[Federal Register Volume 84, Number 209 (Tuesday, October 29, 2019)]
[Notices]
[Pages 57908-57911]
[FR Doc No: 2019-23547]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87390; File No. SR-ISE-2019-26]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the
Market Maker Plus Program

October 23, 2019.
    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 October 10, 2019, Nasdaq ISE, LLC (``ISE'' or ``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.
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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 amend the Exchange's Market Maker Plus
program under Options 7, Section 3.
    The text of the proposed rule change is available on the Exchange's
website at http://ise.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
qualifications for Market Makers to achieving Market Maker Plus status.
    The Exchange initially filed the proposed pricing changes on
October 1, 2019 (SR-ISE-2019-25). On October 10, 2019, the Exchange
withdrew that filing and submitted this filing.
    As set forth in Section 3 of the Pricing Schedule, the Exchange
operates a Market Maker Plus program for regular orders in Select
Symbols \3\ that provides the below tiered rebates to Market Makers \4\
based on time spent quoting at the National Best Bid or National Best
Offer (``NBBO''). This program is designed to reward Market Makers that
contribute to market quality by maintaining tight markets in Select
Symbols.
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    \3\ ``Select Symbols'' are options overlying all symbols listed
on the Nasdaq ISE that are in the Penny Pilot Program.
    \4\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(20).
    \5\ To encourage Market Makers to maintain quality markets in
SPY, QQQ, and IWM in particular, members that maintain tight markets
in those symbols are eligible for higher regular maker rebates and
may also be eligible for linked maker rebates, as shown in the table
above. Specifically, the following symbols are linked for purposes
of the linked maker rebate: (1) SPY and QQQ, and (2) SPY and IWM.
Market Makers that qualify for Market Maker Plus Tiers 2-4 above for
executions in SPY, QQQ, or IWM may be eligible for a linked maker
rebate in a linked symbol in addition to the regular maker rebate
for the applicable tier. The linked maker rebate applies to
executions in SPY, QQQ, or IWM if the Market Maker does not achieve
the applicable tier in that symbol but achieves the tier (i.e., any
of Market Maker Plus Tiers 2-4) for any badge/suffix combination in
the other linked symbol, in which case the higher tier achieved
applies to both symbols. If a Market Maker would qualify for a
linked maker rebate in SPY based on the tier achieved in QQQ and the
tier achieved in IWM then the higher of the two linked maker rebates
will be applied to SPY. The regular maker rebate will be provided in
the symbol that qualifies the Market Maker for the higher tier based
on percentage of time at the NBBO.

       Select Symbols Other Than SPY, QQQ, IWM, AMZN, FB, and NVDA
------------------------------------------------------------------------
      Market Maker Plus tier (specified percentage)        Maker rebate
------------------------------------------------------------------------
Tier 1 (80% to less than 85%)...........................         ($0.15)
Tier 2 (85% to less than 95%)...........................          (0.18)
Tier 3 (95% or greater).................................          (0.22)
------------------------------------------------------------------------

                            SPY, QQQ, and IWM
------------------------------------------------------------------------
    Market Maker Plus tier (specified     Regular  Maker   Linked  Maker
               percentage)                    rebate        rebate \5\
------------------------------------------------------------------------
Tier 1 (70% to less than 80%)...........         ($0.00)             N/A
Tier 2 (80% to less than 85%)...........          (0.18)          (0.15)
Tier 3 (85% to less than 90%)...........          (0.22)          (0.19)
Tier 4 (90% or greater).................          (0.26)          (0.23)
------------------------------------------------------------------------

                           AMZN, FB, and NVDA
------------------------------------------------------------------------
                                                           Maker rebate
      Market Maker Plus tier (specified percentage)             \6\
------------------------------------------------------------------------
Tier 1 (70% to less than 85%)...........................         ($0.15)
Tier 2 (85% to less than 95%)...........................          (0.18)
Tier 3 (95% or greater).................................          (0.22)
------------------------------------------------------------------------

    Market Makers are evaluated each trading day for the percentage of
time spent on the NBBO for qualifying series that expire in two
successive thirty calendar day periods beginning on that trading day. A
Market Maker Plus is a Market Maker who is on the NBBO a specified
percentage  of the time on average for the month based on daily
performance in the qualifying series for each of the two successive
periods described above. Qualifying series are series trading between
$0.03 and $3.00 (for options whose underlying stock's previous trading
day's last sale price was less than or equal to $100) and between $0.10
and $3.00 (for options whose underlying stock's previous trading day's
last sale price was greater than $100) in premium. If a Market Maker
would qualify for a different Market Maker Plus tier in each of the two
successive 30 calendar day periods, then the lower of the two Market
Maker Plus tier rebates shall apply to all contracts.\7\ A Market
Maker's worst quoting day each month for each of the two successive
periods described above, on a per symbol basis, is excluded in
calculating whether a Market Maker qualifies for this rebate.\8\
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    \6\ Market Makers that qualify for Market Maker Plus Tiers 1-3
above for executions in two out of the three symbols AMZN, FB, or
NVDA will be eligible for a maker rebate in the third symbol, in
addition to the maker rebate for the applicable tier in the other
two symbols. The maker rebate will apply to executions in AMZN, FB,
or NVDA if the Market Maker does not achieve the applicable tier in
that symbol but achieves the tier (i.e., any of Market Maker Plus
Tiers 1-3) for any badge/suffix combination in the other two
symbols. If a Market Maker would qualify for different Market Maker
Plus Tiers 1-3 in two symbols, then the lower of the two maker
rebates will be applied to the third symbol (e.g., Market Maker Plus
qualification in Tier 1 and Tier 2 across two symbols would earn
Market Maker Plus Tier 1 in the third symbol). If all three symbols
separately achieve any of the Market Maker Plus Tiers 1-3, the
symbol that achieves the tier with the lowest maker rebate will
instead receive the same maker rebate as the symbol that achieved
the next lowest tier.
    \7\ Market Makers may enter quotes in a symbol using one or more
unique, exchange assigned identifiers--i.e., badge/suffix
combinations. Market Maker Plus status is calculated independently
based on quotes entered in a symbol for each of the Market Maker's
badge/suffix combinations, and the highest tier achieved for any
badge/suffix combination quoting that symbol applies to executions
across all badge/suffix combinations that the member uses to trade
in that symbol. Only badge/suffix combinations quoting a minimum of
ten trading days within the month will be used to determine whether
the Market Maker Plus status has been met and the specific tier to
be applied to the Market Maker's performance for that month.
    \8\ In addition, the Exchange may exclude from any member's
monthly Market Maker Plus tier calculation any Unanticipated Event;
provided that the Exchange will only remove the day for members that
would have a lower time at the NBBO for the specified series with
the day included. See Options 7, Section 1(a)(2) for the definition
of ``Unanticipated Event.''
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    While the Exchange believes that the Market Maker Plus program has
been successful overall in encouraging better market quality in Select
Symbols, the Exchange has also observed that in extremely volatile
months, Market Makers are less likely to meet the stringent Market
Maker Plus tier qualifications for that month because they are unable
to hit the tiers as easily. The Exchange therefore proposes to change
its Market Maker Plus qualifications to avoid penalizing Market Makers
that have historically contributed to market quality on the Exchange.
In particular, the Exchange proposes that a Market Maker who qualifies
for Market Maker Plus Tiers 2 or higher in at least four of the
previous six months will be eligible to receive a reduced Tier 2 rebate
in a given month where the Market Maker does not qualify for any Market
Maker Plus Tiers.\9\ This rebate will be the applicable Tier 2 rebate
reduced by $0.08 per contract (i.e., $0.10 per contract for the regular
maker rebate or $0.07 per contract for the linked maker rebate).
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    \9\ Except in SPY, QQQ, and IWM, if a Market Maker qualifies for
Market Maker Plus Tier 1 in a given month after qualifying for Tier
2 or higher in at least four of the previous six months, the Market
Maker would receive the higher $0.15 per contract Tier 1 rebate for
that month instead of a reduced Tier 2 rebate of $0.10 per contract.
Today, the Exchange does not provide any rebates to Market Makers
for meeting the Market Maker Plus Tier 1 qualifications in SPY, QQQ
IWM. See Options 7, Section 3, note 5.
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    For example, Market Maker 1 (``MM 1'') meets the SPY Market Maker
Plus Tier 2 level in all of the previous 6 months. In the current
month, there is a significant increase in volatility and MM 1 is unable
to meet the stringent Market Maker Plus requirements within the month.
With the proposal, MM 1 would receive a reduced rebate of $0.10 per
contract (i.e., the SPY Tier 2 $0.18 per contract rebate reduced by
$0.08 per contract) in the current month based on meeting the Market
Maker Plus Tier 2 qualifications in SPY for at least 4 out of the
previous six months.
Applicability to and Impact on Participants
    With the proposed changes, the Exchange seeks to avoid penalizing
historically strong Market Maker Plus program participants in similar
situations as the one outlined above, thereby easing the burden on
Market Makers to maintain their Market Maker Plus qualification, which
ultimately will fortify its Market Maker Plus program. Of course, the
Market Maker would still need to meet the stringent requirements of the
applicable Market Maker Plus Tier 2 qualifications \10\ at least four
of the six previous months in order to glean the benefits of the
reduced rebate proposed above. The Market Maker would also need to meet
the rigorous Tier 2 qualifications each month going forward to maintain
the four-month cushion in order to gather the proposed rebate benefits.
By fortifying participation in this program, the Exchange believes that
the proposed changes will continue to encourage Market Makers to post
tight markets in Select Symbols, thereby improving trading conditions
for all market participants through narrower bid-ask spreads and
increased depth of liquidity available at the inside market.
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    \10\ Thus, a Market Maker would need to be on the NBBO at least
80% of the time (i.e., Tier 2 or higher) for SPY, QQQ, and IWM, and
at least 85% of the time for all other Select Symbols.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed changes to its Market Maker
Plus program is reasonable and equitable for several reasons. As a
threshold matter, the Exchange is

subject to significant competitive forces in the market for options
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'. . . .'' \13\
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    \13\ 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)).
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    Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options 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.
    Within the foregoing context, the proposal represents a reasonable
attempt by the Exchange to increase its liquidity and market share
relative to its competitors. As noted above, the Exchange's proposal is
intended to fortify participation in the Market Maker Plus program,
which the Exchange believes has been successful overall in encouraging
better market quality in Select Symbols. The Exchange believes that
further encouraging Market Makers to maintain tight markets in Select
Symbols will increase liquidity and attract additional order flow to
the Exchange, which benefits all market participants in the quality of
order interaction.
    In particular, the Exchange's proposal to provide a reduced rebate
to Market Makers who do not qualify for any Market Maker Plus tiers in
a given month, but qualified for Market Maker Plus Tier 2 or higher in
at least four of the previous six months preserves the intent of the
Market Maker Plus program to reward Market Makers who contribute to
market quality by maintaining tight markets based on time spent quoting
at the NBBO. The Exchange proposes to provide the reduced rebate to
Market Makers that qualified for Market Maker Plus Tier 2 or higher in
the requisite time period as opposed to Market Maker Plus Tier 1
because Tier 1 currently does not provide rebates to qualifying Market
Makers across all Select Symbols.\14\
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    \14\ In particular, Market Makers that qualify for Market Maker
Plus Tier 1 in SPY, QQQ or IWM currently do not receive any rebates,
so it would not be feasible to apply the proposed reduction of $0.08
to those symbols at the Tier 1 level.
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    As discussed above, the Exchange has observed that in extremely
volatile months, Market Makers are less likely to meet the stringent
Market Maker Plus tier qualifications for that month because they are
unable to hit the tiers as easily. For example, the Exchange observed a
decrease in Market Maker Plus program participation concurrent with
increased volatility in August 2019. In particular, in July 2019,
around 41% of the total number of ISE Market Makers had qualified for
Market Maker Plus Tier 2 in any Select Symbol. In August 2019, the
Exchange saw this percentage drop to less than 30%. Had the proposed
changes been in place for August 2019, around 47% of all ISE Market
Makers would have qualified for Tier 2 using the 6-month look-back
period. Given the foregoing, the Exchange seeks to avoid penalizing
Market Makers that have historically been strong participants in the
Exchange's Market Maker Plus program by easing the burden on these
Market Makers to maintain their Market Maker Plus qualification.
    The Exchange believes that the proposed ``lookback'' period of at
least four out of the previous six months is an appropriate measure of
strong past performance in the Market Maker Plus program as it requires
Market Makers to meet the stringent requirements of Market Maker Plus
Tier 2 or higher for a significant period of time in order to receive
the reduced rebates.\15\ Furthermore, the Market Maker would also need
to meet the rigorous Tier 2 qualifications each month going forward to
maintain the four month cushion in order to glean the proposed rebate
benefits. The Exchange also believes the proposed reduction of the
applicable Tier 2 rebate by $0.08 per contract \16\ is set at an
appropriate level that is lower than any Market Maker Plus tiered
rebate that a Market Maker would normally receive while still providing
enough of a cushion that avoids penalizing historically strong Market
Maker Plus program participants.
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    \15\ See supra note 10.
    \16\ Thus, with the proposed changes, the reduced rebate would
be $0.10 per contract for the regular maker rebate (i.e., the $0.18
per contract regular Tier 2 maker rebate reduced by $0.08 per
contract), and $0.07 per contract for the linked maker rebate (i.e.,
the $0.15 per contract linked Tier 2 maker rebate reduced by $0.08
per contract).
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    Accordingly, the Exchange believes that its proposal is reasonable
and equitable because the modified criteria will continue to require
Market Makers to quote significantly at the NBBO, thereby continuing to
contribute to market quality in a meaningful way. In fact, with the
proposed changes, the Exchange will fortify participation in the Market
Maker Plus program by helping ensure that historically strong program
participants continue to participate and qualify as Market Maker Plus,
which will further improve market quality.
    The Exchange believes that the proposed changes to the
qualifications to Market Maker Plus are not unfairly discriminatory as
all Market Makers will be subject to the same qualification criteria
for Market Maker Plus. The Exchange also continues to believe that it
is not unfairly discriminatory to offer rebates under this program to
only Market Makers. Market Makers, and in particular, those Market
Makers that participate in the Market Maker Plus Program and achieve
Market Maker Plus status, add value through continuous quoting and are
subject to additional requirements and obligations (such as quoting
obligations) that other market participants are not. Finally, the
Exchange believes that the proposed changes will continue to encourage
Market Makers to post tight markets in Select Symbols, thereby
increasing liquidity and attracting additional order flow to the
Exchange, which benefits all market participants in the quality of
order interaction.

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.
Intra-Market Competition
    The proposed amendments to the Exchange's Market Maker Plus program
described above do not impose an undue burden on intra-market
competition. While the proposal would apply directly to those Market
Makers that achieve the Market Maker Plus Tier 2 standards described
above, the Exchange believes that the proposed changes will fortify and
encourage participation in the Market Maker Plus program, ultimately to
the benefit of all market participants. As discussed

above, the Exchange believes that the proposed changes will continue to
encourage all Market Makers to improve market quality by providing
significant quoting at the NBBO in Select Symbols, which in turn
improves trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the inside market, thereby attracting additional order flow to the
Exchange. For these reasons, the Exchange does not believe that its
proposal will place any category of Exchange market participant at a
competitive disadvantage.
Inter-Market Competition
    The proposed changes are designed to ensure that the goals of the
Exchange's Market Maker Plus program are furthered by fortifying
participation in the program and to avoid penalizing Market Makers that
have historically made quality markets in Select Symbols for a
significant amount of time. The Exchange 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 and rebates to remain competitive. 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) of the Act \17\ and paragraph (f)(2) of Rule 19b-4
thereunder.\18\ 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. 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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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-ISE-2019-26 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-ISE-2019-26. 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-ISE-2019-26 and should be submitted on
or before November 19, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23547 Filed 10-28-19; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register: January 21, 2010 (Volume 75, Number 13)]
[Proposed Rules]
[Page 3418-3420]
[DOCID:fr21ja10-13]

========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

========================================================================

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2010-0056; Directorate Identifier 2009-CE-051-AD]
RIN 2120-AA64

Airworthiness Directives; British Aerospace Regional Aircraft
Model HP.137 Jetstream Mk.1, Jetstream Series 200, Jetstream Series
3101, and Jetstream Model 3201 Airplanes

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

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: We propose to adopt a new airworthiness directive (AD) for the
products listed above that would supersede an existing AD. This
proposed AD results from mandatory continuing airworthiness information
(MCAI) originated by an aviation authority of another country to
identify and correct an unsafe condition on an aviation product. The
MCAI describes the unsafe condition as: Cracks have been found in the
NLG steering jack piston rod adjacent to the eye-end. This was caused
by excessive torque which had been applied to the eye-end during
assembly of the unit. Severe cracking, if not detected and corrected,
can cause the jack to fail during operation, which may lead to loss of
directional control of the aeroplane during critical phases of take-off
and landing. The proposed AD would require actions that are intended to
address the unsafe condition described in the MCAI.

DATES: We must receive comments on this proposed AD by March 8, 2010.

ADDRESSES: You may send comments by any of the following methods:
     Federal eRulemaking Portal: Go to http://
www.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: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays.

Examining the AD Docket

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

FOR FURTHER INFORMATION CONTACT: Taylor Martin, Aerospace Engineer,
FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City,
Missouri 64106; telephone:<PHONE_NUMBER>; fax:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Comments Invited

    We invite you to send any written relevant data, views, or
arguments about this proposed AD. Send your comments to an address
listed under the ADDRESSES section. Include ``Docket No. FAA-2010-0056;
Directorate Identifier 2009-CE-051-AD'' at the beginning of your
comments. We specifically invite comments on the overall regulatory,
economic, environmental, and energy aspects of this proposed AD. We
will consider all comments received by the closing date and may amend
this proposed AD because of those comments.
    We will post all comments we receive, without change, to http://
regulations.gov, including any personal information you provide. We
will also post a report summarizing each substantive verbal contact we
receive about this proposed AD.

Discussion

    On May 9, 2007, we issued AD 2007-10-14, Amendment 39-15055 (72 FR
28587, May 22, 2007). That AD required actions intended to address an
unsafe condition on the products listed above.
    Since we issued AD 2007-10-14, the manufacturer revised the service
information to exclude those airplanes from the applicability that have
the modified steering jack assembly installed in accordance with BAE
modification JM5414.
    The European Aviation Safety Agency (EASA), which is the Technical
Agent for the Member States of the European Community, has issued AD
No.: 2009-0135, dated June 23, 2009 (referred to after this as ``the
MCAI''), to correct an unsafe condition for the specified products. The
MCAI states:

    Cracks have been found in the NLG steering jack piston rod
adjacent to the eye-end. This was caused by excessive torque which
had been applied to the eye-end during assembly of the unit. Severe
cracking, if not detected and corrected, can cause the jack to fail
during operation, which may lead to loss of directional control of
the aeroplane during critical phases of take-off and landing.
    To address this unsafe condition, the UK CAA issued AD 003-11-
2002 (which references BAE Systems Service Bulletin (SB) 32-
JA020741), requiring an inspection for cracks and a measurement of
the release torque of the piston rod end fitting to determine a new
safe life (remaining fatigue life) for individual units. The revised
safe life was calculated in accordance with the formula provided in
associated APPH Ltd (the NLG Jack manufacturer) SB 32-76.
    Following the completion of testing, APPH determined that the
remaining fatigue life needed further reduction and published
inspection criteria and a revised formula for calculating the piston
safe life. This calculation and a revised end fitting tightening
torque are contained in APPH SB 32-76 Revision 1. As a result,
pistons which were previously calculated to have significant
remaining life could possibly be unserviceable.
    In response to this development, BAE Systems issued SB 32-
JA030644 so that a revised calculation could be performed to
establish the safe life of NLG steering jack pistons. Where not
previously accomplished, the SB also recognised the need to inspect
the piston for cracking and to measure the torque loading of the
piston to eye-end joint so that safe life calculation could be
performed. This SB superseded the earlier SB 32-JA020741 that
produced an overly optimistic assessment of the component's safe
life. The CAA UK issued AD G-2004-0029, superseding AD 003-11-2002,
to require the accomplishment of these corrective actions.
    Subsequent to the original issue of BAE Systems SB 32-JA030644,
APPH introduced

a modified unit (optionally installed on aeroplanes by application
of BAE Systems SB 32-JM5414) that incorporates a strengthened piston
with a defined safe life. This safe life is not calculated in
accordance with the instructions of BAE Systems SB 32-JA030644, but
is already declared in BAE Systems SB 32-JA981042, currently at
revision 7. In response to requests for clarification, BAE Systems
has revised SB 32-JA030644 to exclude those aeroplanes from the
`Effectivity' that have the modified steering jack assembly
installed in accordance with BAE modification JM5414.
    For the reasons described above, this new AD retains the
requirements of UK CAA AD G-2004-0029, which is superseded, and
confirms that for aeroplanes incorporating BAE modification JM5414,
no further action is required.

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

Relevant Service Information

    BAE Systems (Operations) Limited has issued British Aerospace
Jetstream Series 3100 & 3200 Service Bulletin No. 32-JA020741, dated
November 2, 2002; British Aerospace Jetstream Series 3100 & 3200
Service Bulletin No. 32-JA030644, Revision No. 1 dated August 19, 2008;
and British Aerospace Jetstream Series 3100 & 3200 Service Bulletin No.
32-JM5414, dated August 6, 2004. APPH Ltd. has issued Service Bulletin
32-76, Revision 1, dated August 2003; and Service Bulletin 32-77, dated
January 2004. The actions described in this service information are
intended to correct the unsafe condition identified in the MCAI.

FAA's Determination and Requirements of the Proposed AD

    This product has been approved by the aviation authority of another
country, and is approved for operation in the United States. Pursuant
to our bilateral agreement with this State of Design Authority, they
have notified us of the unsafe condition described in the MCAI and
service information referenced above. We are proposing this AD because
we evaluated all information and determined the unsafe condition exists
and is likely to exist or develop on other products of the same type
design.

Differences Between This Proposed AD and the MCAI or Service
Information

    We have reviewed the MCAI and related service information and, in
general, agree with their substance. But we might have found it
necessary to use different words from those in the MCAI to ensure the
AD is clear for U.S. operators and is enforceable. In making these
changes, we do not intend to differ substantively from the information
provided in the MCAI and related service information.
    We might also have proposed different actions in this AD from those
in the MCAI in order to follow FAA policies. Any such differences are
highlighted in a NOTE within the proposed AD.

Costs of Compliance

    We estimate that this proposed AD will affect 190 products of U.S.
registry. We also estimate that it would take about 2 work-hours per
product to comply with the basic requirements of this proposed AD. The
average labor rate is $85 per work-hour.
    Based on these figures, we estimate the cost of the proposed AD on
U.S. operators to be $32,300, or $170 per product.

Authority for This Rulemaking

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

Regulatory Findings

    We determined that this 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. Is not a ``significant rule'' under the DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979); and
    3. Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.
    We prepared a regulatory evaluation of the estimated costs to
comply with this proposed AD and placed it in the AD docket.

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

    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]

    2. The FAA amends Sec.  39.13 by removing Amendment 39-15055 (72 FR
28587; May 22, 2007), and adding the following new AD:

British Aerospace Regional Aircraft: Docket No. FAA-2010-0056;
Directorate Identifier 2009-CE-051-AD.

Comments Due Date

    (a) We must receive comments by March 8, 2010.

Affected ADs

    (b) This AD supersedes AD 2007-10-14, Amendment 39-15055.

Applicability

    (c) This AD applies to Model HP.137 Jetstream Mk.1, Jetstream
Series 200, Jetstream Series 3101, and Jetstream Model 3201
airplanes, all serial numbers, that are:
    (1) Equipped with steering jack part number (P/N) 6182-2, P/N
6182-3, or P/N 6182-4; and
    (2) Certificated in any category.

Subject

    (d) Air Transport Association of America (ATA) Code 32: Landing
Gear.

Reason

    (e) The mandatory continuing airworthiness information (MCAI)
states:
    Cracks have been found in the NLG steering jack piston rod
adjacent to the eye-end. This was caused by excessive torque which
had been applied to the eye-end during assembly of the unit. Severe
cracking, if not detected and corrected, can cause the jack to fail
during operation, which may lead to loss of directional control of
the aeroplane during critical phases of take-off and landing.
    To address this unsafe condition, the UK CAA issued AD 003-11-
2002 (which references BAE Systems Service Bulletin (SB) 32-
JA020741), requiring an inspection for cracks and a measurement of
the release torque of the piston rod end fitting to

determine a new safe life (remaining fatigue life) for individual
units. The revised safe life was calculated in accordance with the
formula provided in associated APPH Ltd (the NLG Jack manufacturer)
SB 32-76.
    Following the completion of testing, APPH determined that the
remaining fatigue life needed further reduction and published
inspection criteria and a revised formula for calculating the piston
safe life. This calculation and a revised end fitting tightening
torque are contained in APPH SB 32-76 Revision 1. As a result,
pistons which were previously calculated to have significant
remaining life could possibly be unserviceable.
    In response to this development, BAE Systems issued SB 32-
JA030644 so that a revised calculation could be performed to
establish the safe life of NLG steering jack pistons. Where not
previously accomplished, the SB also recognised the need to inspect
the piston for cracking and to measure the torque loading of the
piston to eye-end joint so that safe life calculation could be
performed. This SB superseded the earlier SB 32-JA020741 that
produced an overly optimistic assessment of the component's safe
life. The CAA UK issued AD G-2004-0029, superseding AD 003-11-2002,
to require the accomplishment of these corrective actions.
    Subsequent to the original issue of BAE Systems SB 32-JA030644,
APPH introduced a modified unit (optionally installed on aeroplanes
by application of BAE Systems SB 32-JM5414) that incorporates a
strengthened piston with a defined safe life. This safe life is not
calculated in accordance with the instructions of BAE Systems SB 32-
JA030644, but is already declared in BAE Systems SB 32-JA981042,
currently at revision 7. In response to requests for clarification,
BAE Systems has revised SB 32-JA030644 to exclude those aeroplanes
from the `Effectivity' that have the modified steering jack assembly
installed in accordance with BAE modification JM5414.
    For the reasons described above, this new AD retains the
requirements of UK CAA AD G-2004-0029, which is superseded, and
confirms that for aeroplanes incorporating BAE modification JM5414,
no further action is required.

Actions and Compliance

    (f) Unless already done, do the following actions.
    (1) For airplanes where British Aerospace Jetstream Series 3100
& 3200 Service Bulletin No. 32-JA020741, dated November 2, 2002
(APPH Ltd. Service Bulletin 32-76, Revision 1, dated August 2003)
has not been previously accomplished:
    (i) Within 2 months after June 26, 2007 (the effective date
retained from AD 2007-10-14), inspect the steering jack piston rod,
check the torque of the end fitting, and determine the safe life of
the steering jack piston rod in accordance with paragraph 2, Part 1
of British Aerospace Jetstream Series 3100 & 3200 Service Bulletin
No. 32-JA030644, Revision No. 1, dated August 19, 2008; or BAE
Systems British Aerospace Jetstream Series 3100 & 3200 Service
Bulletin 32-JA030644, Original Issue: October 6, 2003.
    (ii) If the piston rod is found cracked or unserviceable during
the inspection as required by paragraph (f)(1)(i) of this AD, before
next flight, remove the steering jack and replace it with a
serviceable unit.
    (2) For airplanes on which BAE British Aerospace Jetstream
Series 3100 & 3200 Service Bulletin No. 32-JA020741, dated November
2, 2002 (APPH Ltd. Service Bulletin 32-76, Revision 1, dated August
2003) has previously been accomplished:
    (i) Within 3 months after June 26, 2007 (the effective date of
AD 2007-10-14), recalculate the safe life of the steering jack
piston rod and re-torque the piston rod eye-end in accordance with
paragraph 2, Part 2 of British Aerospace Jetstream Series 3100 &
3200 Service Bulletin No. 32-JA030644, Revision No. 1, dated August
19, 2008; or BAE Systems British Aerospace Jetstream Series 3100 &
3200 Service Bulletin 32-JA030644, Original Issue: October 6, 2003.
    (ii) If the piston rod is found unserviceable during the
inspection as required by paragraph (f)(2)(i) of this AD, before
next flight, remove the steering jack and replace it with a
serviceable unit.
    (3) For airplanes equipped with steering jack part number (P/N)
6182-2, P/N 6182-3, or P/N 6182-4 incorporating Strike-off 4,
installed by BAE Systems modification JM5414 (refer to British
Aerospace Jetstream Series 3100 & 3200 Service Bulletin No. 32-
JM5414, dated August 6, 2004; and APPH Ltd. Bulletin 32-77, dated
January 2004): The actions specified in paragraph (f)(1)(i) or
(f)(1)(ii) of this AD are not required.
    (4) For all airplanes: After June 26, 2007 (the effective date
of AD 2007-10-14), do not install a steering jack piston rod with P/
N 6182-2, P/N 6182-3, or P/N 6182-4, unless it has been inspected
and the safe life determined in accordance with paragraph 2 of
British Aerospace Jetstream Series 3100 & 3200 Service Bulletin No.
32-JA030644, Revision No. 1, dated August 19, 2008.

FAA AD Differences

    Note: This AD differs from the MCAI and/or service information
as follows: No differences.

Other FAA AD Provisions

    (g) The following provisions also apply to this AD:
    (1) Alternative Methods of Compliance (AMOCs): The Manager,
Standards Office, FAA, has the authority to approve AMOCs for this
AD, if requested using the procedures found in 14 CFR 39.19. Send
information to ATTN: Taylor Martin, Aerospace Engineer, FAA, Small
Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri
64106; telephone:<PHONE_NUMBER>; fax:<PHONE_NUMBER>. Before using
any approved AMOC on any airplane to which the AMOC applies, notify
your appropriate principal inspector (PI) in the FAA Flight
Standards District Office (FSDO), or lacking a PI, your local FSDO.
    (2) Airworthy Product: For any requirement in this AD to obtain
corrective actions from a manufacturer or other source, use these
actions if they are FAA-approved. Corrective actions are considered
FAA-approved if they are approved by the State of Design Authority
(or their delegated agent). You are required to assure the product
is airworthy before it is returned to service.
    (3) Reporting Requirements: For any reporting requirement in
this AD, under the provisions of the Paperwork Reduction Act (44
U.S.C. 3501 et seq.), the Office of Management and Budget (OMB) has
approved the information collection requirements and has assigned
OMB Control Number 2120-0056.

Related Information

    (h) Refer to MCAI European Aviation Safety Agency (EASA) AD No.:
2009-0135, dated June 23, 2009; British Aerospace Jetstream Series
3100 & 3200 Service Bulletin No. 32-JA020741, dated November 2,
2002; British Aerospace Jetstream Series 3100 & 3200 Service
Bulletin No. 32-JA030644, Revision No. 1 dated August 19, 2008;
British Aerospace Jetstream Series 3100 & 3200 Service Bulletin No.
32-JM5414, dated August 6, 2004. APPH Ltd. Service Bulletin 32-76,
Revision 1, dated August 2003; and APPH Ltd. Service Bulletin 32-77,
dated January 2004, for related information.

    Issued in Kansas City, Missouri on January 13, 2010.
Kim Smith,
Manager, Small Airplane Directorate, Aircraft Certification Service.
[FR Doc. 2010-1086 Filed 1-20-10; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 87, Number 46 (Wednesday, March 9, 2022)]
[Proposed Rules]
[Pages 13249-13250]
[FR Doc No: 2022-04966]

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DEPARTMENT OF TRANSPORTATION

Federal Motor Carrier Safety Administration

49 CFR Part 383

[Docket No. FMCSA-2018-0332]
RIN 2126-AC23

Commercial Driver's License Out-of-State Knowledge Test;
Withdrawal

AGENCY: Federal Motor Carrier Safety Administration (FMCSA), Department
of Transportation (DOT).

ACTION: Notice of proposed rulemaking; withdrawal.

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SUMMARY: FMCSA is withdrawing a notice of proposed rulemaking (NPRM) to
allow driver applicants to take the commercial driver's license (CDL)
general and specialized knowledge tests in a State (the testing State)
other than the applicant's State of domicile. The NPRM also proposed
that the applicant's State of domicile would be required to accept
knowledge test results from the testing State. As explained further
below, FMCSA is taking this action after considering the comments
received following the publication of the NPRM.

DATES: The proposed rule published July 29, 2019, at 84 FR 36552 is
withdrawn as of March 9, 2022.

FOR FURTHER INFORMATION CONTACT: Ms. Nikki McDavid, Chief, Commercial
Driver's License Division, Federal Motor Carrier Safety Administration,
1200 New Jersey Avenue SE, Washington, DC 20590 0001,<PHONE_NUMBER>,
[email protected].

SUPPLEMENTARY INFORMATION:

Background

    In August 2017, FMCSA issued regulatory guidance titled,
``Commercial Driver's License Standards: Regulatory Guidance Concerning
the Issuance of Commercial Learner's Permits'' (August 2017 Guidance)
(82 FR 36101 (Aug. 3, 2017)), which clarified the circumstances under
which a CDL applicant's State of domicile may accept the results of
knowledge testing administered to the applicant in another State. The
August 2017 Guidance permits the testing State and the State of
domicile to enter into a voluntary agreement prior to the general
knowledge test being administered by the testing State. The guidance
emphasizes that, because only the State of domicile is authorized to
issue a Commercial Learner's Permit (CLP) or CDL, the responsibility
for compliance with the requirements of 49 CFR 383.71 (driver
application and certification) and 383.73 (CLP/CDL issuance) remains
with the State of domicile. To the Agency's knowledge, no States have
entered into an agreement pursuant to the August 2017 Guidance.
    On July 29, 2019, FMCSA published in the Federal Register (Docket
No. FMCSA-2018-0332, 84 FR 36552) an NPRM \1\ to amend 49 CFR
383.79(a)(1) and (2) by permitting a State also to administer knowledge
test(s) to an out-of-State applicant, and by requiring the State of
domicile also to accept those knowledge testing results.
---------------------------------------------------------------------------

    \1\ To view the NPRM and the comments we received, go to https://www.regulations.gov/document/FMCSA-2018-0332-0001.
---------------------------------------------------------------------------

    FMCSA received comments on the NPRM from the following parties: The
American Association of Motor Vehicle Administrators (AAMVA); American
Trucking Associations (ATA); California Department of Motor Vehicles
(California); C. R. England, Inc.; Illinois Secretary of State
(Illinois); Iowa Department of Transportation (Iowa); Minnesota
Department of Public Safety, Driver and Vehicle Services Division
(Minnesota); Minnesota State Patrol (MSP); Montana Department of
Justice (Montana); National School Transportation Association (NSTA);
Pennsylvania Department of Transportation (Pennsylvania); Truckload
Carriers Association (TCA); Virginia Department of Motor Vehicles
(Virginia); and six private citizens.
    To improve the Agency's understanding of the impact of the NPRM on
States and CDL applicants, FMCSA posed several specific questions. The
questions and a summary of the responsive comments are set forth below.
    Question 1. To what extent will State Driver Licensing Agencies
(SDLAs) need to adapt existing procedures and processes to receive out-
of-State knowledge testing results and remotely deliver the physical
CLP or upgraded CDL? What are the costs associated with making these
changes?
    Responses: All SDLAs responding to this question stated that
changes to existing CLP application and issuance procedures and
software would be necessary; some also questioned how remote delivery
of the CLP credential would be accomplished.
    Only Pennsylvania responded to the cost question specifically,
estimating a cost of approximately $525,000 for the system changes
needed to accept knowledge test results from other States and a cost of
approximately $1.6 million to begin offering knowledge testing to out-
of-State driver applicants. Other States noted there would be costs
associated with changing existing systems and processes to accept test
results from other States but did not quantify the amounts.
    All State commenters said the NPRM would require changes in current
procedures for processing knowledge test results and issuing CLPs.
Minnesota and Virginia noted, for example, they would need to revise
current processes to allow an applicant's record to remain ``open'' in
pending status while waiting to receive the applicant's out-of-State
knowledge test results. California questioned how it would receive the
completion of knowledge testing notification from the testing State.
    Question 2. What additional State implementation concerns are
raised by [the NPRM]?
    Responses: Pennsylvania noted that there is currently ``no way to
verify the person taking the knowledge test in another jurisdiction is
in fact the same person taking the skills test later in the process,''
adding that ``[the Commercial Skills Test Information Management
System] does not provide a mechanism for verification with other
jurisdictions.'' Virginia also noted security concerns, stating that
``the requirement to issue a CLP remotely undermines the current
processes Virginia has in place to ensure that a credential is securely
issued to the applicant.'' California also expressed concern over the
proposed remote delivery requirement, questioning how secure delivery
could be assured if the CLP credential was sent to an address outside
their State. Montana noted ``grave concerns about the real and
substantial threat of fraudulent activity'' if Montana is required to
issue a CLP to an applicant who does not personally appear at a Montana
driver license location. Minnesota and Virginia cited ongoing
difficulties in the processing of out-of-State skills testing results,
which could carry over to the processing of knowledge testing results.
    Question 3. Would 2 years, or 3 years, allow SDLAs sufficient time
to achieve compliance with the proposed requirement to accept any out-
of-state knowledge test results? Please explain the basis of your
preferred compliance date.
    Responses: Three States responded to this question. Pennsylvania
said it would need 2.5 years to accommodate necessary changes in State
laws and processes. California and Virginia said they would need 3
years to achieve compliance.
    Question 4. If [the NPRM] is finalized, would your SDLA offer
knowledge testing to out-of-state CLP applicants or

CDL holders wishing to add an endorsement to their license? Why or why
not?
    Responses: Of the States that responded directly to this question,
Minnesota and California said they would not offer out-of-State
testing; Virginia said it would likely offer out-of-State testing if
authorized by the State legislature. Iowa also implied that it would
offer knowledge testing to out-of-state CLP applicants by noting that
Iowa-based driver training programs, which attract many out-of-State
students, bring ``tremendous economic value'' to the State.
Pennsylvania said that, without ``process improvements and additional
funding,'' it would be difficult to provide testing out-of-State
applicants.
    Question 5. Would the proposed changes allow applicants who take
driver training outside their State of domicile to obtain a CLP or
upgraded CDL more efficiently? If so, please provide specific examples
of time or cost savings that may accrue if the proposed changes were
adopted.
    Responses: Pennsylvania responded that, if its concerns were
addressed, allowing out-of-State knowledge testing ``could be a
significant achievement in enhancing access for our future commercial
drivers and their employers.'' Iowa predicted the proposed rule would
enhance efficiency and that associated cost savings would accrue to
employers, trainers, and drivers. ATA, TCA, and other commenters also
believed the rule would enable applicants to receive their CLPs more
efficiently. Minnesota, which does not intend to provide knowledge
testing to out-of-State applicants, stated that ``[t]he only efficiency
with this proposal is to truck driving students who take training in
another state that is not a border state.''
    Commenters provided additional input beyond answering these five
questions, as summarized below.
    Some commenters, including ATA, TCA, and NSTA, believed the
proposed rule would have no detrimental impact on safety because all
CLP applicants must be tested and licensed in accordance with the
standards established by the May 9, 2011, final rule titled,
``Commercial Driver's License Testing and Commercial Learner's Permit
Standards'' (76 FR 26854). Some States expressed concern that, if
adopted, the proposed rule would undermine the State of domicile's
ability to maintain control over the testing process and ensure that
only qualified drivers obtain a CLP. Several commenters commended the
proposed rule for relieving the time and travel cost burden on CLP
applicants who must return to their State of domicile to take the
knowledge test after receiving training in another State. On the other
hand, one commenter stated there is no undue burden imposed by
requiring a CLP applicant to take the knowledge test in their State of
domicile, noting that ``[l]earning needed to pass the written knowledge
test can be done by reading the written materials available from any
SDLA.''
    Several commenters noted that the proposed rule would benefit
driver training schools and motor carriers by enhancing efficiency of
the training process, thereby helping to alleviate driver shortages. As
one commenter explained, a more efficient testing process will
encourage more drivers to apply for a CDL, which means ``more
opportunities to fill the gap between the supply and demand of
commercially-licensed drivers.''
    Two commenters asserted that FMCSA is exceeding its legal authority
over the States' commercial licensing processes by requiring the State
of domicile to accept knowledge test results from another State.
Virginia stated that the rule is an unfunded mandate and FMCSA has not
indicated it will provide funding to help States comply. Some States
noted the potential loss of testing fees if applicants domiciled in
their State elect to take the knowledge test in another State.
    The Agency carefully considered all comments. The NPRM was intended
to promote further flexibility in the CDL issuance process without
negatively impacting safety. All State commenters noted, however, that
due to process complexities associated with the proposed change, SDLAs
would need to implement significant changes to accommodate the receipt
of out-of-State knowledge test results. Given States' security and
operational concerns surrounding out-of-State knowledge testing,
including remote delivery of the CLP credential, FMCSA concludes the
proposed change is not advisable at this time. The Agency hereby
withdraws the July 29, 2019, NPRM, based on the same legal authorities
on which it issued the NPRM, set forth at 84 FR 36552, 36553. The
Agency notes, however, that States may enter into voluntary agreements
for out-of-State knowledge testing in accordance with the August 2017
Guidance discussed above.

    Issued under authority delegated in 49 CFR 1.87.
Robin Hutcheson,
Acting Administrator.
[FR Doc. 2022-04966 Filed 3-8-22; 8:45 am]
BILLING CODE 4910-EX-P


[Federal Register Volume 79, Number 158 (Friday, August 15, 2014)]
[Notices]
[Pages 48285-48289]
[FR Doc No: 2014-19330]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72803; File No. SR-OCC-2014-803]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of an Advance Notice To Better Manage Risks
Concentration and Other Risks Associated With Accepting Deposits of
Common Stocks for Margin Purposes

August 11, 2014.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act

entitled the Payment, Clearing, and Settlement Supervision Act of 2010
(``Clearing Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) \2\ of the
Securities Exchange Act of 1934 notice is hereby given that on July 16,
2014, The Options Clearing Corporation (``OCC'') filed with the
Securities and Exchange Commission (``Commission'') the advance notice
as described in Items I and II below, which Items have been prepared by
OCC.\3\ The Commission is publishing this notice to solicit comments on
the advance notice from interested persons.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ OCC also filed the proposals contained in this advance
notice as a proposed rule change under Section 19(b)(1) of the
Securities Exchange Act of 1934 and Rule 19b-4 thereunder. 15 U.S.C.
78s(b)(1); 17 CFR 240.19b-4. See SR-OCC-2014-14.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice

    This advance notice is filed by OCC in connection with a proposed
change that would permit OCC to better manage concentration and other
risks (i.e., wrong-way risk) associated with accepting deposits of
common stock for margin purposes. In order to manage such risks, OCC
proposes to add an proposed Interpretation and Policy that will provide
OCC with discretion with respect to giving value to margin collateral
deposited by a single clearing member.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice

    In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the advance notice
and discussed any comments it received on the advance notice. The text
of these statements may be examined at the places specified in Item IV
below. The clearing agency has prepared summaries, set forth in
sections (A), (B), and (C) below, of the most significant aspects of
such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice

1. Purpose
    The purpose of the proposed change is to permit OCC to better
manage concentration risk and other risks (i.e., wrong-way risk)
associated with accepting deposits of common stock for margin
purposes.\4\ Accordingly, in order to manage such risks, OCC proposes
to add an Interpretation and Policy to Rule 604, which specifies the
forms of margin assets accepted by OCC, that will provide OCC with
discretion with respect to giving value to assets deposited by a single
clearing member to satisfy its margin requirement(s). In addition, OCC
proposes to make clarifying amendments to an existing Interpretation
and Policy under Rule 604 that gives OCC discretion to not give value
to a particular type of margin collateral across all clearing members.
---------------------------------------------------------------------------

    \4\ This proposed change has also been filed as a proposed rule
change filing (SR-OCC-2014-14).
---------------------------------------------------------------------------

Background
    OCC Rule 604 lists the types of assets that clearing members may
deposit with OCC to satisfy their margin requirement(s) as well as sets
forth eligibility criteria for such assets. Common stocks, including
Exchange Traded Funds (``ETFs'') and Exchange Traded Notes (``ETNs''),
are the most common form of margin assets deposited by clearing members
and currently comprise 68% of the $60.6 billion in clearing member
margin deposits held by OCC (not including deposits in lieu of margin).
Since 2009, OCC has used STANS, its daily automated Monte Carlo
simulation-based margining methodology, to value common stocks
deposited by clearing members as margin.\5\ The value given to margin
deposits depends on factors that include the price volatility and the
price correlation relationship of common stock collateral to the
balance of the cleared portfolio. The approach used by STANS
incentivizes clearing members who chose to meet their margin
obligations with deposits of common stocks to choose common stocks that
hedge their related open positions.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 58158 (July 15,
2008), 73 FR 42646 (July 22, 2008) (SR-OCC-2007-20).
---------------------------------------------------------------------------

    Notwithstanding the value STANS gives to deposits of common stocks,
certain factors warrant OCC adjusting the value STANS gives to all
clearing member margin deposits of a particular type of margin
collateral. Such factors are set forth in Rule 604, Interpretation and
Policy .14, and include the number of outstanding shares, number of
outstanding shareholders and overall trading volume. OCC is proposing
to add a new Interpretation and Policy to Rule 604 (the
``Interpretation'') so that OCC has discretion to not give margin
credit to a particular clearing member when such clearing member
deposits a concentrated amount of any common stock and when a common
stock, deposited as margin, presents ``wrong-way risk'' to OCC. In
addition, the Interpretation will provide OCC discretion to grant
margin credit to a clearing member when it deposits shares of common
stock that serve as a hedge to the clearing member's related open
positions and would otherwise be not be given margin credit.\6\
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    \6\ Consistent with the language contained in existing
Interpretation & Policy .14, the Interpretation provides OCC with
discretion in determining the amount of margin credit given to
deposits of common stock by an individual clearing member as such
determination would be based on positions held and common stock
deposits made by such clearing member on a given business day.
However, as discussed in the following two sections, OCC also has
developed certain automated processes as well as additional internal
policies that describe how OCC presently intends to exercise such
discretion. These additional internal policies are included in OCC's
collateral risk management policy, which will not be implemented
until approval of this rule change with changes thereto being
subject to additional rule filings.
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Concentrated Deposits of Common Stock
    OCC has determined that in the event it is necessary to liquidate a
clearing member's positions (including the clearing member's margin
collateral), OCC may be exposed to risk arising from a large quantity
of a particular common stock deposited as margin by a clearing member.
Specifically, depending on the relationship between the average daily
trading volume of a particular security and the number of outstanding
shares of such security deposited by a clearing member as margin, it is
possible that the listed equities markets may not be able to quickly
absorb all of the common stock OCC seeks to sell, or OCC may not be
able to auction such securities, without an appreciable negative price
impact. This occurrence, referred to as ``concentration risk,'' is
greatest when the number of shares being sold is large and the average
daily trading volume is low.
    OCC's existing authority to not give value to otherwise eligible
forms of margin is broad in its application since such authority only
provides OCC with the discretion to not give value across all clearing
member deposits of a particular common stock. However, concentration
risk may be a clearing member and account-specific risk. In order to
mitigate the concentration risk of a single clearing member, OCC plans
to implement automated processes to monitor the composition of a
clearing member's margin deposits. Such processes will identify
concentration risk at both an account level and across all accounts of
a clearing member. OCC proposes to add the Interpretation so that OCC
has discretion to limit the margin credit granted to an individual
clearing member that maintains a

concentrated margin deposit of otherwise eligible common stock.
    For the reasons stated above, OCC considers a common stock's
average daily trading volume and the number of shares a clearing member
deposited as margin to be the two most significant factors when making
a decision to limit margin credit due to concentration risk.
Accordingly, OCC will not give margin credit to clearing member margin
deposits of a particular common stock in respect of a particular
account when the deposited amount of such common stock is in excess of
two times the average daily trade volume of such common stock over the
most recent three month period. OCC's systems will continually assess
the composition of clearing member margin deposits for each account
maintained by the clearing member, including intra-day collateral
substitutions in such accounts, to determine if a clearing member has a
margin deposit with a concentrated amount of common stock. With respect
to a given account, OCC's systems will automatically set appropriate
limits on the amount of a particular common stock for which a clearing
member may be given margin credit for any one of a its tier accounts.
In addition, and with respect to all of a clearing member's accounts,
OCC will impose an add-on margin charge if, in aggregate, a clearing
member deposits a concentrated amount of a particular common stock as
margin across all of its accounts.\7\ The add-on margin charge will
operate to negate the margin credit given to the concentrated margin
deposit, and will be collected, when applicable, as part of OCC's
standard morning margin process.\8\ OCC will assess the add-on margin
charge across all of a clearing member's accounts on a pro-rata basis
(based on the amount of the particular common stock in each of a
clearing member's accounts).
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    \7\ OCC believes that this policy is consistent with proposed
Rule 17Ad-22(e)(5), which requires covered clearing agencies to set
and enforce concentration limits to manage its or its participant's
credit exposure. See 79 FR 16866, 16972 (March 26, 2014).
    \8\ Since the 2-day limit is first checked at each account, it
is possible that a clearing member with multiple accounts may have
more than 2-days of a given common stock on deposit in aggregate. To
control this condition, a final check is done on the aggregate
amount of shares held by a clearing member across all of its
accounts. For example, if a particular clearing member has three
accounts each holding 2-days volume of a specific common stock, the
clearing member check would identify that the member was holding six
days of volume in aggregate. To mitigate this risk, an add-on charge
equal to the market value of four days of volume would be applied to
all accounts holding that security on a pro-rata basis.
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    OCC staff has been monitoring concentrated common stock positions,
assessing the impact of the proposed change described in this filing
and contacting clearing members affected by the proposed change. OCC
believes that clearing members will be able to comply with the proposed
change without making significant changes to their day-to-day business
operations. In December 2013, an information memo was posted to inform
all members of the upcoming change. Since January 2014, staff has been
in contact with any clearing member that would be affected by the
proposed change. On a weekly basis, any clearing member that would see
a reduction of 10% or more of its collateral value is contacted and
provided an explanation of the policy and a list of concentrated
positions observed in this analysis. On a monthly basis, all clearing
members exhibiting any concentration risk are contacted to provide an
explanation of the proposed policy and a list of concentrated
positions. In both cases, clearing members are encouraged to
proactively reduce concentrated positions to conform to the proposed
policy. As of June 2014, twenty-five members would be affected.
Implementation of the Interpretation would result in disallowing $1.2
billion in collateral value and result in margin calls for six members
totaling $710 million. Moreover, in July 2014, OCC made an automated
report concerning concentrated margin deposits of common stock
available to all clearing members.
Wrong-Way Risk
    OCC is also proposing to use the Interpretation to address the risk
that the common stock a clearing member has deposited as margin and
which is issued by the clearing member itself or an affiliate of the
clearing member will lose value in the event the clearing member
providing such margin defaults, which is known as ``wrong-way risk.''
Wrong-way risk occurs when a clearing member makes a deposit of common
stock issued by it or an affiliate and, in the event the clearing
member defaults, the clearing member's common stock margin deposit will
also be losing value at the same time because there is likely to be a
strong correlation between the clearing member's creditworthiness and
the value of such common stock. In order to address wrong-way risk, the
Interpretation will implement automated systems that will not give
margin credit to a clearing member that deposits common stock issued by
such clearing member or an affiliate as margin collateral. OCC proposes
to define ``affiliate'' broadly in the Interpretation to include any
entity with direct or indirect equity ownership of 10% of the clearing
member, or any entity for which the clearing member holds 10% of the
direct or indirect equity ownership.\9\
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    \9\ This standard is based on the provisions of OCC Rule
215(a)(5).
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    OCC has addressed the impact of the change designed to address
wrong-way risk. As of June 2014, there were 73 clearing members whose
parent or an affiliate has issued securities trading on U.S. exchanges.
There are six clearing members that would be affected by virtue of
having made margin deposits of their own or an affiliate's common
stock. In total, these shares equaled $132 million and accounted for
less than one half of one percent of the total market value of valued
securities pledged as margin at OCC. In July 2014, OCC made information
available to each clearing member that indicates which of its deposits
of common stock would not receive margin credit due to wrong-way risk
considerations, as described above.\10\
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    \10\ OCC believes that by providing such information clearing
members will be better able to adjust their margin deposits at OCC
to conform to the proposed change once it is approved.
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Deposits That Hedge Open Positions
    In addition to the above, OCC also proposes to include language in
the Interpretation so that it has discretion to give margin credit to
common stock deposited as margin that would otherwise not be given
margin credit in circumstances when such common stock acts as a hedge
(i.e., the member holds an equivalent short position in cleared
contracts on the same underlying security). This condition will be
checked in both the account and clearing member level. For example, if
a clearing member deposits the common stock of an affiliate as margin
collateral, which, pursuant to the above, would ordinarily not be given
value for the purposes of granting margin credit, OCC may nevertheless
give value to such common stock for the purposes of granting margin
credit to the extent such common stock acts as a hedge against open
positions of the clearing member. In this case, a decline in the value
of the margin deposit would be wholly or partially offset by an
increase in the value in the open position. Moreover, in such a
situation, OCC will systematically limit the margin credit granted to
the lesser of a multiple of the daily trading volume or the ``delta
equivalent position'' \11\ for the particular

common stock, taking into account the hedging position.\12\ OCC
believes that this policy will further encourage clearing members to
deposit margin collateral that hedges their related open positions and
is in line with the valuation methods within STANS. This policy will
also facilitate OCC's management of its and its participants' credit
exposure \13\ as well as the liquidation of a clearing member's
portfolio should the need arise.
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    \11\ The ``delta equivalent position'' is the equivalent number
of underlying shares represented by the aggregation of cleared
products on that same underlying instrument. This value is
calculated using the ``delta'' of the option or futures contract,
which is the ratio between the theoretical change in the price of
the options or futures contract to the corresponding change in the
price of an underlying asset. Thus, delta measures the sensitivity
of an options or futures contract price to changes in the price of
the underlying asset. For example, a delta of +0.7 means that for
every $1 increase in the price of the underlying stock, the price of
a call option will increase by $0.70. Delta for an option or future
can be expressed in shares of the underlying asset. For example, a
standard put option with a delta of -.45 would have a delta of -45
shares, because the unit of trading is 100 shares.
    \12\ Assume, for example, an average daily trade volume of 250
shares, a threshold of 2 times the average daily trade volume, and a
delta of -300 shares for the options on a particular security in a
particular account. A position of 700 shares that did not hedge any
short options or futures would receive credit for only 500 shares
(i.e., 2 times the average daily trade volume). If the net long
position in the account, when combined with the delta of short
option and futures position, were only 400, credit would be given
for the entire 700 shares since the delta equivalent position is
below the 500 share threshold. However, if the option delta were
+300, the net long position would be 1000, and credit would only be
given for 500 shares because the delta equivalent position would
exceed the 500 share threshold.
    \13\ OCC also believes that this policy is consistent with
proposed Rule 17Ad-22(e)(5). See Fn. 6, supra.
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Other Proposed Changes
    OCC is also proposing to make certain clarifying changes in order
to accommodate the adoption of the Interpretation into its Rules.
Primarily, OCC proposes to add language to OCC Rule 604, Interpretation
and Policy .14, to clarify that such Interpretation and Policy concerns
OCC's authority to not give value to certain margin deposits for all
clearing members (whereas the Interpretation applies to particular
clearing member(s)). In addition, OCC proposes to remove language from
OCC Rule 604, Interpretation and Policy .14, to improve readability as
well as to remove ``factors'' concerning number of shares and
affiliates since OCC's authority with respect to such factors will be
more clearly described in the Interpretation. Finally, OCC proposes to
renumber the Interpretations and Policies of Rule 604 in order to
accommodate the adoption of the Interpretation.
2. Statutory Basis
    OCC believes that the proposed change to OCC's Rules is consistent
with Section 805(b) of the Clearing Supervision Act \14\ because the
proposed change will reduce systemic risk.\15\ OCC believes that the
proposed changes to its margin policy, as described above, will reduce
the risk that clearing member margin assets would be insufficient
should OCC need to use such assets to close-out positions of a
defaulted clearing member. For the same reasons, the proposed change
will reduce systemic risk because it will promote confidence that OCC
will be able to timely meet its settlement obligations because the
proposed change will diminish the likelihood that a large percentage of
a defaulting clearing member's margin assets would not be available to
OCC in the event of a clearing member default. The proposed change is
not inconsistent with the existing rules of OCC, including any other
rules proposed to be amended or any advance notice filings pending with
the Commission.
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    \14\ 12 U.S.C. 5464(b).
    \15\ 12 U.S.C. 5464(b)(3).
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(B) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants, or Others

    Written comments on the advance notice were not and are not
intended to be solicited with respect to the advance notice and none
have been received.

(C) Advance Notices Filed Pursuant to Section 806(e) of the Clearing
Supervision Act

    The proposed change would provide OCC with additional discretion
with respect to giving value to clearing member deposits of margin
collateral. OCC is filing this advance notice pursuant to Section
806(e)(1) of the Clearing Supervision Act \16\ because the change could
be deemed to materially affect the nature or level of risks presented
by OCC.
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    \16\ 12 U.S.C. 5465(e)(1).
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    As described above in Paragraph II.A, OCC proposes to add the
Interpretation so that it has discretion to not give value to
concentrated equity security margin deposits and deposits of margin
collateral that present wrong-way risk to OCC. In addition, the
Interpretation will provide OCC with discretion to give value to
securities deposited as margin that would otherwise not be given margin
credit in circumstances when such securities act as a hedge against
open positions held in the same account. Paragraph II.A also discusses
how OCC presently intends to exercise such discretion through the
implementation of automated systems and additional internal policies.
This proposed change will facilitate OCC's liquidation of a clearing
member's margin collateral should such clearing member default and
thereby promote robust risk management, safety and soundness and reduce
systemic risk because the proposed change will increase the likelihood
that OCC will maintain uninterrupted operations notwithstanding the
clearing member default. Accordingly, OCC believes that these changes
will reduce risks to OCC and its participants.

III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action

    The designated clearing agency may implement this change if it has
not received an objection to the proposed change within 60 days of the
later of (i) the date that the Commission receives the notice of
proposed change, or (ii) the date the Commission receives any further
information it requests for consideration of the notice. The designated
clearing agency shall not implement this change if the Commission has
an objection.
    The Commission may, during the 60-day review period, extend the
review period for an additional 60 days for proposed changes that raise
novel or complex issues, subject to the Commission providing the
designated clearing agency with prompt written notice of the extension.
The designated clearing agency may implement a change in less than 60
days from the date of receipt of the notice of proposed change by the
Commission, or the date the Commission receives any further information
it requested, if the Commission notifies the designated clearing agency
in writing that it does not object to the proposed change and
authorizes the designated clearing agency to implement the change on an
earlier date, subject to any conditions imposed by the Commission.
    The designated clearing agency shall post notice on its Web site of
proposed changes that are implemented.
    The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.\17\
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    \17\ OCC also filed the proposals contained in this advance
notice as a proposed rule change under Section 19(b)(1) of the
Securities Exchange Act of 1934 and Rule 19b-4 thereunder. See supra
note 3.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and

arguments concerning the foregoing. 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-OCC-2014-803 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-OCC-2014-803. 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 advance notice that are filed
with the Commission, and all written communications relating to the
advance notice 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of OCC and on OCC's Web site
(http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_803.pdf).
    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-OCC-2014-803
and should be submitted on or before September 5, 2014.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19330 Filed 8-14-14; 8:45 am]
BILLING CODE 8011-01-P