transaction Fee'') to
prevent the dilution of the interests of the remaining shareholders
resulting from costs in connection with the purchase of Creation
Units.\4\ The maximum Transaction Fees relevant to each Index Fund will
be fully disclosed in the Prospectus of such Index Fund and the method
of calculating the Transaction Fees will be disclosed in the Prospectus
and/or statement of additional information (``SAI''). All orders to
purchase Creation Units will be placed with the Distributor by or
through an Authorized Participant and it will be the Distributor's
responsibility to transmit such orders to the Trust. The Distributor
also will be responsible for delivering the Prospectus to those persons
purchasing Creation Units, and for maintaining records of both the
orders placed with it and the confirmations of acceptance furnished by
it. In addition, the Distributor will maintain a record of

the instructions given to the Trust to implement the delivery of
Shares.
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    \3\ The Trust will sell Creation Units of each Index Fund on any
``Business Day,'' which is defined to include any day that an Index
Fund is open for business, including as required by section 22(e) of
the Act. In addition to the list of names and amount of each
security constituting the current Deposit Securities, it is intended
that, on each Business Day, the Cash Component effective as of the
previous Business Day, per outstanding Share of each Index Fund,
will be made available. The Exchanges intend to disseminate, every
15 seconds, during their respective regular trading hours, through
the facilities of the Consolidated Tape Association (``CTA''), an
approximate amount per Share representing the sum of the estimated
Cash Component effective through and including the previous Business
Day, plus the current value of the Deposit Securities, on a per
Share basis.
    \4\ Where an Index Fund permits a purchaser to substitute cash
in lieu of depositing a portion of the requisite Deposit Securities,
the purchaser may be assessed a higher Transaction Fee to cover the
cost of purchasing such Deposit Securities, including brokerage
costs, and part or all of the spread between the expected bid and
the offer side of the market relating to such Deposit Securities.
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    5. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded on the American Stock Exchange, LLC, (``Amex''), or another
U.S. national securities exchange as defined in section 2(a)(26) of the
Act (each, an ``Other Exchange'' and together with Amex, the
``Exchanges''). It is expected that one or more member firms of a
listing Exchange will be designated to act as a specialist and maintain
a market for Shares on the Exchange (the ``Exchange Specialist''). If
The NASDAQ Stock Market, Inc. (``NASDAQ'') is the listing Exchange, one
or more member firms of NASDAQ will act as a market maker (``Market
Maker'') and maintain a market on NASDAQ.\5\ Prices of Shares trading
on an Exchange will be based on the current bid/offer market. Shares
sold in the secondary market will be subject to customary brokerage
commissions and charges. Applicants expect that purchasers of Creation
Units will include institutional investors and arbitrageurs (which
could include institutional investors). The Exchange Specialist, or
Market Maker, in providing a fair and orderly secondary market for the
Shares, also may purchase Creation Units for use in its market-making
activities. Applicants expect that secondary market purchasers of
Shares will include both institutional investors and retail
investors.\6\ Applicants expect that the price at which the Shares
trade will be disciplined by arbitrage opportunities created by the
ability to continually purchase or redeem Creation Units at their NAV,
which should ensure that the Shares will not trade at a material
discount or premium in relation to their NAV.
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    \5\ If Shares are listed on NASDAQ, no particular Market Maker
will be contractually obligated to make a market in Shares, although
NASDAQ's listing requirements stipulate that at least two Market
Makers must be registered as Market Makers in Shares to maintain the
listing. Registered Market Makers are required to make a continuous,
two-sided market at all times or be subject to regulatory sanctions.
    \6\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC participants will maintain records reflecting beneficial
owners of Shares.
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    6. Shares will not be individually redeemable, and owners of Shares
may acquire those Shares from the Index Fund, or tender such Shares for
redemption to the Index Fund, in Creation Units only.\7\ To redeem, an
investor will have to accumulate enough Shares to constitute a Creation
Unit. Redemption orders must be placed by or through an Authorized
Participant. An investor redeeming a Creation Unit generally will
receive (a) A portfolio of securities designated to be delivered for
Creation Unit redemptions on the date that the request for redemption
is submitted (``Fund Securities''), which may not be identical to the
Deposit Securities required to purchase Creation Units on that date,
and (b) a ``Cash Redemption Payment,'' consisting of an amount
calculated in the same manner as the Cash Component, although the
actual amount of the Cash Redemption Payment may differ from the Cash
Component if the Fund Securities are not identical to the Deposit
Securities on that day. An investor may receive the cash equivalent of
a Fund Security in certain circumstances, such as if the investor is
constrained from effecting transactions in the security by regulation
or policy. A redeeming investor may pay a Transaction Fee, calculated
in the same manner as a Transaction Fee payable in connection with
purchases of Creation Units.
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    \7\ The Index Funds will comply with the federal securities laws
in accepting Deposit Securities and satisfying redemptions with Fund
Securities (as defined below), including that the Deposit Securities
and Fund Securities are sold in transactions that would be exempt
from registration under the Securities Act. As a general matter, the
Deposit Securities and Fund Securities will correspond pro rata to
the securities held by each Index Fund.
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    7. Neither the Trust nor any individual Index Fund will be marketed
or otherwise held out as an ``open-end investment company'' or a
``mutual fund.'' Instead, each Fund will be marketed as an ``exchange-
traded fund,'' an ``investment company,'' a ``fund,'' or a ``trust.''
All marketing materials that describe the method of obtaining, buying
or selling Shares, or refer to redeemability, will prominently disclose
that Shares are not individually redeemable and that the owners of
Shares may purchase or redeem Shares from the Index Fund in Creating
Units only. The same approach will be followed in the SAI, shareholder
reports and investor educational materials issued or circulated in
connection with the Shares. The Funds will provide copies of their
annual and semi-annual shareholder reports to DTC Participants for
distribution to beneficial owners of Shares.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 24(d) of the Act
and rule 22c-1 under the Act, and under sections 6(c) and 17(b) of the
Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the owner, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Trust to register as
an open-end management investment company and issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase Shares in Creation Units and redeem Creation Units from each
Fund. Applicants further state that because the market price of Shares
will be disciplined by arbitrage opportunities, investors should be
able to sell Shares in the secondary market at prices that do not vary
substantially from their NAV.

Section 22(d) of the Act and Rule 22c-1 under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, which is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming or repurchasing
a redeemable security do

so only at a price based on its NAV. Applicants state that secondary
market trading in Shares will take place at negotiated prices, not at a
current offering price described in the Prospectus, and not at a price
based on NAV. Thus, purchases and sales of Shares in the secondary
market will not comply with section 22(d) of the Act and rule 22c-1
under the Act. Applicants request an exemption under section 6(c) from
these provisions.
    5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers, and (c) ensure an orderly distribution of investment
company shares by eliminating price competition from dealers offering
shares at less than the published sales price and repurchasing shares
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Index Funds as parties and cannot result in
dilution of an investment in Shares, and (b) to the extent different
prices exist during a given trading day, or from day to day, such
variances occur as a result of third-party market forces, such as
supply and demand. Therefore, applicants assert that secondary market
transactions in Shares will not lead to discrimination or preferential
treatment among purchasers. Finally, applicants contend that the
proposed distribution system will be orderly because competitive forces
will ensure that the difference between the market price of Shares and
their NAV remains narrow.

Section 24(d) of the Act

    7. Section 24(d) of the Act provides, in relevant part, that the
prospectus delivery exemption provided to dealer transactions by
section 4(3) of the Securities Act does not apply to any transaction in
a redeemable security issued by an open-end investment company.
Applicants seek relief from section 24(d) to permit dealers selling
Shares to rely on the prospectus delivery exemption provided by section
4(3) of the Securities Act.\8\
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    \8\ Applicants state that they are not seeking relief from the
prospectus delivery requirement for non-secondary market
transactions, such as transactions in which an investor purchases
Shares from the Trust or an underwriter. Applicants further state
that the Prospectus will caution broker-dealers and others that some
activities on their part, depending on the circumstances, may result
in their being deemed statutory underwriters and subject them to the
Prospectus delivery and liability provisions of the Securities Act.
For example, a broker-dealer firm and/or its client may be deemed a
statutory underwriter if it purchases Creation Units from an Index
Fund, breaks them down into the constituent Shares, and sells those
Shares directly to customers, or if it chooses to couple the
creation of a supply of new Shares with an active selling effort
involving solicitation of secondary market demand for Shares. Each
Index Fund's Prospectus will state that whether a person is an
underwriter depends upon all of the facts and circumstances
pertaining to that person's activities. Each Index Fund's Prospectus
will caution dealers who are not ``underwriters'' but are
participating in a distribution (as contrasted to ordinary secondary
trading transactions), and thus dealing with Shares that are part of
an ``unsold allotment'' within the meaning of section 4(3)(C) of the
Securities Act, that they would be unable to take advantage of the
prospectus delivery exemption provided by section 4(3) of the
Securities Act.
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    8. Applicants state that Shares are bought and sold in the
secondary market in the same manner as closed-end fund shares.
Applicants note that transactions in closed-end fund shares are not
subject to section 24(d), and thus closed-end fund shares are sold in
the secondary market without a prospectus. Applicants contend that
Shares likewise merit a reduction in the unnecessary compliance costs
and regulatory burdens resulting from the imposition of the prospectus
delivery obligations in the secondary market. Because Shares will be
listed on an Exchange, prospective investors will have access to
information about the product over and above what is normally available
about an open-end security. Applicants state that information regarding
market price and volume will be continually available on a real time
basis throughout the day on brokers' computer screens and other
electronic services. The previous day's price and volume information
will be published daily in the financial section of newspapers. In
addition, the Trust also intends to maintain a Web site that will
include the Prospectus and SAI, the relevant Underlying Index for each
Index Fund and additional quantitative information that is updated on a
daily basis, including daily trading volume, closing price, the NAV for
each Index Fund and information about the premiums and discounts at
which the Index Fund's Shares have traded.
    9. Applicants will arrange for broker-dealers selling Shares in the
secondary market to provide purchasers with a product description
(``Product Description'') that describes, in plain English, the
relevant Index Fund and the Shares it issues. Applicants state that a
Product Description is not intended to substitute for a full
Prospectus. Applicants state that the Product Description will be
tailored to meet the information needs of investors purchasing Shares
in the secondary market.

Section 17(a)(1) and (2) of the Act

    10. Section 17(a)(1) and (2) of the Act generally prohibit an
affiliated person of a registered investment company, or an affiliated
person of such person (``second-tier affiliate''), from selling any
security to or purchasing any security from the company. Section
2(a)(3) of the Act defines an affiliated person to include (a) any
person directly or indirectly owning, controlling, or holding with
power to vote, 5% or more of the outstanding voting securities of the
other person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with
power to vote, by the other person and (c) any person directly or
indirectly controlling, controlled by, or under common control with,
the other person. Section 2(a)(9) of the Act provides that a control
relationship will be presumed where one person owns more than 25% of
another person's voting securities. The Index Funds may be deemed to be
controlled by the Adviser or an entity controlling, controlled by or
under common control with the Adviser and hence affiliated persons of
each other. In addition, the Index Funds may be deemed to be under
common control with any other registered investment company (or series
thereof) advised by the Adviser or an entity controlling, controlled by
or under common control with the Adviser (an ``Affiliated Fund'').
Applicants state that if Creation Units of an Index Fund are held by
twenty or fewer investors, including an Exchange Specialist or Market
Maker, some or all of such investors will be 5% owners of the Index
Fund, and one or more investors may hold in excess of 25% of the Index
Fund. Such investors would be deemed to be affiliates of the Index
Fund. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons that
are affiliated persons or second-tier affiliates of the Index Funds
solely by virtue of: (a) Holding 5% or more, or in excess of 25% of the
outstanding Shares of one or more Index Funds; (b) having an
affiliation with a person with an ownership interest described in (a);
or

(c) holding 5% or more, or more than 25% of the Shares of one or more
Affiliated Funds, to effectuate in-kind purchases and redemptions.
    11. Section 17(b) of the Act authorizes the Commission to exempt a
proposed transaction from section 17(a) of the Act if evidence
establishes that the terms of the transaction, including the
consideration to be paid or received, are reasonable and fair and do
not involve overreaching on the part of any person concerned, and the
proposed transaction is consistent with the policies of the registered
investment company and the general provisions of the Act. Applicants
assert that no useful purpose would be served by prohibiting these
types of affiliated persons from purchasing or redeeming Creation Units
through ``in-kind'' transactions. The deposit procedures for both in-
kind purchases and in-kind redemptions of Creation Units will be the
same for all purchases and redemptions. Deposit Securities and Fund
Securities will be valued in the same manner as Portfolio Securities.
Therefore, applicants state that in-kind purchases and redemptions will
afford no opportunity for the affiliated persons of an Index Fund, or
the second-tier affiliates described above, to effect a transaction
detrimental to other holders of Shares. Applicants also believe that
in-kind purchases and redemptions will not result in self-dealing or
overreaching of the Index Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will
be subject to the following conditions:
    1. Each Index Fund's Prospectus and Product Description will
clearly disclose that, for purposes of the Act, Shares are issued by
the Index Fund and that the acquisition of Shares by investment
companies is subject to the restrictions of section 12(d)(1) of the
Act.
    2. As long as the Trust operates in reliance on the requested
order, the Shares will be listed on an Exchange.
    3. Neither the Trust nor any Index Fund will be advertised or
marketed as an open-end fund or a mutual fund. Each Index Fund's
Prospectus will prominently disclose that Shares are not individually
redeemable shares and will disclose that the owners of the Shares may
acquire those Shares from the Index Fund and tender those shares for
redemption to the Index Fund in Creation Units only. Any advertising
material that describes the purchase or sale of Creation Units or
refers to redeemability will prominently disclose that Shares are not
individually redeemable, and that owners of Shares may purchase those
Shares from the Index Fund and tender those Shares for redemption to
the Index Fund in Creation Units only.
    4. The Web site for the Trust, which will be publicly accessible at
no charge, will contain the following information, on a per Share
basis, for each Index Fund: (a) The prior Business Day's NAV and the
reported closing price, and a calculation of the premium or discount of
such price against such NAV; and (b) data in chart format displaying
the frequency distribution of discounts and premiums of the daily
closing price against the NAV, within appropriate ranges, for each of
the four previous calendar quarters. In addition the Product
Description for each Index Fund will state that the Web site for the
Trust has information about the premiums and discounts at which Shares
have traded.
    5. The Prospectus and annual report for each Index Fund also will
include: (a) The information listed in condition 4(b), (i) in the case
of the Prospectus, for the most recently completed year (and the most
recently completed quarter or quarters, as applicable) and (ii) in the
case of the annual report, for the immediately preceding five years, as
applicable; and (b) the following data, calculated on a per Share basis
for one, five and ten year periods (or life of the Index Fund): (i) The
cumulative total return and the average annual total return based on
NAV and closing price, and (ii) the cumulative total return of the
relevant Underlying Index.
    6. Before an Index Fund may rely on the order, the Commission will
have approved, pursuant to rule 19b-4 under the Exchange Act, an
Exchange rule requiring Exchange members and member organizations
effecting transactions in Shares to deliver a Product Description to
purchasers of Shares.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-17671 Filed 9-6-07; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register: January 9, 2006 (Volume 71, Number 5)]
[Notices]
[Page 1418]
[DOCID:fr09ja06-21]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PR06-8-000]

Dow Intrastate Gas Company; Notice of Petition for Rate Approval

December 29, 2005.
    Take notice that on December 15, 2005, Dow Intrastate Gas Company
(DIGCO) filed a petition for rate approval pursuant to Sec.
284.123(b)(2) of the Commission's regulations. DIGCO states that it
proposes a maximum interruptible rate of $0.0388 per MMBtu, plus a
0.004 percent in-kind fuel reimbursement for the transportation of
natural gas under section 311(a)(2) of the Natural Gas Policy Act of
1978.
    Any person desiring to participate in this rate proceeding must
file a motion 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 and 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 date as indicated below. Anyone filing
an intervention or protest must serve a copy of that document on the
Applicant. Anyone filing an intervention or protest on or before the
intervention or protest date need not 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 e-mail
notification when a document is added to a subscribed docket(s). For
assistance with any FERC Online service, please e-mail
<EMAIL_ADDRESS>or call<PHONE_NUMBER> (toll free). For

TTY, call<PHONE_NUMBER>.
    Comment Date: January 19, 2006.

Magalie R. Salas,
Secretary.
 [FR Doc. E6-53 Filed 1-6-06; 8:45 am]

BILLING CODE 6717-01-P


[Federal Register Volume 79, Number 9 (Tuesday, January 14, 2014)]
[Proposed Rules]
[Pages 2384-2387]
[FR Doc No: 2014-00449]

=======================================================================
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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 25

[Docket No. FAA-2013-0904; Notice No. 25-13-14-SC]

Special Conditions: Airbus, Model A350-900 Series Airplane;
Electronic Flight Control System: Lateral-Directional and Longitudinal
Stability and Low Energy Awareness

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed special conditions.

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SUMMARY: This action proposes special conditions for the Airbus Model
A350-900 series airplanes. These airplanes will have a novel or unusual
design feature(s) associated with lateral-directional and longitudinal
stability and low energy awareness. The applicable airworthiness
regulations do not contain adequate or appropriate safety standards for
this design feature. These proposed 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: Send your comments on or before February 28, 2014.

ADDRESSES: Send comments identified by docket number FAA-2013-0904
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 the 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: Joe Jacobsen, FAA, Airplane and
Flightcrew Interface Branch, ANM-111, Transport Airplane Directorate,
Aircraft Certification Service, 1601 Lind Avenue SW., Renton,
Washington 98057-3356; telephone<PHONE_NUMBER>; facsimile (425) 227-
1320.

SUPPLEMENTARY INFORMATION:

Comments Invited

    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 on or before the closing
date for comments. We may change these proposed special conditions
based on the comments we receive.

Background

    On August 25, 2008, Airbus applied for a type certificate for their
new Model A350-900 series airplane. Later, Airbus requested and the FAA
approved an extension to the application for FAA type certification to
June 28, 2009. The Model A350-900 series has a conventional layout with
twin wing-mounted Rolls-Royce Trent XWB engines. It features a twin
aisle 9-abreast economy class layout, and accommodates side-by-side
placement of LD-3 containers in the cargo compartment. The basic Model
A350-900 series configuration will accommodate 315 passengers in a
standard two-class arrangement. The design cruise speed is Mach 0.85
with a Maximum Take-Off Weight of 602,000 lbs. Airbus proposes the
Model A350-900 series to be certified for extended operations (ETOPS)
beyond 180 minutes at entry into service for up to a 420-minute maximum
diversion time.

Lateral-Directional Static Stability

    The electronic flight control system (EFCS) on the A350, like its
predecessors the A320, A330, A340, and A380, contains fly-by-wire
control laws that can result in neutral lateral-directional static
stability; therefore, the conventional requirements in the regulations
are not met.
    Positive static directional stability is defined as the tendency to
recover from a skid with the rudder free. Positive static lateral
stability is defined as the tendency to raise the low wing in a
sideslip with the aileron controls free. These control criteria are
intended to accomplish the following:
    (a) Provide additional cues of inadvertent sideslips and skids
through control force changes.
    (b) Ensure that short periods of unattended operation do not result
in any significant changes in yaw or bank angle.
    (c) Provide predictable roll and yaw response.
    (d) Provide acceptable level of pilot attention (workload) to
attain and maintain a coordinated turn.
    The Flight Test Harmonization Working Group has recommended a rule
and advisory material change for Sec.  25.177, Static lateral-
directional stability. This harmonized text will form the basis for
these proposed special conditions.

Longitudinal Static Stability

    Static longitudinal stability on airplanes with mechanical links to
the pitch control surface means that a pull force on the controller
will result in a reduction in speed relative to the trim speed, and a
push force will result in a higher speed than the trim speed.
Longitudinal stability is required by the regulations for the following
reasons:
    (a) Speed change cues are provided to the pilot through increased
and decreased forces on the controller.
    (b) Short periods of unattended control of the airplane do not
result in significant changes in attitude, airspeed or load factor.
    (c) A predictable pitch response is provided to the pilot.
    (d) An acceptable level of pilot attention (workload) to attain and
maintain trim speed and altitude is provided to the pilot.
    (e) Longitudinal stability provides gust stability.
    The pitch control movement of the sidestick on the A350 is designed
to be a normal load factor or ``g'' command that results in an initial
movement of the elevator surface to attain the commanded load factor
that's then followed by integrated movement of the stabilizer and
elevator to automatically trim the airplane to a neutral, 1g, stick-
free stability. The flight path commanded by the initial sidestick
input will remain, stick-free, until another command is given by the
pilot. This control function is applied during ``normal'' control law
within the speed range from initiation of the angle of attack
protection limit, Vaprot, to VMO/MMO.
Once outside this speed range, the control laws introduce the
conventional longitudinal static stability as described above.
    As a result of neutral static stability, the A350 does not meet the
requirements in 14 CFR part 25 for static longitudinal stability.

Low Energy Awareness

    Past experience on airplanes fitted with a flight control system
providing neutral longitudinal stability shows there is insufficient
feedback cues to the pilot of excursion below normal operational
speeds. The maximum angle of attack protection system limits the
airplane angle of attack and prevents stall during normal operating
speeds, but this system is not sufficient to prevent stall at low speed
excursions below normal operational speeds. Until intervention, there
are no stability cues since the aircraft remains trimmed. Additionally,
feedback from the pitching moment due to thrust variation is reduced by
the flight control laws. Recovery from a low speed excursion may become
hazardous when the low speed situation is associated with a low
altitude and with the engines at low

thrust or with performance limiting conditions.

Type Certification Basis

    Under Title 14, Code of Federal Regulations (14 CFR) 21.17, Airbus
must show that the Model A350-900 series meets the applicable
provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-
129.
    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 Model A350-900 series because of a
novel or unusual design feature, special conditions are prescribed
under Sec.  21.16.
    Special conditions are initially applicable to the 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 or similar
novel or unusual design feature, the proposed special conditions would
also apply to the other model under Sec.  21.101.
    In addition to the applicable airworthiness regulations and
proposed special conditions, the Model A350-900 series 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 and the FAA must
issue a finding of regulatory adequacy under Sec.  611 of Public Law
92-574, the ``Noise Control Act of 1972.''
    The FAA issues special conditions, as defined in 14 CFR 11.19,
under Sec.  11.38, and they become part of the type-certification basis
under Sec.  21.17(a)(2).

Novel or Unusual Design Features

    The Airbus Model A350-900 series will incorporate the following
novel or unusual design features: A flight control design feature
within the normal operational envelope in which side stick deflection
in the roll axis commands roll rate; an operational design which does
not comply with the static longitudinal stability requirements of
Sec. Sec.  25.171, 25.173, and 25.175, and a low energy state where
recovery may become hazardous when associated with a low altitude and
performance limiting conditions.

Discussion

    1. In the absence of positive lateral stability, the curve of
lateral control surface deflections against sideslip angle should be in
a conventional sense, and reasonably in harmony with rudder deflection
during steady heading sideslip maneuvers.
    2. Since conventional relationships between stick forces and
control surface displacements do not apply to the ``load factor
command'' flight control system on the A350, longitudinal stability
characteristics should be evaluated by assessing the airplane handling
qualities during simulator and flight test maneuvers appropriate to
operation of the airplane. This may be accomplished by using the
Handling Qualities Rating Method presented in Appendix 7 of the Flight
Test Guide, AC 25-7A, or an acceptable alternative method proposed by
Airbus. Important considerations are as follows:
    (a) Adequate speed control without excessive pilot workload
    (b) Acceptable high and low speed protection, and
    (c) Provision for adequate cues to the pilot of significant speed
excursions beyond VMO/MMO, and low speed
awareness flight conditions.
    3. The airplane should provide adequate awareness cues to the pilot
of a low energy (low speed/low thrust/low height) state to ensure that
the airplane retains sufficient energy to recover when flight control
laws provide neutral longitudinal stability significantly below the
normal operating speeds. This may be accomplished as follows:
    (a) Adequate low speed/low thrust cues at low altitude may be
provided by a strong positive static stability force gradient (1 pound
per 6 knots applied through the sidestick), or
    (b) The low energy awareness may be provided by an appropriate
warning with the following characteristics:
    (i) It should be unique, unambiguous, and unmistakable.
    (ii) It should be active at appropriate altitudes and in
appropriate configurations (i.e., at low altitude, in the approach and
landing configurations).
    (iii) It should be sufficiently timely to allow recovery to a
stabilized flight condition inside the normal flight envelope while
maintaining the desired flight path and without entering the flight
controls angle-of-attack protection mode.
    (iv) It should not be triggered during normal operation, including
operation in moderate turbulence for recommended maneuvers at
recommended speeds.
    (v) It should not be cancelable by the pilot other than by
achieving a higher energy state.
    (vi) There should be an adequate hierarchy among the various
warnings so that the pilot is not confused and led to take
inappropriate recovery action if multiple warnings occur.
    (c) Global energy awareness and non-nuisance of low energy cues
should be evaluated by simulator and flight tests in the whole take-off
and landing altitude range for which certification is requested. This
would include all relevant combinations of weight, center of gravity
position, configuration, airbrakes position, and available thrust,
including reduced and derated take-off thrust operations and engine
failure cases. A sufficient number of tests should be conducted,
allowing the level of energy awareness and the effects of energy
management errors to be assessed.

Applicability

    As discussed above, these proposed special conditions apply to
Airbus Model A350-900 series airplanes. Should Airbus apply later for a
change to the type certificate to include another model incorporating
the same novel or unusual design feature, the proposed special
conditions would apply to that model as well.

Conclusion

    This action affects only certain novel or unusual design features
on the Airbus Model A350-900 series airplanes. It is not a rule of
general applicability.

List of Subjects in 14 CFR part 25

    Aircraft, Aviation safety, Reporting and recordkeeping
requirements.

0
The authority citation for these special conditions is as follows:

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

The Proposed Special Conditions

    Accordingly, the Federal Aviation Administration (FAA) proposes the
following special conditions as part of the type certification basis
for Airbus Model A350-900 series airplanes.
    1. Electronic Flight Control System: Lateral-Directional and
Longitudinal Stability and Low Energy Awareness. In lieu of the
requirements of Sec. Sec.  25.171, 25.173, 25.175 and 25.177, the
following special conditions apply:
    a. The airplane must be shown to have suitable static lateral,
directional, and longitudinal stability in any condition normally
encountered in service, including the effects of atmospheric
disturbance. The showing of suitable static lateral, directional, and
longitudinal stability must be based on the airplane handling
qualities, including pilot workload and pilot compensation, for
specific test procedures during the flight test evaluations.
    b. The airplane must provide adequate awareness to the pilot of a
low energy (low speed/low thrust/low height) state when fitted with
flight

control laws presenting neutral longitudinal stability significantly
below the normal operating speeds. ``Adequate awareness'' means warning
information must be provided to alert the crew of unsafe operating
conditions and to enable them to take appropriate corrective action.
    c. The static directional stability (as shown by the tendency to
recover from a skid with the rudder free) must be positive for any
landing gear and flap position and symmetrical power condition, at
speeds from 1.13 VSR1, up to VFE, VLE,
or VFC/MFC (as appropriate).
    d. The static lateral stability (as shown by the tendency to raise
the low wing in a sideslip with the aileron controls free) for any
landing gear and wing-flap position and symmetric power condition, may
not be negative at any airspeed (except that speeds higher than
VFE need not be considered for wing-flaps extended
configurations nor speeds higher than VLE for landing gear
extended configurations) in the following airspeed ranges:
    (1) From 1.13 VSR1 to VMO /
MMO.
    (2) From VMO/MMO to VFC/
MFC, unless the divergence is--
    (i) Gradual;
    (ii) Easily recognizable by the pilot; and
    (iii) Easily controllable by the pilot.
    e. In straight, steady sideslips over the range of sideslip angles
appropriate to the operation of the airplane, but not less than those
obtained with one-half of the available rudder control movement (but
not exceeding a rudder control force of 180 pounds), rudder control
movements and forces must be substantially proportional to the angle of
sideslip in a stable sense; and the factor of proportionality must lie
between limits found necessary for safe operation. This requirement
must be met for the configurations and speeds specified in paragraph
(c) of this section.
    f. For sideslip angles greater than those prescribed by paragraph
(e) of this section, up to the angle at which full rudder control is
used or a rudder control force of 180 pounds is obtained, the rudder
control forces may not reverse, and increased rudder deflection must be
needed for increased angles of sideslip. Compliance with this
requirement must be shown using straight, steady sideslips, unless full
lateral control input is achieved before reaching either full rudder
control input or a rudder control force of 180 pounds; a straight,
steady sideslip need not be maintained after achieving full lateral
control input. This requirement must be met at all approved landing
gear and wing-flap positions for the range of operating speeds and
power conditions appropriate to each landing gear and wing-flap
position with all engines operating.

    Issued in Renton, Washington, on October 22, 2013.
Stephen P. Boyd,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2014-00449 Filed 1-13-14; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36633-36637]
[FR Doc No: 2020-12985]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89046; File No. SR-MRX-2020-11]

Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its
Pricing Schedule at Options 7

June 11, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 1, 2020, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend its Pricing Schedule at Options 7 in
connection with the pricing for orders entered into the Exchange's
Price Improvement Mechanism (``PIM'').
    The text of the proposed rule change is available on the Exchange's
website at http://nasdaqmrx.cchwallstreet.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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's
Pricing Schedule at Options 7 to adopt separate fees for complex PIM
orders that will be identical to the current fees for regular PIM
orders. The Exchange also proposes to amend the PIM break-up rebates to
provide the rebate only for PIM orders that meet specified size
requirements. In connection with the foregoing changes, the Exchange
also proposes to amend its Pricing Schedule to set forth its PIM
pricing in a separate section for better readability. Each change is
discussed in detail below.
Background
    For regular PIM orders, the Exchange currently charges a PIM
originating fee in Penny and Non-Penny Symbols of $0.20 per contract
for Non-Priority Customers \3\ and $0.00 per contract for Priority
Customers.\4\ The Exchange also charges all market participants a PIM
contra-side fee in Penny and Non-Penny Symbols of $0.05 per contract.
Members that execute an average daily volume (``ADV'') of 10,000 PIM
originating contracts or greater within a month are eligible for a
reduced PIM contra-side fee of $0.02 per contract (in lieu of $0.05 per
contract). In addition, the Exchange presently charges PIM response
fees of $0.50 per contract in Penny Symbols and $1.10 per contract in
Non-Penny Symbols.\5\
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    \3\ Non-Priority Customers consist of Market Makers (including
Market Maker orders sent to the Exchange by EAMs), Non-Nasdaq MRX
Market Makers (FarMM), Firm Proprietary/Broker-Dealers, and
Professional Customers.
    \4\ A ``Priority Customer'' is a person or entity that is not a
broker/dealer in securities, and does not place more than 390 orders
in listed options per day on average during a calendar month for its
own beneficial account(s), as defined in Nasdaq MRX Options 1,
Section 1(a)(36).
    \5\ The PIM response fees are the same as the response fees
presently charged for all other Crossing Orders. See Options 7,
Section 3, Table 2.
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    The Exchange currently pays a regular PIM break-up rebate to an
originating Priority Customer PIM order that executes with a response
(order or quote), other than the PIM contra-side order, of $0.40 per
contract in Penny Symbols and $1.00 per contract in Non-Penny Symbols.
Notwithstanding the foregoing, Members that execute an ADV of 10,000
PIM originating contracts or greater within a month will receive a
break-up rebate of $1.05 per contract in Non-Penny Symbols (in lieu of
$1.00 per contract).
    As it relates to complex PIM orders, the Exchange currently charges
Non-Priority Customers a uniform $0.15 per contract fee for all complex
orders, including complex orders submitted into the Complex PIM. The
$0.15 per contract fee applies to an originating order, contra-side
order and responses entered into MRX's Complex PIM. No complex order
fees are presently assessed to Priority Customers, including Priority
Customer complex PIM orders.
PIM Fees
    The Exchange now proposes to adopt separate fees for complex PIM
orders within new Section 5.E of Options 7 that will be identical to
the current fees assessed for regular PIM orders. In particular, the
Exchange proposes to charge all complex Non-Priority Customer PIM
originating orders in Penny and Non-Penny Symbols the $0.20 per
contract PIM originating fee that it currently assesses to all regular
Non-Priority Customer PIM originating orders, and, for complex Priority
Customer PIM originating orders, the $0.00 per contract PIM originating
fee it currently assesses to regular Priority Customer PIM originating
orders. Likewise, the Exchange proposes to assess all market
participants $0.05 per contract for complex PIM contra-side orders in
Penny and Non-Penny Symbols, identical to how regular PIM contra-side
orders are charged today. The Exchange further proposes to offer market
participants an opportunity to lower the proposed complex PIM contra-
side fee from $0.05 to $0.02 per contract if they execute an ADV of
10,000 PIM originating contracts or greater within a month, identical
to the reduced regular PIM contra-side fee it currently offers market
participants today.\6\ In addition, the Exchange proposes to assess
responses entered into complex PIM at the same rate as the fees
currently assessed for regular PIM responses (i.e., $0.50 per contract
in Penny Symbols and $1.10 in Non-Penny Symbols).
---------------------------------------------------------------------------

    \6\ See proposed note 1 in Options 7, Section 5.E.
---------------------------------------------------------------------------

PIM Break-up Rebate
    The Exchange also proposes to adopt complex PIM break-up rebates
that are similar to the regular PIM break-up rebates described above,
with two differences. First, the Exchange proposes, for complex PIM
orders only, to pay a higher break-up rebate of $0.45 per contract (in
lieu of $0.40 per contract) with respect to a Priority Customer PIM
originating order in Penny Symbols for qualifying Members that execute
an ADV of 10,000 PIM originating contracts or greater within a
month.\7\ Currently for regular PIM orders, the Exchange only provides
a higher break-up rebate with respect to a Priority Customer PIM
originating order in Non-Penny Symbols ($1.05 per contract in lieu of
$1.00 per contract), not Penny Symbols, to qualifying Members that meet
this ADV threshold.\8\ Second, the Exchange proposes to provide break-
up rebates only for Priority Customer PIM originating orders that meet
specified size requirements. Specifically, the Exchange proposes to
apply the break-up rebates only to regular PIM orders of

500 or fewer contracts and to complex PIM orders where the largest leg
is 500 or fewer contracts.\9\ As such, the break-up rebates currently
offered to regular Priority Customer PIM originating orders of more
than 500 contracts will be eliminated under this proposal. The Exchange
is seeking to attract smaller and medium sized Priority Customer PIM
order flow to MRX with this change.
---------------------------------------------------------------------------

    \7\ See proposed note 3 in Options 7, Section 5.E.
    \8\ As discussed later in this filing, the Exchange's proposal
will offer this higher Non-Penny Symbol rebate of $1.05 per contract
for both regular and complex PIM orders. See proposed note 3 in
Options 7, Section 5.E.
    \9\ See proposed note 2 in Options 7, Section 5.E.
---------------------------------------------------------------------------

    Otherwise, the Exchange will apply the same break-up rebates to
complex Priority Customer PIM originating orders as the current rebates
applied to regular Priority Customer PIM originating orders, provided
that such PIM orders meet the proposed size requirement of 500 or fewer
contracts. Thus, the break-up rebates will be $0.40 per contract in
Penny Symbols and $1.00 per contract in Non-Penny Symbols, applicable
to Priority Customer PIM originating orders that are 500 or fewer
contracts (for regular orders) and where the largest leg is 500 or
fewer contracts (for complex orders). Furthermore, Members that execute
an ADV of 10,000 PIM originating contracts or greater within a month
will be eligible to receive, Exchange will apply the break-up rebate of
$1.05 per contract in Non-Penny Symbols (in lieu of $1.00 per contract)
Technical Changes
    For better readability, the Exchange proposes to relocate the fees
and rebates for regular PIM orders currently within Table 2 of Options
7, Section 3 into new Section 5.E, titled ``PIM Pricing for Regular and
Complex Orders,'' to group them with the proposed pricing for complex
PIM orders. In connection with the foregoing changes, the Exchange also
proposes to amend Options 7, Sections 3 and 4 to clarify that regular
and complex PIM orders are subject to separate pricing in Options 7,
Section 5.E. Lastly, the Exchange is correcting a typo in note 1 of
Options 7, Section 4 to revise ``abovereferenced'' to ``above-
referenced.''
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78 f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange's proposed changes to its Pricing Schedule are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \12\
---------------------------------------------------------------------------

    \12\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \13\
---------------------------------------------------------------------------

    \13\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options security transaction services. The Exchange is only one of
sixteen options exchanges to which market participants may direct their
order flow. Within this environment, market participants can freely and
often do shift their order flow among the Exchange and competing venues
in response to changes in their respective pricing schedules. As such,
the proposal represents a reasonable attempt by the Exchange to
increase its liquidity and market share relative to its competitors.
PIM Fees
    The Exchange believes that the proposed fee structure for complex
PIM orders (i.e., originating, contra-side, and responses) is
reasonably designed because the proposed fees will be aligned with the
fees currently in place for regular PIM orders. The proposed fee
structure is designed to promote order flow through the complex PIM,
which benefits all market participants by providing additional trading
opportunities at improved prices. While the Exchange is increasing the
complex PIM originating fees for Non-Priority Customers \14\ and the
complex PIM response fees for all market participants \15\ under this
proposal, the proposed fees will harmonize the complex PIM fees with
the regular PIM fees assessed today. While the all market participants
will be charged higher complex PIM response fees than the fees
currently assessed, the Exchange believes that the increased fees are
appropriate to offset the significant break-up rebates to Priority
Customers who submit PIM orders as proposed herein.\16\
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    \14\ The complex PIM originating fees will increase from $0.15
to $0.20 per contract for Non-Priority Customers in all symbols. As
discussed above, this fee will remain at $0.00 for Priority
Customers.
    \15\ The complex PIM response fees will increase (i) in Penny
Symbols, from $0.15 to $0.50 per contract for Non-Priority Customers
and from $0.00 to $0.50 per contract for Priority Customers, and
(ii) in Non-Penny Symbols, from $0.15 to $1.10 per contract for Non-
Priority Customers and from $0.00 to $1.10 per contract for Priority
Customers.
    \16\ As discussed above, the Exchange proposes to offer break-up
rebates to Priority Customer PIM originating orders of 500 or fewer
contracts (regular PIM orders) or where the largest leg is 500 or
fewer contracts (complex PIM orders), which execute with any
response other than the PIM contra-side order. This rebate will be
(i) $0.40 per contract in Penny Symbols (or, for complex PIM orders
only, $0.45 for Members that execute an ADV of 10,000 PIM
originating contracts or greater within a month for complex PIM
orders only), and (ii) $1.00 per contract in Non-Penny Symbols (or,
for both regular and complex PIM orders, $1.05 for Members that
execute an ADV of 10,000 PIM originating contracts or greater within
a month).
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    As proposed, the Exchange will also charge complex PIM contra-side
orders at the same rate as regular PIM contra-side order today. The
proposed changes will decrease the complex PIM contra-side fee for
certain market participants while increasing the fee for others. In
particular, the Exchange believes that its proposal to assess Non-
Priority Customers a decreased complex PIM contra-side fee \17\ is
reasonable because the Exchange is seeking to encourage these market
participants to submit a greater amount of order flow to the MRX PIM
auction. The Exchange believes it is

reasonable to assess Priority Customers an increased complex PIM
contra-side fee \18\ because the Exchange will also offer Priority
Customers an opportunity to receive significant break-up rebates for
any originating Priority Customer PIM order that meets the requirements
described herein. In addition, Priority Customers will continue to
receive free executions on their complex PIM originating orders as is
the case today. Furthermore, all market participants will have the
opportunity to reduce their $0.05 contra-side PIM fees to $0.02 per
contract if they execute an ADV of 10,000 PIM originating contracts or
greater within a month, thereby incentivizing market participants to
send additional PIM order flow to MRX. Greater liquidity in the PIM
auction provides additional opportunities for price improvement. The
Exchange further notes that the proposed fees are generally within the
range of fees assessed by another exchange that employs a similar fee
structure for its price improvement mechanisms.\19\
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    \17\ The complex PIM contra-side fee will decrease from $0.20 to
$0.05 per contract for Non-Priority Customers in all symbols.
    \18\ The complex PIM contra-side fee will increase from $0.00 to
$0.05 per contract for Priority Customers in all symbols.
    \19\ See MIAX Options (``MIAX'') Fee Schedule, Section 1(a)(vi)
(MIAX Complex Price Improvement Mechanism (``cPRIME'') Fees), which
provides for comparable rates for similar originating (i.e., agency)
orders, contra-side orders and responses submitted into its cPRIME
auctions. For example, MIAX assesses all non-Priority Customers a
fee of $0.30 for cPRIME agency orders and $0.04 for cPRIME contra-
side orders. MIAX also assesses all market participants a fee of
$0.50 (Penny Classes) and $0.99 (Non-Penny Classes) for cPRIME
responses. As it relates to the Non-Penny response fee, while the
Exchange will charge a higher complex PIM response fee, the proposed
fee is intended to offset the proposed break-up rebates as discussed
below.
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    The Exchange believes that the proposed fees for complex PIM orders
(i.e., originating, contra-side, and responses) are equitable and not
unfairly discriminatory as the fees will be more standardized across
regular and complex PIM orders, and across market participant types,
with the exception that Priority Customers will continue to not be
charged a fee for PIM originating orders. The Exchange believes it is
equitable and not unfairly discriminatory to not charge Priority
Customers a complex PIM originating fee as the Exchange has
historically offered lower pricing or other incentives to Priority
Customer orders in order to incentivize such order flow to the
Exchange. Priority Customer order flow enhances liquidity on the
Exchange for the benefit of all market participants by providing more
trading opportunities, which in turn attracts Market Makers and other
market participants that may trade with this order flow.
PIM Break-up Rebate
    The Exchange believes that the proposed PIM break-up rebates are
reasonable because these incentives will attract additional order flow
to PIM, particularly smaller to medium sized Priority Customer PIM
orders (i.e., 500 or fewer contracts). By providing break-up rebates of
$0.40 (Penny Symbols) and $1.00 (Non-Penny Symbols) to Priority
Customer PIM originating orders that execute with any response other
than the PIM contra-side order, and by offering these rebates only to
PIM orders of 500 or fewer contracts, the proposal is designed to
encourage Members to execute this order flow in the Exchange's PIM.
Additional PIM order flow provides all market participants with
additional trading opportunities at improved prices. The Exchange notes
that other exchanges, including its affiliate Nasdaq ISE (``ISE''),
impose size requirements for certain rebates and credits.\20\
Furthermore, the Exchange believes that providing higher break-up
rebates to Members that execute a higher ADV of PIM originating orders
as described above will encourage Members to send additional PIM order
flow to MRX in order to qualify for the higher rebates. The Exchange
also believes that the proposed break-up rebates are set at reasonable
rates because they are aligned with the rebates currently provided for
regular Priority Customer PIM originating orders.
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    \20\ See ISE Pricing Schedule, Options 7, Section 4, note 1,
which sets forth a Priority Customer complex rebate that is provided
to complex orders where the largest leg of the order is under fifty
contracts and trades with quotes and orders on the regular order
book; Cboe Options (``Cboe'') Fee Schedule, Volume Incentive Program
(``VIP''), which provides that VIP credits on orders executed
electronically in Cboe's Automated Improvement Mechanism (``AIM'')
will be capped at 1,000 contracts per order for simple executions
and 1,000 contracts per leg for complex executions; and MIAX Fee
Schedule, Section 1(a)(iii) (Priority Customer Rebate Program),
which provides that the per contract credit for cPRIME Agency Orders
is assessable to the first 1,000 contracts per leg for each cPRIME
Agency Order.
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    The Exchange believes that the proposed break-up rebates are
equitable and not unfairly discriminatory because the proposed rebates
will apply equally to all Priority Customer PIM originating orders that
execute against PIM responses. While Priority Customers will receive
the break-up rebate, as opposed to other market participants, the
Exchange believes that this application of the rebate is equitable and
not unfairly discriminatory because Priority Customer order flow
enhances liquidity on the Exchange. This, in turn, provides more
trading opportunities and attracts other market participants, thus
facilitating tighter spreads, increased order flow and trading
opportunities to the benefit of all market participants. Moreover, as
stated above, the Exchange has historically provided lower pricing or
other incentives to Priority Customers in order to attract such order
flow.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
    In terms of intra-market competition, the Exchange does not believe
that its proposal will place any category of Exchange market
participant at a competitive disadvantage. The proposed changes to the
Exchange's PIM pricing program are all designed to incentivize market
participants to direct PIM order flow to the Exchange. While some
aspects of the proposal apply directly to Priority Customers (through
the free executions of PIM originating orders and application of the
break-up rebates), the Exchange believes that the proposed changes
taken together will fortify and encourage additional PIM order flow to
MRX. As noted above, all market participants will benefit from any
increase in market activity that the proposal effectuates.
    In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
options exchanges. Because competitors are free to modify their own
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which fee changes in this market may impose any burden on competition
is extremely limited.
    Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in reaction to fee and rebate changes. In sum, if the changes proposed
herein are unattractive to market participants, it is likely that the
Exchange will lose market share as a result. Accordingly, the Exchange
does not believe that the proposed changes will impair the ability of
Members or competing order execution venues to maintain their

competitive standing in the financial markets.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\21\ and Rule 19b-4(f)(2) \22\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is: (i) Necessary or
appropriate in the public interest; (ii) for the protection of
investors; or (iii) otherwise in furtherance of the purposes of the
Act. If the Commission takes such action, the Commission shall
institute proceedings to determine whether the proposed rule should be
approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 17 CFR 240.19b-4(f)(2).
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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-MRX-2020-11 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-MRX-2020-11. 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-MRX-2020-11 and should be submitted on
or before July 8, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12985 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P