[Federal Register Volume 77, Number 111 (Friday, June 8, 2012)]
[Notices]
[Pages 34102-34107]
[FR Doc No: 2012-13964]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67107; File No. SR-NYSEArca-2012-50]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of the First
Trust CBOE VIX Tail Hedge Index Fund Under NYSE Arca Equities Rule
5.2(j)(3)

June 4, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that, on May 25, 2012, NYSE Arca, Inc. (``Exchange'' or
``NYSE Arca'' or ``Corporation'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been
substantially prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to list and trade shares (``Shares'') of the
First Trust CBOE VIX Tail Hedge Index Fund under NYSE Arca Equities
Rule 5.2(j)(3). The text of the proposed rule change is available on
the Exchange's Web site 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
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares of the First
Trust CBOE VIX Tail Hedge Index Fund (``Fund'') under NYSE Arca
Equities Rule 5.2(j)(3), the Exchange's listing standards for
Investment Company Units (``Units'').\3\
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    \3\ An Investment Company Unit is a security that represents an
interest in a registered investment company that holds securities
comprising, or otherwise based on or representing an interest in, an
index or portfolio of securities (or holds securities in another
registered investment company that holds securities comprising, or
otherwise based on or representing an interest in, an index or
portfolio of securities). See NYSE Arca Equities Rule 5.2(j)(3)(A).
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    The Shares will be offered by First Trust Exchange-Traded Fund
(``Trust''), which is organized as a Massachusetts business trust and
is registered with the Commission as an open-end management investment
company.\4\ The investment adviser to the Fund will be First Trust
Advisors L.P. (``Adviser'' or ``First Trust''). First Trust Portfolios
L.P. (``Distributor'') will be the principal underwriter and
distributor of the Fund's Shares. The Bank of New York Mellon
Corporation (``BNY'') will serve as administrator, custodian, and
transfer agent for the Fund (``Custodian'').
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    \4\ The Trust is registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (``1940 Act''). On October 17, 2011, the
Trust filed with the Commission an amendment to the Trust's
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a), and under the 1940 Act relating to the Fund (File
Nos. 333-125751 and 811-21774) (``Registration Statement''). The
description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
27068 (September 20, 2005) (File No. 812-13000) (``Exemptive
Order'').
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    According to the Registration Statement, the Fund will seek
investment results that correspond generally to the price and yield,
before the Fund's fees and expenses, of an equity index called the CBOE
S&P VIX Tail Hedge Index (``Index''). The Fund will normally invest at
least 90% of its net assets (plus the amount of any borrowings for
investment purposes) in common stocks included in the Index. In
addition, the Fund will normally invest 0.0% to 1.0% of its net assets
in VIX call options, as described below.
    The Exchange is submitting this proposed rule change because the
Index for the Fund does not meet all of the ``generic'' listing
requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule
5.2(j)(3) applicable to the listing of Units based upon an index of US
Component Stocks.\5\ Specifically, Commentary .01(a)(A) to NYSE Arca
Equities Rule 5.2(j)(3) \6\ sets forth the requirements to be met by
components of an index or portfolio of US Component Stocks. As
described further below, the Index consists of an S&P 500 Index stock
portfolio and a position in specified VIX Index (``VIX'') call
options.\7\ The Index meets all requirements of NYSE Arca Equities Rule
5.2(j)(3) and Commentary .01(a)(A) thereto except that the Index
includes VIX call options, which are not NMS Stocks as defined in Rule
600 of Regulation NMS. As described below, the Index is predominately
S&P 500 companies and includes an exposure to

VIX call options ranging from 0.00% to 1.00% of the weight of the
Index. All securities in the S&P 500 Index are listed and traded on a
national securities exchange. Options on the VIX are traded on the
Chicago Board Options Exchange (``CBOE''). Notwithstanding that the
Index does not meet all of the generic listing requirements of
Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3), the Exchange
believes that the Index is sufficiently broad-based to deter potential
manipulation in that the S&P 500 Index stocks are among the most
actively traded, highly capitalized stocks traded in the U.S. In
addition, VIX call options are highly liquid, with trading volume on
the CBOE during the first quarter of 2012 of 257,220 contracts per day.
VIX call options would represent, at most, only 1% of the total weight
of the Index. All Index components are traded on exchanges that are
members of the Intermarket Surveillance Group (``ISG''), and the
Exchange, therefore, is able to share surveillance information with
such exchanges with respect to trading in all Index components.
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    \5\ NYSE Arca Equities Rule 5.2(j)(3) provides that the term
``US Component Stock'' shall mean an equity security that is
registered under Sections 12(b) or 12(g) of the Exchange Act or an
American Depositary Receipt, the underlying equity security of which
is registered under Sections 12(b) or 12(g) of the Exchange Act.
    \6\ Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3)
states, in part, that the components of an index of US Component
Stocks, upon the initial listing of a series of Units pursuant to
Rule 19b-4(e) under the Exchange Act, shall be NMS Stocks as defined
in Rule 600 of Regulation NMS under the Exchange Act.
    \7\ According to the Registration Statement, the VIX Index is a
measure of estimated near-term future volatility based upon the
weighted average of the implied volatilities of near-term put and
call options on the S&P 500.
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The CBOE S&P VIX Tail Hedge Index

    The Index is rules-based and is owned and was developed by Standard
& Poor's Financial Services LLC (``S&P'' or ``Index Provider'').\8\ The
Index Provider will calculate and maintain the Index. The Index is
designed to provide a benchmark for investors interested in hedging
tail risk in an S&P 500 portfolio.\9\ Index components are reviewed
quarterly for eligibility, and the weights are re-set according to that
distribution. As of the Index rebalance on March 21, 2012, the Index
was comprised of 99.0% S&P 500 stocks and 1.00% VIX call options. The
Index consists of an S&P 500 stock portfolio (with dividends
reinvested), and an amount of one-month, 30-delta VIX call options that
is determined by the level of forward volatility. On the day of the
monthly expiration of VIX call options, previously purchased VIX call
options are cash-settled and new VIX call options are purchased at the
10:00 a.m., Central Time asking price. The percent of money allocated
to VIX call options depends on the level of forward volatility at the
next call expiration as measured by the opening price of VIX futures
with the same expiration as the VIX call options as follows:
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    \8\ The Index Provider is not a broker-dealer and has
implemented procedures designed to prevent the use and dissemination
of material, non-public information regarding the Index.
    \9\ According to the Registration Statement, tail hedging, in
the context used by the Index Provider, is the practice of trying to
hedge the portfolio from extreme market moves that are the result of
random, unexpected, and unpredictable events. Unexpected events of
this nature often result in rapid increases in market volatility,
both realized and implied volatility. The Fund will utilize a tail
hedging strategy which attempts to profit from the sudden rise in
implied volatility due to any unexpected event. The gains from the
``tail hedge'' would then hopefully offset some of the losses
incurred in the common stock portfolio due to the unexpected events.
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     VIX futures price less than or equal to 15,\10\ no VIX
call options are purchased;
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    \10\ VIX futures represent the level of expected future 30-day
volatility as measured in standard deviation units, expressed in
percent terms (expected volatility multiplied by 100). For example,
assume that on September 21, 2011, the September VIX call options
expired and new call options expiring on October 19, 2011 were
included within the Index. The amount or weighting assigned to the
October VIX call options within the Index would have been determined
by the opening price on September 21 of the October 2011 VIX futures
contract. CBOE data indicate that the opening price was 31.15.
Because the opening price of the October VIX futures contract was
greater than 30.00 but less than or equal to 50.00, the allocation
to VIX call options within the Index would have been equal to 0.50%
and the S&P 500 weighting would have been 99.50%. If the opening
futures price had been equal to or below 15.0 or greater than 50.0,
the allocation to the call options would have been 0% and the
Index's composition would have been equal to the S&P 500's
weightings. If the opening futures price had been greater than 15.0
but less than or equal to 30.0, the allocation to VIX call options
within the Index would have been equal to 1.0% and the S&P 500
weighting would have been equal to 99.0%.
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     VIX futures price greater than 15 and less than or equal
to 30, 1% Index weight in VIX call options;
     VIX futures price greater than 30 and less than or equal
to 50, 0.50% Index weight in VIX call options; and
     VIX futures price above 50, no VIX call options are
purchased.
    According to the Registration Statement, this dynamic allocation to
VIX call options is designed to reduce hedging costs by limiting the
number of VIX call options that are purchased during periods of
expected low volatility, and also has the effect of taking VIX call
option profits when extreme volatility levels are reached. The Index is
reconstituted and rebalanced monthly.
    The Index Provider will, in most cases, use the quantitative
ranking and screening system described herein. However, subjective
screening based on fundamental analysis or other factors may be used,
if, in the opinion of the Index Provider, certain components should be
included or excluded from the Index.
    The Fund intends to qualify annually and to elect to be treated as
a regulated investment company (``RIC'') under the Internal Revenue
Code of 1986, as amended.\11\
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    \11\ 26 U.S.C. 851. According to the Registration Statement, to
qualify for the favorable U.S. federal income tax treatment
generally accorded to RICs, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock, securities or
foreign currencies or other income derived with respect to its
business of investing in such stock, securities or currencies, or
net income derived from interests in certain publicly traded
partnerships; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash and cash items (including
receivables), U.S. Government securities, the securities of other
RICs and other securities, with such other securities of any one
issuer generally limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets
and not greater than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer, or
two or more issuers which the Fund controls which are engaged in the
same, similar or related trades or businesses, or the securities of
one or more of certain publicly traded partnerships; and (c)
distribute at least 90% of its investment company taxable income
(which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses)
and at least 90% of its net tax-exempt interest income each taxable
year. There are certain exceptions for failure to qualify if the
failure is for reasonable cause or its [sic] de minimis, and certain
action is taken and certain tax payments are made by the Fund.
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    The Exchange represents that, for initial and/or continued listing,
the Fund will be in compliance with Rule 10A-3 under the Act,\12\ as
provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares
for the Fund will be outstanding at the commencement of trading on the
Exchange. The Exchange will obtain a representation from the issuer of
the Shares that the net asset value (``NAV'') per Share will be
calculated daily and will be made available to all market participants
at the same time.
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    \12\ 17 CFR 240.10A-3.
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Creations and Redemptions

    The Fund will issue and redeem Shares on a continuous basis, at
NAV, only in large specified blocks each consisting of 50,000 Shares
(each such block of Shares called a ``Creation Unit''). Each group of
Creation Units of such specified number of individual Fund Shares is
referred to as a ``Creation Unit Aggregation.'' The Creation Units will
be issued and redeemed for securities in which the Fund invests, cash
or both securities and cash.
    The consideration for purchase of Creation Unit Aggregations of the
Fund may consist of (i) cash in lieu of all or a portion of the Deposit
Securities, as defined below, and/or (ii) a designated portfolio of
equity securities determined by First Trust--the ``Deposit
Securities''--per each Creation Unit Aggregation (``Fund Securities'')
and

generally an amount of cash--the ``Cash Component.'' Together, the
Deposit Securities and the Cash Component (including the cash in lieu
amount) constitute the ``Fund Deposit,'' which represents the minimum
initial and subsequent investment amount for a Creation Unit
Aggregation of the Fund.
    BNY, through the National Securities Clearing Corporation
(``NSCC'') (as discussed below), will make available on each business
day, prior to the opening of business of the New York Stock Exchange
(``NYSE'') (currently 9:30 a.m., Eastern Time (``E.T.'')), the list of
the names and the required number of shares of each Deposit Security to
be included in the current Fund Deposit (based on information at the
end of the previous business day) for the Fund.
    In addition to the list of names and numbers of securities
constituting the current Deposit Securities of a Fund Deposit, BNY,
through the NSCC, also will make available, on each business day, the
estimated Cash Component, effective through and including the previous
business day, per outstanding Creation Unit Aggregation of the Fund.
    All orders to create Creation Unit Aggregations must be received by
the transfer agent no later than the closing time of the regular
trading session on the NYSE (``Closing Time'') (ordinarily 4 p.m.,
E.T.) in each case on the date such order is placed in order for
creation of Creation Unit Aggregations to be effected based on the NAV
of Shares of the Fund as next determined on such date after receipt of
the order in proper form.
    Fund Shares may be redeemed only in Creation Unit Aggregations at
their NAV next determined after receipt of a redemption request in
proper form by the Fund through the transfer agent and only on a
business day. The Fund will not redeem Shares in amounts less than
Creation Unit Aggregations. With respect to the Fund, the Custodian,
through the NSCC, will make available prior to the opening of business
on the NYSE (currently 9:30 a.m., E.T.) on each business day, the
identity of the Fund Securities that will be applicable to redemption
requests received in proper form on that day.

Availability of Information

    The Fund's Web site (www.ftportfolios.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (``Bid/Ask
Price''),\13\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund will disclose on its Web site the portfolio of securities and
financial instruments that will form the basis for the Fund's
calculation of NAV at the end of the business day.\14\
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    \13\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
    \14\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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    On a daily basis, the Adviser will disclose for each portfolio
security and other financial instrument of the Fund the following
information on the Fund's Web site: ticker symbol (if applicable), name
of security and financial instrument, number of shares or dollar value
of financial instruments held in the portfolio, and percentage
weighting of the security and financial instrument in the portfolio.
The Web site information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security
names and share quantities required to be delivered in exchange for the
Fund's Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the NYSE via
NSCC. The basket represents one Creation Unit of the Fund.
    In addition, an Intraday Indicative Value (``IIV'') for the Shares
will be widely disseminated at least every 15 seconds during the Core
Trading Session (9:30 a.m. to 4 p.m., E.T.) by one or more major market
data vendors.\15\ The IIV should not be viewed as a ``real-time''
update of the NAV per Share of the Fund because the IIV may not be
calculated in the same manner as the NAV, which is computed once a day,
generally at the end of the business day.
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    \15\ Currently, it is the Exchange's understanding that several
major market data vendors widely disseminate IIVs taken from the
Consolidated Tape Association (``CTA'') or other data feeds.
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    In addition, the Index value will be widely disseminated at least
every 15 seconds during the Core Trading Session by one or more major
market data vendors such as Bloomberg. Additional information regarding
the Index and the underlying components (S&P 500 stock portfolio (with
dividends reinvested) and the allocation of VIX call options) will be
available at www.cboe.com.
    Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and
Shareholder Reports will be available free upon request from the Trust,
and those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last-sale information for the
Shares will be available via the CTA high-speed line and, for the
securities, including VIX call options, held by the Fund, will be
available from the exchange on which they are listed. The intra-day,
closing, and settlement prices of the portfolio securities will also be
readily available from the securities exchanges trading such
securities, automated quotation systems, published or other public
sources, or on-line information services such as Bloomberg or Reuters.
    The Exchange represents that the continued listing standards under
NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units
shall apply to the Shares. The Exchange further represents that the VIX
options components of the Index, if any, must remain listed and traded
on a national securities exchange. In addition, the Exchange represents
that the Fund and the Shares will comply with all other requirements
applicable to Units including, but not limited to, requirements
relating to the dissemination of key information such as the value of
the Index, IIV, and NAV, rules governing the trading of equity
securities, trading hours, trading halts, surveillance, information
barriers, and Information Bulletin to Equity Trading Permit (``ETP'')
Holders (each as

described in more detail herein), as set forth in Exchange rules
applicable to Units and prior Commission orders approving the generic
listing rules applicable to the listing and trading of Units.\16\
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    \16\ See, e.g ., Securities Exchange Act Release No. 44551 (July
12, 2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-14) (order
approving generic listing standards for ICUs and Portfolio
Depositary Receipts); Securities Exchange Act Release No. 41983
(October 6, 1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29)
(order approving rules for listing and trading of ICUs).
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    The Fund's NAV will be determined as of the close of trading
(normally 4 p.m., E.T.) on each day the NYSE is open for business. NAV
will be calculated for the Fund by taking the market price of the
Fund's total assets, including interest or dividends accrued but not
yet collected, less all liabilities, and dividing such amount by the
total number of Shares outstanding. The result, rounded to the nearest
cent, will be the NAV per Share. All valuations will be subject to
review by the Trust's Board of Trustees (``Board'') or its
delegate.\17\
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    \17\ The Fund's investments will be valued at market value or,
in the absence of market value with respect to any portfolio
securities, at fair value in accordance with valuation procedures
adopted by the Board and in accordance with the 1940 Act.
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    Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to, but not defined in,
this proposed rule change are defined in the Registration Statement.

Trading Halts

    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\18\ If the IIV or the Index value is
not being disseminated as required, the Corporation may halt trading
during the day in which the interruption to the dissemination of the
applicable IIV or Index value occurs. If the interruption to the
dissemination of the applicable IIV or Index value persists past the
trading day in which it occurred, the Corporation will halt trading.
Trading in Shares of the Fund will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading
also may be halted because of market conditions or for reasons that, in
the view of the Exchange, make trading in the Shares inadvisable. These
may include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments comprising the Fund's
portfolio; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. In addition, if the Exchange becomes aware that the NAV is not
being disseminated to all market participants at the same time, it will
halt trading in the Shares on the Exchange until such time as the NAV
is available to all market participants.
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    \18\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules

    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m., E.T. in accordance
with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.

Surveillance

    The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which include Investment
Company Units) to monitor trading in the Shares. The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
    The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
    The Exchange may obtain information via the ISG from other
exchanges that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.\19\ The equity
securities and VIX options in which the Fund will invest will trade in
markets that are ISG members or are parties to comprehensive
surveillance sharing agreements with the Exchange.
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    \19\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Fund's portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.

Information Bulletin

    Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin (``Bulletin'') of the special
characteristics and risks associated with trading the Shares.
Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Unit
Aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its ETP Holders to learn the essential facts relating to every
customer prior to trading the Shares; (3) the risks involved in trading
the Shares during the Opening and Late Trading Sessions when an updated
IIV will not be calculated or publicly disseminated; (4) how
information regarding the IIV is disseminated; (5) the requirement that
ETP Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4 p.m., E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \20\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange

pursuant to the initial and continued listing criteria in NYSE Arca
Equities Rule 5.2(j)(3). The Exchange has in place surveillance
procedures that are adequate to properly monitor trading in the Shares
in all trading sessions and to deter and detect violations of Exchange
rules and applicable federal securities laws. The Index Provider is not
a broker-dealer and has implemented procedures designed to prevent the
use and dissemination of material, non-public information regarding the
Index. The Index is predominately S&P 500 companies and includes an
exposure to VIX call options. All securities in the S&P 500 Index are
listed and traded on a national securities exchange. Options on the VIX
are traded on the CBOE. All components of the Index have active, liquid
markets on national securities exchanges. The Exchange may obtain
information via ISG from other exchanges that are members of ISG or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. The equity securities and VIX options in which the
Fund will invest will trade in markets that are ISG members or are
parties to comprehensive surveillance sharing agreements with the
Exchange.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
will be made available to all market participants at the same time. In
addition, a large amount of information is publicly available regarding
the Fund and the Shares, thereby promoting market transparency.
Moreover, the IIV and the Index value will be widely disseminated by
one or more major market data vendors at least every 15 seconds during
the Exchange's Core Trading Session. If the IIV or the Index value is
not being disseminated as required, the Corporation may halt trading
during the day in which the interruption to the dissemination of the
applicable IIV or Index value occurs. If the interruption to the
dissemination of the applicable IIV or Index value persists past the
trading day in which it occurred, the Corporation will halt trading. In
addition, if the Exchange becomes aware that the NAV is not being
disseminated to all market participants at the same time, it will halt
trading in the Shares on the Exchange until such time as the NAV is
available to all market participants. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Fund will disclose on its Web site the securities and
other financial instruments in the Fund's portfolio that will form the
basis for the Fund's calculation of NAV at the end of the business day.
Information regarding market price and trading volume of the Shares is
and will be continually available on a real-time basis throughout the
day on brokers' computer screens and other electronic services, and
quotation and last-sale information will be available via the CTA high-
speed line. The Web site for the Fund will include a form of the
prospectus for the Fund and additional data relating to NAV and other
applicable quantitative information. Moreover, prior to the
commencement of trading, the Exchange will inform its ETP Holders in an
Information Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached or because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. In addition, as noted above, investors will have ready
access to information regarding the Fund's holdings, the IIV, Index
value, and quotation and last-sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of Units that will enhance competition among market
participants, to the benefit of investors and the marketplace. As noted
above, the Exchange has in place surveillance procedures relating to
trading in the Shares and may obtain information via ISG from other
exchanges that are members of ISG or with which the Exchange has
entered into a comprehensive surveillance sharing agreement. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the IIV, Index value, and
quotation and last-sale information for the Shares.

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 that is not necessary or appropriate
in furtherance of the purposes of the Act.

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

    No written comments were 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 within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve 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 Exchange 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-NYSEArca-2012-50 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2012-50. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than

those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2012-50 and should
be submitted on or before June 29, 2012.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13964 Filed 6-7-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 75, Number 221 (Wednesday, November 17, 2010)]
[Notices]
[Pages 70337-70339]
[FR Doc No: 2010-28899]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63304; File No. SR-ISE-2010-108]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Expand the $0.50 Strike Program

November 10, 2010.
    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 November 10, 2010, the International Securities Exchange, LLC
(``ISE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend its rules to: (i) Expand the $0.50
Strike Program for strike prices below $1.00; (ii) extend the $0.50
Strike Program to strike prices that are $5.50 or less; (iii) extend
the prices of the underlying security to at or below $5.00; and (iv)
extend the number of options classes overlying 20 individual stocks.
The text of the proposed rule change is available on the Exchange's Web
site http://www.ise.com, at the principal office of the Exchange, on
the Commission's Web site at http://www.sec.gov, 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 self-regulatory organization 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 this proposed rule change is to modify the
Exchange's rules to expand the $0.50 Strike Program in order to provide
investors with opportunities and strategies to minimize losses
associated with owning a stock declining in price.
    The Exchange is proposing to establish strike price intervals of
$0.50, beginning at $0.50 for certain options classes where the strike
price is $5.50 or less and whose underlying security closed at or below
$5.00 in its primary market on the previous trading day and which have
national average daily volume that equals or exceeds 1000 contracts per
day as determined by The Options Clearing Corporation (``OCC'') during
the preceding three calendar months. The Exchange also proposes to
limit the listing of $0.50 strike prices to options classes overlying
no more than 20 individual stocks as specifically designated by the
Exchange.
    Currently, Supplementary Material .05 to ISE Rule 504 permits
strike price intervals of $0.50 or greater beginning at $1.00 where the
strike price is $3.50 or less, but only for option classes whose
underlying security closed at or below $3.00 in its primary market on
the previous trading day and which have national average daily volume
that equals or exceeds 1000 contracts per day as determined by OCC
during the preceding three calendar months. Further, the listing of
$0.50 strike prices is limited to options classes overlying no more
than 5 individual stocks as specifically designated by the Exchange.
The Exchange is currently restricted from listing series with $1
intervals within $0.50 of an existing strike price in the same series,
except that strike prices of $2, $3, and $4 shall be permitted within
$0.50 of an existing

strike price for classes also selected to participate in the $0.50
Strike Program.\3\
---------------------------------------------------------------------------

    \3\ See Supplementary Material .01 to ISE Rule 504 referring to
the $1 Strike Program.
---------------------------------------------------------------------------

    The number of $0.50 strike options traded on the Exchange has
continued to increase since the inception of the $0.50 Strike Program.
There are now approximately 19 of the $0.50 strike price option classes
listed, and traded, across all options exchanges including ISE; 3 of
which are classes chosen by ISE for the $0.50 Strike Program. The
current proposal would expand $0.50 strike offerings to market
participants, such as traders and retail investors, and thereby enhance
their ability to tailor investing and hedging strategies and
opportunities in a volatile market place.
    By way of example, if an investor wants to invest in 5,000 shares
of Sirius Satellite (``SIRI'') at $0.9678,\4\ the only choice the
investor would have today would be to buy out-of-the-money calls, at
the $1.00 strike, or to invest in the underlying stock with a total
outlay of $0.96 per share or $4,800. However, if a $0.50 strike series
were available, an investor may be able to invest in 5,000 shares by
purchasing an exercisable in-the-money $0.50 strike call option. It is
reasonable to assume that with SIRI trading at $0.96, the $0.50 strike
call option would trade at an estimated price of $0.46 to $0.48 under
normal circumstances. This would allow the investor to manage 5,000
shares with the same upside potential return for a cost of only $2,350
(assuming $.47 as a call price).
---------------------------------------------------------------------------

    \4\ SIRI was trading at $0.9678 on July 13, 2010.
---------------------------------------------------------------------------

    Similarly, if an investor wanted to spend $4,800 for 5,000 shares
of SIRI, a $0.50 put option that would trade for $0.01 to $0.05 would
provide protection against a declining stock price in the event that
SIRI dropped below $0.50 per share. In a down market, where high volume
widely held shares drop below $1.00, investors deserve the opportunity
to hedge downside risk in the same manner as investors have with stocks
greater than $1.00.
    Increasing the threshold from $3.00 to $5.00 and expanding the
number of $0.50 strikes available for stocks under $5.00 further aids
investors by offering opportunities to manage risk and execute a
variety of option strategies to improve returns. For example, today an
investor can enhance their yield by selling an out-of-the-money call.
Using an example of an investor who wants to hedge Citigroup (``C'')
which is trading at $4.24,\5\ that investor would be able to choose the
$4.50 strike which is 6% out-of-the-money or they would be able to
choose the $5.00 strike which is 17.92% out-of-the-money, under this
proposal. Today, this investor only has the latter choice. Beyond that,
this investor today may choose the $6.00 strike which is 41% out-of-
the-money and offers significantly less premium. Pursuant to this
proposal if this investor had a choice to hedge with a $5.50 strike
option, the investor would have the opportunity to sell the option at
only 29% out-of-the-money and would improve their return by gaining
more premium, while also benefitting from 29% of upside return in the
underlying equity.
---------------------------------------------------------------------------

    \5\ C was trading at $4.24 on July 14, 2010.
---------------------------------------------------------------------------

    By increasing the number of securities from 5 individual stocks to
20 individual stocks would allow the Exchange to offer investors
additional opportunities to use the $0.50 Strike Program. The Exchange
notes that $0.50 strikes have had no impact on capacity. Further, the
Exchange has observed the popularity of $0.50 strikes.
    The open interest in the $2.50 August strike series for Synovus
Financial Corp. (``SNV''), which closed at $2.71 on July 13, 2010, was
12,743 options; whereas open interest in the $2 and $3 August strike
series was a combined 318 options. The open interest in the August
$1.50 strike series for Ambac Financial Group, Inc. (``ABK''), which
closed at $0.7490 on July 13, 2010, was 15,879 options compared to
8,174 options for the $2 strike series. The August $2.50 strike series
had open interest of 22,280 options, also more than the traditional $2
strike series.
    By expanding the $0.50 Strike Program investors would be able to
better enhance returns and manage risk by providing investors with
significantly greater flexibility in the trading of equity options that
overlie lower price stocks by allowing investors to establish equity
options positions that are better tailored to meet their investment,
trading and risk.
    The Exchange also proposes making a corresponding amendment to
Supplementary Material .01 to ISE Rule 504 to add $5 and $6 to $1
Strike Program language that addresses listing series with $1 intervals
within $0.50 of an existing strike price in the same series. Currently,
and to account for the overlap with the $0.50 Strike Program, the
following series are excluded from this prohibition: Strike prices of
$2, $3, and $4. The Exchange proposes to add $5 and $6 to that list to
account for the proposal to expand the $0.50 Strike Program to a strike
price of $5.50.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 \6\ (the ``Act'') in
general, and furthers the objectives of Section 6(b)(5) of the Act \7\
in particular, in that it is designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in general
to protect investors and the public interest. The Exchange believes
that amending the current $0.50 Strike Program would result in a
continuing benefit to investors by giving them more flexibility to
closely tailor their investment decisions in a greater number of
securities. With the increase in active, low-price securities, the
Exchange believes that amending the $0.50 Strike Program to allow a
$0.50 strike interval below $1 for strike prices of $5.50 or less is
necessary to provide investors with additional opportunity to minimize
and manage risk.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.

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

    The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.

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

    Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Commission has waived the five-day prefiling requirement in this
case.

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

    The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposal is substantially similar to that of
another exchange that has been approved by the Commission.\10\
Therefore, the Commission designates the proposal operative upon
filing.\11\
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 63132 (October 19,
2010) (SR-Phlx-2010-118) (order approving expansion of $0.50 Strike
Price Program).
    \11\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

    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 necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number SR-ISE-2010-108 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2010-108. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ISE-2010-108 and should be
submitted on or before December 8, 2010.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon.
Deputy Secretary.
[FR Doc. 2010-28899 Filed 11-16-10; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: April 1, 2009 (Volume 74, Number 61)]
[Notices]
[Page 14840-14841]
[DOCID:fr01ap09-86]

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

Notice of Informational Filing To Test a Processor-Based Signal
and Train Control System and a Request for Waiver of Compliance

    In accordance with Part 211 of Title 49 of the Code of Federal
Regulations (CFR), notice is hereby given that the Federal Railroad
Administration (FRA) received a request for a waiver of compliance from
certain requirements of its Federal railroad safety regulations. The
individual petition is described below, including the party seeking
relief, the regulatory provisions involved, the nature of the relief
being requested, and the petitioner's arguments in favor of relief.

CSX Transportation, Inc.

(Docket Number FRA-2006-25057)

    On June 11, 2007, FRA authorized CSX Transportation, Inc. (CSXT) to
conduct limited field testing of its Communications Based Train
Management (CBTM) system. CBTM is a non-vital safety-critical overlay
designed to supplement the existing method of operation to protect
against the consequence of human error. As part of this authorization,
FRA granted CSXT temporary conditional relief from certain requirements
of the Federal railroad safety regulations, including specific sections
of the following Parts of Title 49 of the CFR: 216 (Special notice and
emergency order procedures: Railroad track, locomotive and equipment),
217 (Railroad operating rules), 218 (Railroad operating practices), 229
(Railroad locomotive safety standards), 233 (Signal systems reporting
requirements), 235 (Instructions governing applications for approval or
a discontinuance or material modification of a signal system or relief
from the requirements of part 236), 236 (Rules, standards, and
instructions governing the installation, inspection, maintenance, and
repair of signal and train control systems, devices, and appliances),
and 240 (Qualification and certification of locomotive engineers).
Details of the exact relief granted are found in FRA's June 11, 2007,
letter (document number FRA-2006-25057-0008).
    The CBTM test territory authorized was 144.9 miles of CSXT trackage
on the Blue Ridge Subdivision of the Huntington Division West, and
128.1 miles of CSXT trackage on two subdivisions, the Spartanburg and
McCormick subdivisions of the Florence Division.
    In association with the continued development and implementation
testing of the CBTM system, by letter dated August 13, 2008, CSXT
submitted an amended informational filing and waiver petition seeking
to modify the terms of FRA's June 11, 2007, approval. In its August 13,
2008, waiver petition, CSXT asserts that because of increased traffic
in the approved test territories, recent signal system upgrades have
been completed that limit its ability to properly conduct CBTM fields
tests in the previously approved territory. Accordingly, CSXT requests
that FRA amend its original approval and waiver to apply to new test
territories on the railroad's Aberdeen and Andrews's subdivisions.
Specifically, CSXT requests authority to test its CBTM system
consistent with the conditions outlined in FRA's June 11, 2007,
approval on 86.9 miles of CSXT trackage on the Aberdeen subdivision and
156.6 miles of CSXT trackage on the Andrews subdivision. Both the
Aberdeen and Andrews subdivision are part of CSXT's Florence Division.
    For information purposes only, FRA is also providing notice that
pursuant to 49 CFR 236.913(j), CSXT has submitted an amended
informational filing pertaining to enhancements that have been made to
the CBTM system. FRA will accept comments on the amended informational
filing only as far as that document requires waivers from regulatory
requirements.

    Interested parties are invited to participate in these proceedings
by submitting written views, data, or comments. FRA does not anticipate
scheduling a public hearing in connection with these proceedings since
the facts do not appear to warrant a hearing. If any interested party
desires an opportunity for oral comment, they should notify FRA, in
writing, before the end of the comment period and specify the basis for
their request.
    All communications concerning these proceedings should identify the
appropriate docket number (FRA-2006-25057) and may be submitted by any
of the following methods:
     Web site: http://www.regulations.gov. Follow the online
instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: Docket Operations Facility, U.S. Department of
Transportation, 1200 New Jersey Avenue, SE., W12-140, Washington, DC
20590.
     Hand Delivery: 1200 New Jersey Avenue, SE., Room W12-140,
Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays.
    Communications received within 30 days of the date of this notice
will be considered by FRA before final action is taken. Comments
received after that date will be considered as far as practicable. All
written communications concerning these proceedings are available for
examination during regular business hours (9 a.m.-5 p.m.) at the above
facility. All documents in the public docket are also available for
inspection and copying on the Internet at the docket facility's Web
site at http://www.regulations.gov.
    Anyone is able to search the electronic form of any written
communications and comments received into any of our dockets by the
name of the individual submitting the comment (or signing the comment,
if submitted on behalf of an association, business, labor union, etc.).
You may review DOT's complete Privacy Act Statement in the Federal
Register published on April 11, 2000 (Volume 65, Number 70; Pages
19477-78).

    Issued in Washington, DC, on March 26, 2009.
Grady C. Cothen, Jr.,
Deputy Associate Administrator for Safety Standards and Program
Development.
 [FR Doc. E9-7249 Filed 3-31-09; 8:45 am]

BILLING CODE 4910-06-P


[Federal Register Volume 88, Number 140 (Monday, July 24, 2023)]
[Proposed Rules]
[Pages 47399-47402]
[FR Doc No: 2023-15304]

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

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2023-1413; Project Identifier AD-2023-00087-T]
RIN 2120-AA64

Airworthiness Directives; The Boeing Company Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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

SUMMARY: The FAA proposes to adopt a new airworthiness directive (AD)
for certain The Boeing Company Model 737-600, -700, -700C, -800, -900
and -900ER airplanes. This proposed AD was prompted by reports of
cracks in the forward galley door cutout forward upper corner bear
strap. It has been determined that the cracks were caused by high
operating stresses in the fuselage skin door cutout corner area due to
stress concentration at the door cutout. This proposed AD would require
an inspection of the fuselage skin and the bear strap at the forward
galley door cutout forward upper corner for existing repairs, and
applicable related investigative and corrective inspections. The FAA is
proposing this AD to address the unsafe condition on these products.

DATES: The FAA must receive comments on this proposed AD by September
7, 2023.

ADDRESSES: You may send comments, using the procedures found in 14 CFR
11.43 and 11.45, by any of the following methods:
     Federal eRulemaking Portal: Go to regulations.gov. Follow
the instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE, Washington, DC 20590.
     Hand Delivery: Deliver to Mail address above between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays.

    AD Docket: You may examine the AD docket at regulations.gov under
Docket No. FAA-2023-1413; or in person at Docket Operations between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD
docket contains this NPRM, any comments received, and other
information. The street address for Docket Operations is listed above.
    Material Incorporated by Reference:
     For service information identified in this NPRM, contact
Boeing Commercial Airplanes, Attention: Contractual & Data Services
(C&DS), 2600 Westminster Blvd., MC 110-SK57, Seal Beach, CA 90740-5600;
telephone<PHONE_NUMBER>; website myboeingfleet.com.
     You may view this service information at the FAA,
Airworthiness Products Section, Operational Safety Branch, 2200 South
216th St., Des Moines, WA. For information on the availability of this
material at the FAA, call<PHONE_NUMBER>. It is also available at
regulations.gov by searching for and locating Docket No. FAA-2023-1413.

FOR FURTHER INFORMATION CONTACT: Bill Ashforth, Aviation Safety
Engineer, FAA, 2200 South 216th St., Des Moines, WA 98198; phone: 206-
231-3520; email: [email protected].

SUPPLEMENTARY INFORMATION:

Comments Invited

    The FAA invites you to send any written relevant data, views, or
arguments about this proposal. Send your comments to an address listed
under ADDRESSES. Include ``Docket No. FAA-2023-1413; Project Identifier
AD-2023-00087-T'' at the beginning of your comments. The most helpful
comments reference a specific portion of the proposal, explain the
reason for any recommended change, and include supporting data. The FAA
will consider all comments received by the closing date and may amend
this proposal because of those comments.
    Except for Confidential Business Information (CBI) as described in
the following paragraph, and other information as described in 14 CFR
11.35, the FAA will post all comments received, without change, to
regulations.gov, including any personal information you provide. The
agency will also post a report summarizing each substantive verbal
contact received about this NPRM.

Confidential Business Information

    CBI is commercial or financial information that is both customarily
and actually treated as private by its owner. Under the Freedom of
Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public
disclosure. If your comments responsive to this NPRM contain commercial
or financial information that is customarily treated as private, that
you actually treat as private, and that is relevant or responsive to
this NPRM, it is important that you clearly designate the submitted
comments as CBI. Please mark each page of your submission containing
CBI as ``PROPIN.'' The FAA will treat such marked submissions as
confidential under the FOIA, and they will not be placed in the public
docket of this NPRM. Submissions containing CBI should be sent to Bill
Ashforth, Aviation Safety Engineer, FAA, 2200 South 216th St., Des
Moines, WA 98198; phone:<PHONE_NUMBER>; email: [email protected].
Any commentary that the FAA receives that is not specifically
designated as CBI will be placed in the public docket for this
rulemaking.

Background

    The FAA has received reports indicating cracks in the forward
galley door cutout forward upper corner bear strap. The airplanes had
accumulated between 33,070 and 44,224 total flight cycles at the time
of the crack findings. The cracks were caused by high operating
stresses in the fuselage skin door cutout corner area due to stress
concentration at the door cutout. This condition, if not addressed,
could result in an undetected crack in the fuselage skin and bear
strap, and could increase in length until the fuselage skin and bear
strap severs. If not detected and corrected, a severed fuselage skin
and bear strap may lead to the inability to sustain limit loads and may
result in rapid decompression of the fuselage and loss of structural
integrity of the aircraft.

FAA's Determination

    The FAA is issuing this NPRM after determining that the unsafe
condition described previously is likely to exist or develop on other
products of the same type design.

Related Service Information Under 1 CFR Part 51

    The FAA reviewed Boeing Alert Requirements Bulletin 737-53A1407 RB,
dated December 20, 2022. This service information specifies procedures
for an external general visual inspection of the fuselage skin at the
forward galley door cutout forward upper corner for any repair, and
applicable related investigative and corrective actions. Related
investigative actions include detailed inspections for cracking of the
fuselage skin and bear strap. Corrective actions include obtaining and
following instructions for crack repair.
    This service information is reasonably available because the
interested parties have access to it through their normal course of
business or by the means identified in ADDRESSES.

Proposed AD Requirements in This NPRM

    This proposed AD would require accomplishing the actions specified
in the service information already described and except for any
differences identified as exceptions in the regulatory text of this
proposed AD. For information on the procedures and compliance times,
see this service information at regulations.gov under Docket No. FAA-
2023-1413.

Costs of Compliance

    The FAA estimates that this AD, if adopted as proposed, would
affect 1,938 airplanes of U.S. registry. The FAA estimates the
following costs to comply with this proposed AD:

                                                 Estimated Costs
----------------------------------------------------------------------------------------------------------------
                                                                                Cost on U.S.
              Action                    Labor cost        Parts cost    Cost per product          operators
----------------------------------------------------------------------------------------------------------------
External general visual            0.5 work-hour x $85            $0  $42.50 per            $82,365 per
 inspection for repairs.            per hour = $42.50                  inspection cycle.     inspection cycle.
                                    per inspection
                                    cycle.
External detailed and eddy         3.5 work-hours x $85            0  $197.50.............  $576,555.
 current inspection for cracks.     per hour = $197.50.
External eddy current inspection   4 work-hours x $85              0  $340 per inspection   Up to $658,920 per
 without a quadrupler repair.       per hour = $340 per                cycle.                inspection cycle.
                                    inspection cycle.
External eddy current inspection   4 work-hours x $85              0  $340 per inspection   Up to $658,920 per
 with a quadrupler repair.          per hour = $340 per                cycle.                inspection cycle.
                                    inspection cycle.

Internal eddy current inspection   26 work-hours x $85             0  $2,210..............  $4,282,980.
 for cracks.                        per hour = $2,210.
----------------------------------------------------------------------------------------------------------------

    The FAA has received no definitive data on which to base the cost
estimates for the on-condition repairs or for the alternative
inspections specified in this proposed AD.

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.
    The FAA is 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

    The FAA determined that this proposed AD would not have federalism
implications under Executive Order 13132. This proposed AD would 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 this proposed
regulation:
    (1) Is not a ``significant regulatory action'' under Executive
Order 12866,
    (2) Would not affect intrastate aviation in Alaska, and
    (3) Would not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.

List of Subjects in 14 CFR Part 39

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

The Proposed Amendment

    Accordingly, under the authority delegated to me by the
Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

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

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

Sec.  39.13  [Amended]

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

The Boeing Company: Docket No. FAA-2023-1413; Project Identifier AD-
2023-00087-T.

(a) Comments Due Date

    The FAA must receive comments on this airworthiness directive
(AD) by September 7, 2023.

(b) Affected ADs

    None.

(c) Applicability

    This AD applies to The Boeing Company Model 737-600, -700, -
700C, -800, -900 and -900ER airplanes, certificated in any category,
as identified in Boeing Alert Requirements Bulletin 737-53A1407 RB,
dated December 20, 2022.

(d) Subject

    Air Transport Association (ATA) of America Code 53, Fuselage.

(e) Unsafe Condition

    This AD was prompted by reports of cracks in the forward galley
door cutout forward upper corner bear strap. The FAA is issuing this
AD to address cracks in the fuselage skin and bear strap, which
could increase in length until the fuselage skin and bear strap
severs. If not detected and corrected, a severed fuselage skin and
bear strap may lead to the inability of the principal structural
element (PSE) to sustain limit loads and may result in rapid
decompression of the fuselage and loss of structural integrity.

(f) Compliance

    Comply with this AD within the compliance times specified,
unless already done.

(g) Required Actions

    Except as specified by paragraph (h) of this AD: At the
applicable times specified in the ``Compliance'' paragraph of Boeing
Alert Requirements Bulletin 737-53A1407 RB, dated December 20, 2022,
do all applicable actions identified in, and in accordance with, the
Accomplishment Instructions of Boeing Alert Requirements Bulletin
737-53A1407 RB, dated December 20, 2022.

    Note 1 to paragraph (g): Guidance for accomplishing the actions
required by this AD can be found in Boeing Alert Service Bulletin
737-53A1407, dated December 20, 2022, which is referred to in Boeing
Alert Requirements Bulletin 737-53A1407 RB, dated December 20, 2022.

(h) Exceptions to Service Information Specifications

    (1) Where the Compliance Time columns of the tables in the
``Compliance'' paragraph of Boeing Alert Requirements Bulletin 737-
53A1407 RB, dated December 20, 2022, use the phrase ``the original
issue date of Requirements Bulletin 737-53A1407 RB,'' this AD
requires using ``the effective date of this AD.''
    (2) Where Boeing Alert Requirements Bulletin 737-53A1407 RB,
dated December 20, 2022, specifies contacting Boeing for repair
instructions or for alternative inspections, this AD requires doing
the repair, or doing the alternative inspections and applicable on-
condition actions, using a method approved in accordance with the
procedures specified in paragraph (i) of this AD.

(i) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, AIR-520, Continued Operational Safety Branch,
FAA, 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
responsible Flight Standards Office, as appropriate. If sending
information directly to the manager of the certification office,
send it to the attention of the person identified in paragraph (j)
of this AD. Information may be emailed to: [email protected].
    (2) Before using any approved AMOC, notify your appropriate
principal inspector, or lacking a principal inspector, the manager
of the responsible Flight Standards Office.
    (3) An AMOC that provides an acceptable level of safety may be
used for any repair, modification, or alteration required by this AD
if it is approved by The Boeing Company Organization Designation
Authorization (ODA) that has been authorized by the Manager, AIR-
520, Continued Operational Safety Branch, FAA, to make those
findings. To be approved, the repair method, modification deviation,
or alteration deviation must meet the certification basis of the
airplane, and the approval must specifically refer to this AD.

(j) Related Information

    For more information about this AD, contact Bill Ashforth,
Aviation Safety Engineer, FAA, 2200 South 216th St., Des Moines, WA
98198; phone:<PHONE_NUMBER>; email: [email protected].

(k) 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.
    (i) Boeing Alert Requirements Bulletin 737-53A1407 RB, dated
December 20, 2022.
    (ii) [Reserved]
    (3) For service information identified in this AD, contact
Boeing Commercial Airplanes, Attention: Contractual & Data Services
(C&DS), 2600 Westminster Blvd., MC 110-SK57, Seal Beach, CA 90740-
5600; telephone<PHONE_NUMBER>; website myboeingfleet.com.
    (4) You may view this service information at the FAA,
Airworthiness Products Section, Operational Safety Branch, 2200
South 216th St., Des Moines, WA. For information on the availability
of this material at the FAA, call<PHONE_NUMBER>.
    (5) 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, [email protected], or go to: www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued on July 7, 2023.
Michael Linegang,
Acting Director, Compliance & Airworthiness Division, Aircraft
Certification Service.
[FR Doc. 2023-15304 Filed 7-21-23; 8:45 am]
BILLING CODE 4910-13-P