[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Notices]
[Pages 42140-42147]
[FR Doc No: 2013-16819]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69951; File No. SR-NSCC-2013-02]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing Amendment No. 2 and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change, as Previously Modified by Amendment No. 1, To Institute
Supplemental Liquidity Deposits to Its Clearing Fund Designed To
Increase Liquidity Resources To Meet Its Liquidity Needs

July 9, 2013.
    On March 21, 2013, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2013-02 (``Proposed Rule
Change'') pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Exchange Act'') \1\ and Rule 19b-4 thereunder.\2\ The
Proposed Rule Change was published for comment in the Federal Register
on

April 10, 2013.\3\ On April 19, 2013, NSCC filed with the Commission
Amendment No. 1 to the Proposed Rule Change, which, on May 29, 2013,
the Commission published for comment in the Federal Register and
designated a longer period for Commission action on the Proposed Rule
Change, as amended.\4\ As of July 9, 2013, the Commission had received
fourteen comment letters on the proposal contained in the Proposed Rule
Change and its related Advance Notice,\5\ including NSCC's response to
the comment letters received as of June 10, 2013.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4. NSCC also filed the proposal contained in
the Proposed Rule Change as advance notice SR-NSCC-2013-802
(``Advance Notice''), as modified by Amendment No. 1, pursuant to
Section 806(e)(1) of the Payment, Clearing, and Settlement
Supervision Act of 2010 (``Clearing Supervision Act'') and Rule 19b-
4(n)(1)(i) thereunder. See Release No. 34-69451 (Apr. 25, 2013), 78
FR 25496 (May 1, 2013). On May 20, 2013, the Commission extended the
period of review of the Advance Notice, as modified by Amendment No.
1. Release No. 34-69605 (May 20, 2013), 78 FR 31616 (May 24, 2013).
On June 11, 2013, NSCC filed Amendment No. 2 to the Advance Notice,
as previously modified by Amendment No.1. Absent a request by the
Commission to NSCC to provide additional information on the Advance
Notice, as amended, pursuant to Section 806(e)(1)(D) of the Clearing
Supervision Act, see 12 U.S.C. 5465(e)(1)(D), the Commission shall
have until July 19, 2013 to issue an objection or non-objection to
the Advance Notice, as amended. See Release No. 34-69605 (May 20,
2013), 78 FR 31616 (May 24, 2013), and see 12 U.S.C. 5465(e)(1)(E)
and (G). The proposal in the Proposed Rule Change, as amended, and
the Advance Notice, as amended, shall not take effect until all
regulatory actions required with respect to the proposal are
completed.
    \3\ Release No. 34-69313 (Apr. 4, 2013), 78 FR 21487 (Apr. 10,
2013).
    \4\ See Release No. 34-69620 (May 22, 2013), 78 FR 32292 (May
29, 2013).
    \5\ See Comments Received on File Nos. SR-NSCC-2013-02 (http://sec.gov/comments/sr-nscc-2013-02/nscc201302.shtml) and SR-NSCC-2013-
802 (http://sec.gov/comments/sr-nscc-2013-802/nscc2013802.shtml).
Since the proposal contained in the Proposed Rule Change was also
filed as an Advance Notice, see Release No. 34-69451, supra note 2,
the Commission is considering all public comments received on the
proposal regardless of whether the comments are submitted to the
Proposed Rule Change, as amended, or the Advance Notice, as amended.
    \6\ NSCC also received a comment letter directly prior to filing
the Proposed Rule Change and related Advance Notice with the
Commission, which NSCC provided to the Commission in Amendment No. 1
to the filings. See Exhibit 2 to File No. SR-NSCC-2013-02 (http://sec.gov/rules/sro/nscc/2013/34-69620-ex2.pdf).
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    Pursuant to Section 19(b)(1) of the Exchange Act \7\ and Rule 19b-4
thereunder,\8\ notice is hereby given that on June 11, 2013, NSCC filed
with the Commission Amendment No. 2 to the Proposed Rule Change, as
previously modified by Amendment No. 1. The Commission is publishing
this notice to solicit comments on the Proposed Rule Change, as
modified by Amendment No. 2, from interested persons.\9\
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    \7\ 15 U.S.C. 78s(b)(1).
    \8\ 17 CFR 240.19b-4.
    \9\ Defined terms that are not defined in this notice are
defined in Amended Exhibit 5 to the Proposed Rule Change, available
at http://sec.gov/rules/sro/nscc.shtml, under File No. SR-NSCC-2013-
02, Additional Materials.
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    Additionally, this order institutes proceedings under Section
19(b)(2)(B) of the Exchange Act \10\ to determine whether to approve or
disapprove the Proposed Rule Change, as discussed in Section IV, below.
The institution of proceedings does not indicate that the Commission
has reached any conclusions with respect to any of the issues involved,
nor does it mean that the Commission will ultimately disapprove the
Proposed Rule Change. Rather, as described in Section III, below, the
Commission seeks and encourages interested persons to provide
additional comment on the Proposed Rule Change to inform the
Commission's analysis of whether to approve or disapprove the Proposed
Rule Change.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    The Proposed Rule Change, as modified by Amendment No. 2, is a
proposal by NSCC to amend its Rules and Procedures (``Rules'') to
provide for a supplemental liquidity funding obligation (``SLD
Proposal''), as described below. NSCC filed Amendment No. 2 to the
Proposed Rule Change, as previously modified by Amendment No. 1, in
order to mitigate potential cash outlay burdens, respond to
transparency concerns raised by NSCC members (``Members''), clarify the
implementation timeframe, and describe the reports that would be
provided to Members so that they can anticipate their supplemental
liquidity obligations to NSCC under the SLD Proposal (``Supplemental
Liquidity Obligations'').

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, NSCC included statements
concerning the purpose of and basis for the Proposed Rule Change, as
modified by Amendment No. 2, and discussed any comments it received on
the Proposed Rule Change, as amended. The text of these statements may
be examined at the places specified in Item V below. NSCC has prepared
summaries, set forth in sections (A), (B), and (C) immediately below,
of the most significant aspects of these statements.\11\
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    \11\ The Commission has modified the text of the summaries
prepared by NSCC to primarily focus on the Proposed Rule Change.
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(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

1. Description of Change
Original SLD Proposal
    The original proposal contained in the Proposed Rule Change, as
modified by Amendment No. 1 (``Original SLD Proposal''), would change
the Rules to add a new Rule 4A, in order to establish a supplemental
liquidity funding obligation designed to cover the liquidity exposure
attributable to those Members and families of affiliated Members
(``Affiliated Families'') that regularly incur the largest gross
settlement debits over a settlement cycle during both times of normal
trading activity (``Regular Activity Periods'') and times of increased
trading and settlement activity that arise around quarterly triple
options expiration dates (``Quarterly Options Expiration Activity
Periods'').
    The Supplemental Liquidity Obligation of a Member or Affiliated
Family with respect to a Regular Activity Period (``Regular Activity
Liquidity Obligation'') or a Quarterly Options Expiration Activity
Period (``Special Activity Liquidity Obligation'') would be imposed on
the 30 Members or Affiliated Families who generate the largest
aggregate liquidity needs over a settlement cycle that would apply in
the event of a closeout (i.e., over a period from date of default
through the following three settlement days), based upon a historical
look-back period.
    NSCC states that the calculations for both the Regular Activity
Liquidity Obligation and the Special Activity Liquidity Obligation are
designed so that NSCC has adequate liquidity resources to enable it to
settle transactions, notwithstanding the default of the Member or
Affiliated Family presenting the largest liquidity need during Regular
Activity Periods, as well as during Quarterly Options Expiration
Activity Periods. The Supplemental Liquidity Obligations imposed on
Members of Affiliated Families would be apportioned among the Members
in that Affiliated Family in proportion to the liquidity risk (or peak
exposure) they present to NSCC.
    NSCC states that the SLD Proposal is designed to supplement NSCC's
liquidity resources and work in tandem with NSCC's committed credit
facility (``Credit Facility''), which it maintains as a liquidity
resource (in addition to the NSCC Clearing Fund) should a Member or
Affiliated Family default. The Regular Activity Liquidity Obligations
would be calculated and imposed semi-annually, the first of which would
be made to coincide with the annual renewal of the Credit Facility and
the second of which would be made six months thereafter. NSCC states
that the SLD Proposal seeks to strike a balance between reliance on the
Credit Facility to reduce the burden on Members or Affiliated Families
for cash outlay, while at the same time obligating those Members or
Affiliated Families who expose NSCC to the largest liquidity risks to
fund their fair share of the liquidity ``differential.''
    NSCC states that the SLD Proposal contains both obligations and
incentives. For example, a cash deposit in respect of a Regular
Activity Liquidity Obligation (e.g., in the Original SLD Proposal, the
obligation of

a Member or Affiliated Family to make a ``Regular Activity Supplemental
Deposit'') would be reduced by any liquidity such Members or their
affiliates provided as commitments under the Credit Facility. To the
extent that NSCC is successful in raising significant amounts of its
needed liquidity though the Credit Facility--whether from Members,
their affiliates making commitments on their behalf, or non-affiliated
lenders--NSCC states that a diversified lender facility serves to
mitigate the liquidity risk of NSCC and its membership as a whole,
while reducing the cash outlay obligations of the top 30 Members and
Affiliated Families.
    NSCC states that the cash deposit in respect of a Special Activity
Liquidity Obligation (``Special Activity Supplemental Deposit'') was
structured in the Original SLD Proposal to address any additional
liquidity shortfalls (i.e., over and above NCSS's other available
liquidity resources) that arose during the heightened trading activity
around the Quarterly Options Expiration Period. As such, these
additional Special Activity Supplemental Deposits would be required to
be maintained on deposit with NSCC only through the completion of the
related settlement cycle and for a few days thereafter.
    Both prior to the submission of the Proposed Rule Change, and
since, NSCC states that it has engaged in significant outreach to its
Members to discuss the SLD Proposal, which outreach, NSCC believes, has
been key to the development and evolution of the SLD Proposal over the
past 18 months. NSCC is cognizant of the concerns raised by Members who
have submitted comments regarding the Proposed Rule Change and related
Advance Notice, and, according to NSCC, this Amendment No. 2 seeks to
address those concerns.
Proposed Enhancements to the Original SLD Proposal
    NSCC is proposing to amend the Original SLD Proposal with
enhancements that NSCC believes are collectively designed to mitigate
potential cash outlay burdens, as well as respond to transparency
concerns raised by Members, by clarifying the implementation timeframe
of the proposed change and the reporting that would be provided to
Members under this revised SLD Proposal (``Revised SLD Proposal'').
    First, NSCC would allow its Members to designate a commercial
lender--whether or not affiliated with that Member--to commit as a
lender to the Credit Facility as a designee of the Member, subject to
satisfaction of reasonable lender criteria.\12\ NSCC states that this
commitment would reduce the Member's Regular Activity Liquidity
Obligation cash requirement by the amount of any such commitment.
Therefore, under the Revised SLD Proposal, NSCC states that all
Members, whether or not they have affiliated banks, are equally
incentivized to seek lenders to maximize the size of the Credit
Facility. NSCC states that this change effectively eliminates any
perceived discrimination in the Original SLD Proposal between those
Members that have bank affiliates and those that do not. This change is
reflected in the proposed Rule 4A by the inclusion of a new definition
for ``Designated Lender,'' and corresponding adjustments to the
calculation formula.
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    \12\ NSSC states that such criteria would be designed to cover
issues such as credit risk, concentration risk, and lender
diversity, so as to ensure the continued robust viability of the
line of credit.
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    Second, any ``excess'' Credit Facility commitments made by Members
directly or through their Designated Lenders (i.e., the amount of any
commitment by a Member or its Designated Lender that exceeds the
Member's calculated Regular Activity Liquidity Obligation) would be
allocated ratably among all Regular Activity Liquidity Providers, which
NSCC states would reduce their cash Regular Activity Supplemental
Deposit requirements, in the same way that commitments of non-
affiliated lenders are applied under the Original SLD Proposal. This
change is reflected in adjustments to the calculation formula in
Sections 5 and 9 of the proposed Rule 4A.
    Third, under the Revised SLD Proposal, the seasonal/peak facility
that NSCC believes currently addresses NSCC's liquidity needs over
Quarterly Options Expiration Activity Periods would be extended to
cover monthly options expiration periods and would be calculated and
collected 12 times a year instead of four (``Monthly Options Expiration
Activity Period''). NSCC states, based on its review of available
historical quantitative information, that the effect of this change
would be to reduce the size of the Regular Activity Liquidity
Obligations under the Revised SLD Proposal. Additionally, NSCC states
that by treating all liquidity obligations derived from Monthly Options
Expiration Activity Periods (where there is greater activity
fluctuation than during other periods) as Special Activity Liquidity
Obligations, the Revised SLD Proposal would provide greater stability
and predictability to the size of the Regular Activity Liquidity
Obligations. NSCC's analyses based upon historical data estimates that
expanding this seasonal/peak facility to cover all Monthly Options
Expiration Activity Periods could reduce the size of the aggregate
Regular Activity Liquidity Obligations by up to 20 percent. NSCC also
states that recalibrating the Special Activity Liquidity Obligations on
a monthly basis results in allocating the liquidity burdens among those
Members and Affiliated Families more equitably, since only those
Members whose monthly options-related activity generate liquidity needs
in excess of NSCC's then available liquidity resources would be
obligated to fund such additional amounts.\13\ NSCC states that this
change is reflected in a revised definition of ``Options Expiration
Activity Period,'' and clarifications to the calculation formula of the
Special Activity Liquidity Obligations, as well as to related
definitions to ensure the formula--and the allocation among affected
Members--operates as intended.
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    \13\ NSCC states that since the allocation formula ratably
applies the excess amount needed due to activity during Special
Activity Periods based upon the affected Member's Special Activity
Peak Liquidity Exposure, then to the extent that a Member's Special
Activity Peak Liquidity Exposure (as defined) is less than or equal
to NSCC's other available resources, that Member's share of the
Special Activity Peak Liquidity Need will be zero.
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    Fourth, the Revised SLD Proposal includes a new definition for
``Other Qualifying Liquid Resources.'' NSCC states that this new
defined term would permit NSCC to take any such additional or
alternative liquidity resources that it may obtain in the future into
account when calculating Regular Activity Liquidity Obligations and to
use them to reduce the amount of cash, if any, that Members would
otherwise be obligated to deposit as Regular Activity Supplemental
Deposits. This change is reflected both with the inclusion of the new
definition of ``Other Qualifying Liquid Resources,'' and with
corresponding modifications to the calculation formula.
    Fifth, as regards Members' voluntarily prefunding Regular Activity
Liquidity Obligations and Special Activity Liquidity Obligations, NSCC
would monitor Members' prefunding activity to understand the impact
such prefunded amounts have on the amount of its committed liquidity
resources. NSCC states that the Revised SLD Proposal provides NSCC with
some discretion when including prefunded deposits within its calculated
liquidity resources, so as to provide some

flexibility in the event it becomes too reliant on voluntary prefunding
to meet its minimum liquidity needs. NSCC states that this change to
the Original SLD Proposal would address any concern that NSCC would not
have sufficient liquid resources to effect settlement if prefunding is
unavailable when actually needed.
Additional Revisions to the Original SLD Proposal
    Reporting. NSCC states that it understands and agrees that Members
have to be able to evaluate risks of their membership and be able to
plan for their liquidity obligations. NSCC also states that it is
critical that Members understand the risks that their own activity
presents to NSCC and be prepared to monitor their own activity and
alter their behavior if they want to minimize the liquidity risk they
present to NSCC. While NSCC states that robust reporting has always
been a key element of the Original SLD Proposal, the Revised SLD
Proposal clarifies in a new Section 31 of proposed Rule 4A the
information that NSCC would provide to Members. Such information would
be provided to all Members, not just the top 30 Members and Affiliated
Families, at least monthly. NSCC states that these reports would show
Members the liquidity exposure they present to NSCC to enable them to
monitor their activity and the ``Regular Activity Peak Liquidity
Exposure'' that results from their activity. Information provided in
these reports would include:
     The Regular Activity Peak Liquidity Exposure of the Member
on each Business Day of the preceding month;
     NSCC's largest Regular Activity Peak Liquidity Need for
the preceding month;
     in the case of an Unaffiliated Member, for each Business
Day of the preceding month, the percentage that the Regular Activity
Peak Liquidity Exposure of the Member bears to the aggregate Regular
Activity Peak Liquidity Exposures of all Regular Activity Liquidity
Providers (the percentage for a Member that is not a Regular Activity
Liquidity Provider for that month would be zero); and
     in the case of an Affiliated Family, for each Business Day
of the preceding month, the percentage that the aggregate Regular
Activity Peak Liquidity Exposures of all Members of that Affiliated
Family bears to the aggregate Regular Activity Peak Liquidity Exposures
of all Regular Activity Liquidity Providers (Affiliated Families that
are not Regular Activity Liquidity Providers for that month would be
zero percentage).
    Technical Clarifications and Changes. The Revised SLD Proposal
includes certain technical changes and clarifications that NSCC states
it designed to align notice, payment, and cash return timeframes, and
to clarify the operation of the calculation formulas to ensure they
operate as intended.
    Implementation Timeframe and Funding Notice. While the SLD Proposal
would be effective upon the completion of all required regulatory
approvals, Members would not be obligated to fund their Regular
Activity Liquidity Obligations or Special Activity Liquidity
Obligations until the Monthly Options Expiration Activity Period in
September 2013. Moreover, Members would be provided with notice of
their initial Regular Activity Liquidity Obligations no later than 30
days prior to the date on which that amount must be deposited with
NSCC. At that time, NSCC's risk management staff would also provide to
affected Members their Special Activity Peak Liquidity Exposure within
the look-back period. Specific implementation dates would be provided
by NSCC by Important Notice.
    NSCC states that its risk management staff would continue to work
with Members to help them understand the Revised SLD Proposal and to
develop tools that NSCC believes would enable Members to forecast the
liquidity exposure they present to NSCC. NSCC states that its risk
management staff would also use the reports that would be provided
under new Section 31 or proposed Rule 4A to guide ongoing discussions
with Members regarding the types of actions that could mitigate those
Members' peak liquidity exposure. In addition, under the Revised SLD
Proposal (as in the Original SLD Proposal), NSCC states that Members
would be able to manage their exposures by making prefund deposits
where they project their own activity would increase their liquidity
exposure. For example, if a Member that would be a Special Activity
Liquidity Provider anticipates that its Special Activity Peak Liquidity
Exposure at any time during a particular Options Expiration Activity
Period would be greater than the amount calculated by NSCC, then it
could make an additional cash deposit to the Clearing Fund (in excess
of its Required Deposit) that it designates as a ``Special Activity
Prefund Deposit.''
    In order to give Members sufficient time to plan for annual Credit
Facilities renewals and to line up designated liquidity providers for
the Credit Facility, NSCC states that its risk staff would provide
Members with an impact analysis of their projected Supplemental
Liquidity Obligations beginning on November 31 of each year.\14\ NSCC
states that the information provided would show the potential impact on
affected Members based on different Credit Facility funding levels.
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    \14\ NSCC states that given the timing of the calculation look-
back periods, information provided in November will necessarily be
estimates.
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    In response to the more general concern regarding refinancing risk
and NSCC's reliance on the Credit Facility, NSCC states that it would
continue to explore additional financing sources. NSCC states that it
would review and evaluate the financing options available to it and the
related costs of those options, and would expect to present the
findings of that review to the NSCC Board prior to the next renewal of
the Credit Facility in May 2014. When sizing and approving the fee and
costs structure of the renewal Credit Facility, NSCC states that the
NSCC Board would be able to take into account those potential
additional financing sources and consider the consequent impact on
Members' cash Regular Activity Supplemental Deposit and Special
Activity Supplemental Deposit obligations. The items that would be
included in this review are:
     analysis of the availability, size, cost, and credit risk
necessary to obtain the additional commitments under the Credit
Facility likely to reduce the Regular Activity Supplemental Deposit
requirements to zero;
     analysis of the availability, size, cost, and credit risk
to obtain a new multi-year committed facility to replace the existing
Credit Facility;
     an understanding of the aggregate costs, if any, for
Members to designate commercial lenders to commit to the Credit
Facility as their designees;
     analysis of the availability, size, cost, and potential
depth of a capital markets funding among Members and/or third parties
as an additional liquidity resource, including the viability of
offering the funding to Members or mandating their participation in
such funding; and
     a summary of the steps that Members have taken to reduce
their NSCC liquidity profile, and whether this should be factored into
the historical analysis used to determine NSCC's Regular Activity
Period liquidity needs and Members' share of that need.
    NSCC states that it would update its Members on the results of this
review and the determination of the NSCC Board. NSCC states that it
would also update its Members with information regarding future
liquidity initiatives designed to increase NSCC's liquidity

resources and potentially reduce supplemental deposit requirements,
including the rationale behind these initiatives, how these initiatives
fit within NSCC's liquidity risk tolerance, and the likely impact of
the initiatives.
2. Statutory Basis
    NSCC states that the Revised SLD Proposal contributes to NSCC's
goal of ensuring that NSCC has adequate liquidity resources to meet its
settlement obligations, notwithstanding the default of its Members or
Affiliated Families that pose the largest aggregate liquidity exposure
over the relevant settlement cycle, as required by Commission Rule
17Ad-22(b)(3).\15\ As such, NSCC states the Revised SLD Proposal is
consistent with the requirements of the Exchange Act, as amended, and
the rules and regulations thereunder applicable to NSCC.
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    \15\ See 17 CFR 240.17Ad-22(b)(3).
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(B) Clearing Agency's Statement on Burden on Competition

1. Regulatory Requirements for Proposed Rule Changes
    Section 19(b)(2)(C)(i) of the Exchange Act provides that ``[t]he
Commission shall approve a proposed rule change of a self-regulatory
organization if it finds that such proposed rule change is consistent
with the requirements of [the Exchange Act] and the rules and
regulations issued under [the Exchange Act] that are applicable to such
organizations.'' The requirements of the Exchange Act that are
specifically applicable to clearing agencies are set forth in Section
17A relating to a national system for the clearance and settlement of
securities transactions. Section 17A(a)(2)(A) of the Exchange Act
directs the Commission to facilitate the establishment of the national
system, having due regard for inter alia the ``maintenance of fair
competition among brokers and dealers, clearing agencies, and transfer
agents.'' Section 17A(a)(3)(I) of the Exchange Act provides that a
clearing agency shall not be registered unless the Commission
determines inter alia that ``[t]he rules of the clearing agency do not
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of [the Exchange Act].''
    Rule 19b-4(a)(i), promulgated by the Commission under Section 19(b)
of the Exchange Act, provides that a proposed rule change by a self-
regulatory organization (which includes a registered clearing agency)
shall be filed on Form 19b-4. The General Instructions for Form 19b-4
prescribe the information to be included in the completed form. With
respect to competition, the self-regulatory organization is required to
``[s]tate whether the proposed rule change will have an impact on
competition and, if so, (i) state whether the proposed rule change will
impose any burden on competition or whether it will relieve any burden
on, or otherwise promote, competition and (ii) specify the particular
categories of persons and kinds of businesses on which any burden will
be imposed and the ways in which the proposed rule change will affect
them.'' The self-regulatory organization is further required to explain
(i) why any impact on competition is not believed to be a significant
burden on competition or (ii) why any burden on competition is
necessary or appropriate in furtherance of the Exchange Act.
2. Position of NSCC as Utility for Securities Industry
    NSCC is an operating subsidiary of The Depository Trust & Clearing
Corporation (``DTCC''), which NSCC states is a user-owned, user-
governed holding company for NSCC, two other registered clearing
agencies, a derivatives clearing organization joint venture, and a
number of other companies that provide a variety of post-trade
processing and information services. NSCC states that it and the other
registered clearing agencies in the DTCC group provide the critical
infrastructure for the clearance and settlement of securities
transactions in the United States. These registered clearing agencies
operate as utilities for their users, allowing such users to compete
against each other (for the benefit of their retail and institutional
customers) on the basis of performance and price and not on the basis
of any relative advantage with respect to clearing and settlement
services.
    As a clearinghouse for securities transactions and a central
counterparty, NSCC states that it has no reason, interest, or intent to
discriminate among its Members--certainly not to give any of its
Members a competitive advantage or impose on any of its Members a
competitive disadvantage in their operations. NSCC states that although
it strives for complete neutrality in its interface with Members, it
may be that clearing agency rules of general application to all Members
could have a disparate effect on Members with diverse business models
and strategies. NSCC states that any such disparate effects arising out
of choices made by individual Members in terms of their business models
and strategies (including their relative levels of capitalization)
should not be seen as due to action by the clearing agency having an
impact or imposing a burden on competition.
    Although NSCC states that it is always mindful of the effect that
its Rules may have on individual Members, NSCC states that it must also
be concerned with (i) the interests of its membership as a whole, (ii)
its general obligations under Section 17A(b)(3) of the Exchange Act
``to facilitate the prompt and accurate clearance and settlement of
securities transactions and derivatives agreements, contracts, and
transactions'' and ``to safeguard securities and funds in its custody
or control,'' and (iii) the particular requirements of Rule 17Ad-
22(b)(3) relating to the financial resources that a clearing agency
which is a central counterparty (like NSCC) must maintain to cover the
default of the participant family presenting the largest exposure to
the clearing agency in extreme but plausible market conditions.
    NSCC states that these concerns and the interests of its Members,
including their interests relating to issues of competition and the
effect of the proposed change on competition among Members and between
Members and other financial market participants, can be reconciled.
But, NSCC states that individual Members that may be affected by the
proposed change--designed to assure that NSCC has the liquidity it
needs to safely operate a clearing and settlement business and meet its
obligations as a registered clearing agency and central counterparty
under the Exchange Act--must also recognize that some accommodation may
be required on their part.
3. Modifications to the Proposed Change Address Competition Concerns
    In response to comments submitted on the proposed change in the
form in which it was originally filed in the Proposed Rule Change, and
dialogue with a number of other Members who did not submit comments but
otherwise provided their input to NSCC, NSCC states that it has revised
the proposed change in a number of respects that bear upon the issue of
competition and whether the proposed change would have an impact or
impose any burden on competition.
    First, the Original SLD Proposal provided that a Regular Activity
Liquidity Provider would receive an offset against its Regular Activity
Liquidity Obligation for the amount of its commitment and the
commitment of any affiliate of the Regular Activity

Liquidity Provider under the Credit Facility. The Revised SLD Proposal
provides that a Regular Activity Liquidity Provider would receive an
offset against its Regular Activity Liquidity Obligation for the amount
of its commitment, the commitment of any affiliate, and the commitment
of any Designated Lender of the Regular Activity Liquidity Provider
under the Credit Facility. As a result, NSCC states that any
distinction between Members with bank affiliates and Members without
bank affiliates, and any perceived advantage for Members with bank
affiliates over Members without bank affiliates, has been eliminated.
    Second, the SLD Proposal has been refined to provide that a Regular
Activity Liquidity Provider would receive an offset against its Regular
Activity Liquidity Obligation for both (i) its pro rata share of the
commitments of lenders under the Credit Facility that are not Members
or their Designated Lenders and (ii) its pro rata share of the
commitments of Members and their Designated Lenders above the amounts
of their Regular Activity Liquidity Obligations. As a result of this
change, NSCC states that the obligation of Regular Activity Liquidity
Providers to provide Regular Activity Supplemental Deposits will be
ratably reduced by the amount of such ``excess.''
    Third, the Options Expiration Activity Period has been redefined to
mean the days around all monthly options expiration dates (12 per year)
rather than just triple options expiration dates (four per year). As a
result of this change, NSCC states that more periods of increased
activity would be excluded by NSCC from the calculation of its Regular
Activity Peak Liquidity Need, thereby reducing the Regular Activity
Liquidity Obligations of Regular Activity Liquidity Providers.
    NSCC states that participation in the Credit Facility is available
to financial institutions that have the resources and operational
capabilities to be lenders under the Credit Facility, subject to
satisfaction of reasonable lender criteria. Although the Credit
Facility was renewed on May 14, 2013 for an additional term of 364
days, NSCC states that there are mechanisms in the Credit Facility to
increase the commitments of existing lenders and admit new lenders at
any time during the term. Accordingly, NSCC states that at the time
when the SLD Proposal becomes effective and before the time that any
Member may have to satisfy a Regular Activity Liquidity Obligation,
such Member would have an opportunity to either join the Credit
Facility itself as a lender (if it has the authority to be a lender) or
enter into arrangements with a bank to be its Designated Lender--in
either case thereby reducing or eliminating the need for it to make a
cash Regular Activity Supplemental Deposit to the Clearing Fund.
4. Competition Concerns Raised by Commenters
    Bank Affiliates. NSCC states that some commenters raised concerns
on competition grounds that the Original SLD Proposal permitted Members
and Affiliated Families with bank affiliates to reduce or potentially
eliminate their required cash Required Activity Supplemental Deposits
by the amounts of the commitments of such bank affiliates under the
Credit Facility while Members and Affiliated Families without bank
affiliates could not do so. As indicated above, NSCC states that this
limitation to bank affiliates has been eliminated from the SLD
Proposal. NSCC states that any Member or Affiliated Family could
designate a Designated Lender and receive an offset for the commitment
of such Designated Lender.
    The Top 30 Cut-Off. NSCC states that some commenters raised
concerns on competition grounds that Supplemental Liquidity Obligations
are only imposed on the 30 largest Members and Affiliated Families
rather than on the entire membership. NSCC states that, based on an
analysis of Members, NSCC made a business determination that the top 30
Members or Affiliated Families would most appropriately capture the
liquidity exposure over and above available NSCC Clearing Fund
liquidity. NSCC states that its liquidity analyses show that the
liquidity requirements attributable to the top 30 Members and
Affiliated Families account for the vast majority of NSCC's liquidity
needs. According to NSCC, as of the end of February 2013, the top 30
Members and Affiliated Families represented approximately 85% of the
total membership by peak liquidity needs over the prior six-month
period. NSCC states that the analyses also show that the remaining
membership's peak liquidity demands are covered by the required
deposits to the NSCC Clearing Fund. Therefore, NSCC states the SLD
Proposal appropriately places the burden of providing liquidity on
those Members and Affiliated Families who present the largest liquidity
risk. While NSCC does not believe it would be appropriate to require
the entire membership to bear the burden of the liquidity needs that
are generated by NSCC's largest trading firms, it does note that all
Members currently do bear the cost of the Credit Facility as an
operating expense that NSCC factors into its overall fee structure, as
well as their share of the NSCC Clearing Fund. NSCC states that as a
whole, NSCC believes this collective liquidity funding approach
represents a fair apportionment of NSCC's aggregate liquidity needs
amongst its membership.
    Impact on a Sector of the Market. NSCC states that some commenters
raised concerns on competition grounds that the SLD Proposal may cause
increased concentration of clearing activity by requiring smaller firms
to clear through larger financial institutions. NSCC states that
implicit in these comments is a concern that smaller, less well
capitalized firms have less access to funding than do larger, well
capitalized firms. NSCC states, however, that no Member, because of its
low capital business model or limited access to funding, should have
the right to impose on NSCC (and the rest of the membership) the burden
of bearing the risks of that Member's clearing activities. Moreover,
NSCC states that the SLD Proposal provides incentives for Members to
manage the liquidity risks of their business; by doing so they could
reduce the share of their obligation under the SLD Proposal.
    NSCC also states that some commenters claim that the risk posed by
brokers with business in mostly agency-based transactions was
overstated by NSCC in crafting the SLD Proposal because those firms
settle transactions on a delivery-versus-payment (``DVP'') basis. NSCC
states, however, that agency brokers that execute market transactions
that clear at NSCC are obligated, as principals, to settle those
transactions at NSCC irrespective of whether their institutional
customers complete the institutional delivery DVP side of the
transaction (which occurs outside of NSCC). According to NSCC, it, as
the central counterparty, remains obligated to complete the other side
of the market transaction if the agency broker fails. NSCC states that
institutional customers of the agency brokers are not NSCC Members and
have no contractual obligation with NSCC to complete those trades if
the agency broker fails. Therefore, NSCC states that if an agency
broker fails, NSCC (and its other Members) face the risk that the
institutional customer will take its own market action, and NSCC will
incur the liquidity obligation of completing the market settlement.
NSCC states that it must consider this risk in crafting its risk
management strategies, and agency brokers are not immune from the risk
of failure, as recent events have shown that

they, like other firms, remain subject to market events, as well as
technology and other risks.
    NSCC states that these comments raise a concern that Members are
being asked share the burden of funding the liquidity needs that are
dependent on the actions, including trading levels, of other Members,
and thus the amounts are not within the contributing Member's control.
NSCC states that from a fairness perspective, however, that
proportionate share of the affected Member's liquidity burden (whether
it be an agency broker or otherwise) would always be less than the
Member's own peak liquidity needs, and each Member is in the best
position to monitor and manage the liquidity risks presented by its own
activity.
5. Impact on Competition
    NSCC states that for the reasons stated above, it believes the
changes that have been made to the Original SLD Proposal eliminate or
substantially ameliorate the impact that the SLD Proposal might have on
competition, and that any perceived burden on competition caused by the
SLD Proposal is necessary and appropriate in furtherance of the
purposes of the Exchange Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    While written comments on the Proposed Rule Change, as modified by
Amendment No. 2, were not solicited, as noted above, NSCC engaged
significant outreach and discussion with affected Members in developing
the SLD Proposal.
    Written comments on the Proposed Rule Change, as amended, have been
filed with the Commission and are available on the Commission's Web
site. NSCC states that this Amendment No. 2 addresses some of the
issues raised by those comments. NSCC's formal response to the written
comments has been submitted separately to the Commission in accordance
with the process for submitting comments.

III. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-NSCC-2013-02 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \16\ to determine whether the Proposed
Rule Change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the significant
legal and policy issues raised by the Proposed Rule Change. As noted
above, institution of proceedings does not indicate that the Commission
has reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
provide additional comment on the Proposed Rule Change, as amended, to
inform the Commission's analysis of whether to approve or disapprove
the Proposed Rule Change, as amended.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\17\ the
Commission is providing notice of the grounds for disapproval under
consideration. In particular, Section 17A(b)(3)(F) of the Exchange Act
requires that the rules of the clearing agency are not designed to
permit unfair discrimination among participants in the use of the
clearing agency.\18\ Here, the Commission believes that it is
appropriate to solicit comment on whether Amendment No. 2 adequately
addresses the concern raised by some commenters that the Proposed Rule
Change could have a discriminatory impact on NSCC's non-bank affiliated
Members who would be subject to the SLD Proposal but who do not
currently participate in the Credit Facility.\19\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2)(B).
    \18\ See 15 U.S.C. 78q-1(b)(3)(F).
    \19\ See, e.g., comment letter from John C. Nagel, Managing
Director and General Counsel, Citadel Securities, to Elizabeth
Murphy, Secretary, Commission, dated June 13, 2013, at 7-8 (http://sec.gov/comments/sr-nscc-2013-02/nscc201302-14.pdf ).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the Proposed Rule
Change, as amended, is consistent with the Section 17A \20\ or any
other provision of the Exchange Act, or the rules and regulations
thereunder. The Commission, in its sole discretion, may determine
whether any issues relevant to approval or disapproval of the Proposed
Rule Change would be facilitated by the opportunity for an oral
presentation of views upon such a request.\21\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78q-1.
    \21\ See 17 CFR 201.700(c)(2). Section 19(b)(2) of the Exchange
Act, as amended by the Securities Acts Amendments of 1975, Public
Law 94-29, 89 Stat. 97 (1975), grants the Commission flexibility to
determine what type of proceeding--either oral or notice and
opportunity for written comments--is appropriate for consideration
of a particular proposal by a self-regulatory organization. See
Securities Acts Amendments of 1975, Report of the Senate Committee
on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep.
No. 75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and
arguments regarding whether the Proposed Rule Change should be approved
or disapproved by August 5, 2013. If NSCC chooses to file a rebuttal to
any submission, it must file its rebuttal by August 20, 2013. 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 No. SR-NSCC-2013-02 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 No. SR-NSCC-2013-02. 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, as amended, that
are filed with the Commission, and all written communications relating
to the Proposed Rule Change, as amended, 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 such filings
also will be available for inspection and copying at the principal
office of NSCC and on NSCC's Web site at http://dtcc.com/legal/rule_filings/nscc/2013.php. 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 No. SR-
NSCC-2013-02 and should be submitted on or before August 5, 2013.
NSCC's rebuttal comments should be submitted by August 20, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16819 Filed 7-12-13; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 86, Number 170 (Tuesday, September 7, 2021)]
[Proposed Rules]
[Pages 49937-49939]
[FR Doc No: 2021-19036]

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

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2020-0904; Project Identifier 2019-SW-041-AD]
RIN 2120-AA64

Airworthiness Directives; Airbus Helicopters

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Supplemental notice of proposed rulemaking (SNPRM).

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

SUMMARY: The FAA is revising a supplemental notice of proposed
rulemaking SNPRM that applied to certain Airbus Helicopters Model
EC225LP helicopters. This action revises the SNPRM by proposing to
require the installation of an improved part, which would also provide
a terminating action for the proposed requirements. The FAA is
proposing this airworthiness directive (AD) to address the unsafe
condition on these products. Since these actions would impose an
additional burden over those in the SNPRM, the agency is requesting
comments on this SNPRM.

DATES: The comment period for the SNPRM published in the Federal
Register on May 10, 2021 (86 FR 24783) is reopened.
    The FAA must receive comments on this SNPRM by October 22, 2021.

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 https://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: Deliver to Mail address between 9 a.m. and
5 p.m., Monday through Friday, except Federal holidays.
    For service information identified in this SNPRM, contact Airbus
Helicopters, 2701 North Forum Drive, Grand Prairie, TX 75052; telephone
(972) 641-0000 or<PHONE_NUMBER>; fax<PHONE_NUMBER>; or at https://www.airbus.com/helicopters/services/technical-support.html. You may
view this service information at the FAA, Office of the Regional
Counsel, Southwest Region, 10101 Hillwood Pkwy., Room 6N-321, Fort
Worth, TX 76177. For information on the availability of this material
at the FAA, call<PHONE_NUMBER>.

Examining the AD Docket

    You may examine the AD docket at https://www.regulations.gov by
searching for and locating Docket No. FAA-2020-0904; or in person at
Docket Operations between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket contains the first SNPRM, this
SNPRM, the European Union Aviation Safety Agency (EASA) AD 2021-0156,
any comments received, and other information. The street address for
Docket Operations is listed above.

FOR FURTHER INFORMATION CONTACT: Hal Jensen, Aerospace Engineer,
Operational Safety Branch, Compliance & Airworthiness Division, FAA,
950 L'Enfant Plaza N SW, Washington, DC 20024; telephone (202) 267-
9167; email<EMAIL_ADDRESS>
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-2020-0904; Project Identifier
2019-SW-041-AD'' 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 again
revise 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
https://www.regulations.gov, including any personal information you
provide. The agency will also post a report summarizing each
substantive verbal contact received about this proposed AD.

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 SNPRM 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 SNPRM, 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 SNPRM. Submissions containing CBI should
be sent to Hal Jensen, Aerospace Engineer, Operational Safety Branch,
Compliance & Airworthiness Division, FAA, 950 L'Enfant Plaza N SW,
Washington, DC 20024; telephone<PHONE_NUMBER>; email
<EMAIL_ADDRESS>Any commentary that the FAA receives which is not
specifically designated as CBI will be placed in the public docket for
this rulemaking.

Background

    The FAA issued an SNPRM to amend 14 CFR part 39 by adding an AD
that would apply to Airbus Helicopters Model EC225LP helicopters, with
a left-hand side (LH) engine fuel supply (fuel supply) hose part number
(P/N) 704A34416087 installed. The SNPRM published in the Federal
Register on May 10, 2021 (86 FR 24783). In the SNPRM, the FAA proposed
to require visually inspecting the LH fuel supply hose P/N 704A34416087
for twisting, and if needed, borescope inspecting the entire length of
the inside of the fuel supply hose for twisting. Depending on the
inspection results, the SNPRM would require reinstalling or removing
the fuel supply hose from service. Additionally, the SNPRM would
prohibit installing a certain part-numbered LH fuel supply hose on any
helicopter unless that LH fuel supply hose is installed by following
certain procedures described in the manufacturer's service bulletin.
    The SNPRM was prompted by EASA AD 2019-0092, dated April 26, 2019
(EASA AD 2019-0092), issued by EASA, which is the Technical Agent for
the Member States of the European Union, to correct an unsafe condition
for Airbus Helicopters (formerly Eurocopter) Model EC 225 LP
helicopters, all serial numbers. EASA advised that an occurrence was
reported where during an in-flight single engine power check, the LH
side engine experienced a power loss. EASA stated that a subsequent
investigation determined that the fuel flow to the affected engine was
restricted by a twisted fuel supply hose. EASA stated that this
condition, if not detected and corrected, could lead to a decrease of
the LH engine power when accelerating to the power setting
corresponding to OEI power, and subsequent reduced control of the
helicopter.

    Accordingly, EASA AD 2019-0092 required a one-time visual
inspection of the fuel supply hose and depending on the inspection
results, removing from service or replacing the affected part. EASA AD
2019-0092 also introduced re-installation requirements for a fuel
supply hose that is being replaced or reinstalled.

Actions Since the SNPRM Was Issued

    Since the SNPRM was issued, EASA issued AD 2021-0156, dated July 2,
2021 (EASA AD 2021-0156), which supersedes EASA AD 2019-0092. EASA
advises that Airbus Helicopters has developed an improved fuel supply
hose P/N 704A34416101 and modification instructions to install the
improved part. Accordingly, EASA AD 2021-0156 retains the requirements
of EASA AD 2019-0092 and requires replacing the affected part with the
improved part. EASA AD 2021-0156 also allows a terminating action for
the inspection requirements once the improved part has been installed
according to the installation requirements. Consequently, the FAA is
revising the SNPRM to propose requiring installation of the improved
part which would provide a terminating action for the previously
proposed inspections.

Comments

    The FAA received no comments on the first SNPRM or on the
determination of the cost.

FAA's Determination

    These helicopters have been approved by EASA and are approved for
operation in the United States. Pursuant to the FAA's bilateral
agreement with the European Union, EASA has notified the FAA about the
unsafe condition described in its AD. The FAA is proposing this AD
after determining the unsafe condition described previously is likely
to exist or develop in other helicopters of these same type designs.
Certain changes described above expand the scope of the first SNPRM. As
a result, it is necessary to reopen the comment period to provide
additional opportunity for the public to comment on this SNPRM.

Related Service Information Under 1 CFR Part 51

    The FAA reviewed Airbus Helicopters Alert Service Bulletin No.
EC225-71A019, Revision 2, dated May 21, 2021, which specifies
procedures for removing the fuel supply hose from the LH power plant,
visually inspecting the fuel supply hose for twisting, and depending on
inspection results, performing an endoscope inspection on the inside of
the hose. This service information also specifies procedures required
to install the improved fuel supply hose.
    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 the ADDRESSES section.

Other Related Service Information

    The FAA also reviewed Airbus Helicopters Alert Service Bulletin No.
EC225-71A019, Revision 1, dated February 28, 2019, which also specifies
procedures for removing the fuel supply hose, visually inspecting the
fuel supply hose for twisting, performing an endoscope inspection on
the inside of the hose, and specifies procedures required to install a
serviceable fuel supply hose.

Proposed AD Requirements in This SNPRM

    For helicopters with a certain part-numbered LH fuel supply hose
installed, this proposed AD would require visually inspecting the LH
fuel supply hose for twisting, and if needed, borescope inspecting the
entire length of the inside of the fuel supply hose for twisting.
Depending on the inspection results, this proposed AD would require
reinstalling or removing the fuel supply hose from service.
Additionally, this proposed AD would prohibit installing a certain
part-numbered LH fuel supply hose on any helicopter unless that LH fuel
supply hose is installed by following certain procedures described in
the manufacturer's service bulletin. Finally, this proposed AD would
require modifying your helicopter by removing from service LH fuel
supply hose P/N 704A34416087 and installing the improved LH fuel supply
hose P/N 704A34416101. This modification would provide terminating
action for the proposed inspection requirements.

Differences Between This SNPRM and EASA AD 2021-0156

    EASA AD 2021-0156 requires compliance within 110 flight hours or 6
months, whichever occurs first after the effective date of EASA AD
2019-0092, while this proposed AD would require compliance within 110
hours time-in-service after the effective date of this AD. EASA AD
2021-0156 requires reporting information to Airbus Helicopters if the
LH fuel supply hose is twisted on the inside, while this proposed AD
would not. Additionally, EASA AD 2021-0156 is applicable to all serial-
numbered EC225LP helicopters, whereas this proposed AD would apply to
EC225LP helicopters with a certain LH fuel supply hose installed.

Costs of Compliance

    The FAA estimates that this AD, if adopted as proposed, would
affect 28 helicopters of U.S. Registry. Labor rates are estimated at
$85 per work-hour. Based on these numbers, the FAA estimates the
following costs to comply with this proposed AD.
    Visually inspecting the LH fuel supply hose for twisting would take
about 1 work-hour for an estimated cost of $85 per helicopter and
$2,380 for the U.S. fleet.
    Replacing a LH fuel supply hose would take about 8 work-hours and
parts would cost about $2,363 for an estimated replacement cost of
$3043 per replacement.
    Borescope inspecting the LH fuel supply hose would take about 8
work-hours for an estimated cost of $680 per helicopter.

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, 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:

Airbus Helicopters: Docket No. FAA-2020-0904; Project Identifier
2019-SW-041-AD.

(a) Comments Due Date

    The FAA must receive comments on this airworthiness directive
(AD) action by October 22, 2021.

(b) Affected ADs

    None.

(c) Applicability

    This AD applies to Airbus Helicopters Model EC225LP helicopters,
certificated in any category, with a left-hand side (LH) engine fuel
supply (fuel supply) hose part number (P/N) 704A34416087 installed.

(d) Subject

    Joint Aircraft Service Component (JASC) Code: 2820, Aircraft
Fuel Distribution System.

(e) Unsafe Condition

    This AD was prompted by a report of an incorrect installation of
the LH fuel supply hose P/N 704A34416087. The FAA is issuing this AD
to prevent restricted fuel flow to the LH engine. The unsafe
condition, if not addressed, could result in a decrease of the LH
engine power when accelerating to a power setting corresponding to
One Engine Inoperative power and subsequent reduced control of the
helicopter.

(f) Compliance

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

(g) Required Actions

    (1) Within 110 hours time-in-service (TIS) after the effective
date of this AD, visually inspect the LH fuel supply hose for
twisting as shown in Figures 1 and 2 of Airbus Helicopters Alert
Service Bulletin No. EC225-71A019, Revision 2, dated May 21, 2021
(ASB EC225-71A019 Rev 2). If the LH fuel supply hose has any
twisting, before further flight, borescope inspect the entire length
of the inside of the fuel supply hose for twisting as shown in
Figures 3 through 5 of ASB EC225-71A019 Rev 2.
    (i) If the inside of the LH fuel supply hose has any twisting,
before further flight, remove the LH fuel supply hose from service
and install an airworthy LH fuel supply hose by following the
Accomplishment Instructions, paragraph 3.B.3.b, of ASB EC225-71A019
Rev 2.
    (ii) If the LH fuel supply hose does not have any twisting,
reinstall the LH fuel supply hose by following the Accomplishment
Instructions, paragraph 3.B.3.b, of ASB EC225-71A019 Rev 2.
    (2) Within 1,200 hours TIS after the effective date of this AD,
modify your helicopter by removing from service LH fuel supply hose
P/N 704A34416087 and installing the improved LH fuel supply hose P/N
704A34416101 in accordance with the Accomplishment Instructions,
paragraph 3.B.3.b, of ASB EC225-71A019 Rev 2.
    (3) As of the effective date of this AD, do not install an LH
fuel supply hose P/N 704A34416087 on any helicopter unless it is
installed by following the Accomplishment Instructions, paragraph
3.B.3.b, of ASB EC225-71A019 Rev 2.

(h) Credit for Previous Actions

    This paragraph provides credit for the actions specified in
paragraph (g)(1) of this AD, if those actions were performed before
the effective date of this AD using Airbus Helicopters Alert Service
Bulletin No. EC225-71A019, Revision 1, dated February 28, 2019.

(i) Special Flight Permits

    Special flight permits may be permitted provided that there are
no passengers on board.

(j) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, International Validation 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 local Flight
Standards District Office, as appropriate. If sending information
directly to the manager of the International Validation Branch, send
it to the attention of the person identified in paragraph (k)(1) of
this AD. Information may be emailed to<EMAIL_ADDRESS>    (2) Before using any approved AMOC, notify your appropriate
principal inspector, or lacking a principal inspector, the manager
of the local flight standards district office/certificate holding
district office.

(k) Related Information

    (1) For more information about this AD, contact Hal Jensen,
Aerospace Engineer, Operational Safety Branch, Compliance &
Airworthiness Division, FAA, 950 L'Enfant Plaza N SW, Washington, DC
20024; telephone<PHONE_NUMBER>; email<EMAIL_ADDRESS>    (2) For service information identified in this AD, contact
Airbus Helicopters, 2701 North Forum Drive, Grand Prairie, TX 75052;
telephone<PHONE_NUMBER> or<PHONE_NUMBER>; fax<PHONE_NUMBER>; or
at https://www.airbus.com/helicopters/services/technical-support.html. You may view this referenced service information at
the FAA, Office of the Regional Counsel, Southwest Region, 10101
Hillwood Pkwy., Room 6N-321, Fort Worth, TX 76177. For information
on the availability of this material at the FAA, call (817) 222-
5110.
    (3) The subject of this AD is addressed in European Union
Aviation Safety Agency (EASA) AD 2021-0156, dated July 2, 2021. You
may view the EASA AD on the internet at https://www.regulations.gov
in Docket No. FAA-2020-0904.

    Issued on August 26, 2021.
Lance T. Gant,
Director, Compliance & Airworthiness Division, Aircraft Certification
Service.
[FR Doc. 2021-19036 Filed 9-3-21; 8:45 am]
BILLING CODE 4910-13-P