[Federal Register Volume 75, Number 234 (Tuesday, December 7, 2010)]
[Rules and Regulations]
[Pages 75872-75878]
[FR Doc No: 2010-30518]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2008-0934; Directorate Identifier 2008-NM-113-AD;
Amendment 39-16537; AD 2010-25-04]
RIN 2120-AA64

Airworthiness Directives; McDonnell Douglas Corporation Model DC-
9-30, DC-9-40, and DC-9-50 Series Airplanes, Model DC-9-81 (MD-81), DC-
9-82 (MD-82), DC-9-83 (MD-83), and DC-9-87 (MD-87) Airplanes, and Model
MD-88 and MD-90-30 Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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SUMMARY: We are adopting a new airworthiness directive (AD) for the
McDonnell Douglas Corporation airplanes listed above. This AD requires
modifying the fuel boost pumps for the center wing, and forward or aft
auxiliary fuel tanks. This AD results from fuel system reviews
conducted by the manufacturer. We are issuing this AD to prevent
possible sources of ignition in a fuel tank caused by an electrical
fault in the fuel boost pumps. An ignition source in the fuel tank
could result in a fire or an explosion and consequent loss of the
airplane.

DATES: This AD is effective January 11, 2011.
    The Director of the Federal Register approved the incorporation by
reference of certain publications listed in the AD as of January 11,
2011.

ADDRESSES: For Boeing service information identified in this AD,

contact Boeing Commercial Airplanes, Attention: Data & Services
Management, 3855 Lakewood Boulevard, MC D800-0019, Long Beach,
California 90846-0001; telephone<PHONE_NUMBER>, extension 2; fax 206-
766-5683; e-mail<EMAIL_ADDRESS>Internet https://www.myboeingfleet.com. For Argo-Tech service information identified in
this AD, contact Argo-Tech Corporation, 23555 Euclid Avenue, Cleveland,
Ohio 44117; telephone<PHONE_NUMBER>.

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 AD, the regulatory evaluation,
any comments received, and other information. The address for the
Docket Office (telephone<PHONE_NUMBER>) is the Document Management
Facility, U.S. Department of Transportation, Docket Operations, M-30,
West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE.,
Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Serj Harutunian, Aerospace Engineer,
Propulsion Branch, ANM-140L, FAA, Los Angeles Aircraft Certification
Office, 3960 Paramount Boulevard, Lakewood, California 90712-4137;
telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Discussion

    We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR
part 39 to include an airworthiness directive (AD) that would apply to
certain McDonnell Douglas Model DC-9-30, DC-9-40, and DC-9-50 series
airplanes, Model DC-9-81 (MD-81), DC-9-82 (MD-82), DC-9-83 (MD-83), and
DC-9-87 (MD-87) airplanes, and Model MD-88 and MD-90-30 airplanes. That
NPRM was published in the Federal Register on August 29, 2008 (73 FR
50894). That NPRM proposed to require modifying the fuel boost pumps
for the center wing, and forward or aft auxiliary fuel tanks.

Relevant Service Information

    We have reviewed Boeing Service Bulletins DC9-28-212 (for Model DC-
9-30, DC-9-40, and DC-9-50 series airplanes, and Model DC-9-81 (MD-81),
DC-9-82 (MD-82), DC-9-83 (MD-83), DC-9-87 (MD-87), and MD-88 airplanes)
and MD90-28-010 (for Model MD-90-30 airplanes), both Revision 1, both
dated June 16, 2009. Revision 1 of the Boeing service information makes
minor updates and specifies that no additional work is necessary on
airplanes changed in accordance with Boeing Service Bulletin DC9-28-212
or MD90-28-010, both dated February 22, 2008 (referred to in the
proposed AD as the appropriate sources of service information for
accomplishing the modification).
    Boeing Service Bulletins DC9-28-212 and MD90-28-010, both Revision
1, both dated June 16, 2009, recommend concurrent accomplishment of the
modification specified in Argo-Tech Service Bulletin 398000-28-2,
Revision 1, dated December 2, 2008. Argo-Tech Service Bulletin 398000-
28-2, dated November 8, 2007, was referred to in the proposed AD as the
appropriate source of service information for accomplishing a
concurrent modification of the fuel boost pumps.
    We have revised paragraphs (c), (g), and (h) of this AD to
reference Revision 1 of the applicable Boeing and Argo-Tech service
information. We have also added a new paragraph (i) to this AD (and
reidentified subsequent paragraphs) to give credit for actions done in
accordance with the original issues of the Boeing and Argo-Tech service
information.

Comments

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

Request for Alternative Method of Compliance (AMOC)

    American Airlines (AA) asks that we revise the modification
requirements in the NPRM, and in lieu of the modification, a one-time
inspection of each affected fuel boost pump be mandated to ensure that
the stator lead wire is of proper length and positioned away from the
pump rotor/shaft assembly. AA states that after operating the affected
airplanes for over 24 years with over 75,000,000 flight hours in
service, it has not found any chafing of the fuel pump lead wire during
shop teardown.
    We do not agree with the commenter's request. We have determined
that a one-time inspection of the wiring leads would not be effective
at preventing a single failure within the pump from creating an
ignition source. Argo-Tech, the original equipment manufacturer (OEM),
has reported two instances of lead wire contact with the rotor
assembly, which could have resulted in chafing and energized rotor
assembly. Therefore, the data provided by this commenter does not
support the request to utilize one-time inspections in lieu of the
modifications required by this AD. We have not changed the AD in this
regard.

Request for Risk Assessment

    The Air Transport Association (ATA) on behalf of its member AA
recommends that we update our risk assessment in view of service data
provided in the AA comments, in addition to the current fleet size and
remaining service lives of the affected airplanes. ATA also suggests
correcting the deficiencies noted in the service instructions
(specified under `Request to Revise Argo-Tech Service Information') and
publishing a supplemental NPRM after those discrepancies are corrected.
    AA asks that prior to issuing the AD we accomplish a risk
assessment regarding fuel tank system safety that takes into account
the number of Model DC-9, MD-80 and MD-90 airplanes estimated to be
operating within the compliance times required by the AD. AA also asks
for the projected operational life of these airplanes after the AD
compliance date and wants the results of this risk assessment reported
to Boeing and affected operators. AA states that, when the FAA
evaluated these design reviews, it established four criteria intended
to define the unsafe conditions associated with fuel tank systems that
require corrective actions. AA adds that the percentage of operating
time during which fuel tanks are exposed to flammable conditions is one
of these criteria; the other three criteria address the failure types
under evaluation. AA notes that the evaluation apparently did not take
into consideration the number of Model DC-9, MD-80 and MD-90 airplanes
in operation.
    We disagree with the commenters' request. Special Federal Aviation
Regulation 88 (SFAR 88) resulted in design approval holder (DAH)
evaluation of the fuel tank system design and identification of
failures within the fuel tank system that could result in ignition
sources. We evaluated the analyses provided by the DAH and determined
that foreseeable single failures of the fuel pump could result in an
ignition source. As a result, we determined that mandatory corrective
action is needed to correct single failures that could result in an
ignition source. SFAR 88--Mandatory Action Decision Criteria
Memorandum, dated February 25, 2003, specifies SFAR 88 AD determination
is based on unsafe condition evaluation criteria, including single
failures that can result in a catastrophic failure. We have made no
change to the AD in this regard.

Request To Change NPRM Requirements

    ATA, on behalf of its member AA, requests that we do not require a
design change that is a reliability enhancement. AA requests that the
NPRM requirement to replace the current pump connectors with gold-
plated connector pins, as specified in the applicable service bulletins
and NPRM, be changed. AA states that installation of gold-plated
connector pins is not an SFAR 88-related design change intended for
preventing an ignition source. AA adds that the installation of gold-
plated pins is intended to improve the reliability of the connector
interface. AA also notes that the cost to install gold-plated pins is
$1,352 per pump.
    We acknowledge the commenter's concern and provide the following
clarification. This AD does not require using gold-plated connector
pins to install the pumps, although the Argo-Tech service information
recommends installing the new pump assembly electrical connector using
gold-plated connector pins; the accomplishment instructions do not
specify that only gold-plated connector pins must be installed.
Installation of gold-plated pins is a reliability improvement and is
not identified as a design change solution to mitigate ignition source
caused by an energized rotor assembly. Energized rotor assembly could
result from chafing of fuel pump internal lead wires to the rotor
assembly; therefore, we are not mandating the installation of gold-
plated connector pins. We have made no change to the AD in this regard.

Request To Identify Additional Guidance

    AA asks that the NPRM refer to FAA Advisory Circular (AC) 20-62D,
dated May 24, 1996, as guidance for acceptable, equivalent consumable
materials and parts for use during modification of the fuel boost pumps
in accordance with 14 CFR 43.13(c). AA states that the procedures in
Argo-Tech Service Bulletin 398000-28-2 do not allow operators to use
such materials. AA notes that in some cases it does not stock certain
adhesives, conversion coatings, sealants, etc., due to supplier
delivery issues, the identification of improved products,
standardization efforts, and health and/or environmental issues. AA
adds that it has identified acceptable, equivalent materials that meet
or exceed the performance of the original materials; operation of the
fleet depends on identifying and utilizing acceptable, equivalent
materials for airplane maintenance. AA concludes that AC 20-62D
provides information and guidance for use in determining the quality,
eligibility, and traceability of aeronautical parts and materials
intended for installation on U.S. type-certificated products and to
enable compliance with the applicable regulations. AA notes that this
AC does not exclude ADs or other regulatory actions from its
applicability, and contends that the guidance in this AC is applicable
to the NPRM.
    Although it is true that FAA AC 20-62D, dated May 24, 1996, in
general applies to owner/operator maintenance and repair practices in
use prior to issuance of SFAR 88, we do not agree that this AD should
refer to AC 20-62D as guidance. During development of SFAR 88 we
received reports of ignition sources being created by lack of control
of past maintenance and overhaul practices. We included a requirement
that critical design configuration control limitation be defined by the
DAH so that doing maintenance or overhaul would not inadvertently
bypass safety critical design features of the fuel tank system. We have
determined that past maintenance practices for fuel systems using the
guidelines of AC 20-62D are not applicable to the fuel system type
design changes mandated by SFAR 88. The requirements of this AD take
precedence over the guidelines of AC 20-62D. The commenter suggested it
has identified ``acceptable equivalent materials that that meet or
exceed the performance of the original materials.'' The commenter must
request AMOC approvals from the FAA for these materials. Therefore, we
have made no change to the AD in this regard.

Request To Revise Argo-Tech Service Information

    AA asks that we direct Argo-Tech to revise Argo-Tech Service
Bulletin 398000-28-2, dated November 8, 2007, to include the following
specific tolerances to avoid potential AD enforcement issues for AA and
other operators.
     Include an appropriate minimum radius for the noted
dimension in Figure 1, ``Machining Mask,'' of that Argo-Tech service
bulletin. AA notes that it does not have a tolerance call-out on the
1.25 diameter drill or cut-through dimension.
     Include an appropriate minimum radius in Figure 2,
``Housing Machine Details,'' of that Argo-Tech service bulletin. AA
notes that it does not have a minimum dimension for the ``R 0.010 Max''
radius dimension. AA adds that some amount of radius (greater than R
0.000) is necessary at the locations shown; therefore the minimum
radius should be specified.
     Include an appropriate maximum dimension in Step 3.D.16 of
that Argo-Tech service bulletin which specifies ``Etch wire insulation
of 4 stator lead wires and ground lead wire ends a minimum of 0.75 inch
(19 mm) using Teflon etchant (Tetra-Etch).'' AA infers that there is a
corresponding maximum dimension for this task.
     Correct and clarify Step 3.D.17 of that Argo-Tech service
bulletin, which specifies ``Strip 0.25 +/- 0.625 inch.'' AA notes that
the tolerance for this dimension is greater than the nominal dimension.
AA adds that it is not common practice to have .XXX tolerance on .XX
dimension.
     Include appropriate dimension for Step 3.D.19 of that
Argo-Tech service bulletin which specifies ``1 inch (25 mm) maximum
exposed lead wire length permissible at connector end after potting.''
AA infers that there is a corresponding minimum dimension to adhere to
for this task.
     Include an appropriate tolerance for Step 3.D.21 of that
Argo-Tech service bulletin which specifies ``Lead wires must exit
potting cup at 45 degree angle.'' AA requests the following additional
changes:
     Allow ``industry accepted'' alternative methods of
compliance for part reidentification (including vibro-etch, if
acceptable) and permanent marker (Sharpie). AA notes that Step 3.D.31
of that Argo-Tech service bulletin specifies ``Ink stamp new stator and
housing assembly part number (219980-1) on stator and housing
assembly.'' AA adds that many repair stations and operators (including
AA) do not reidentify parts using ink stamps; an ink stamp
identification process would typically be used by a type certificate
holder (TCH) or OEM, but not by an operator. AA states that there are
many acceptable ``industry standard'' methods for reidentification of
parts, including vibro-etch (for ``non-fatigue'' critical parts) and
permanent marker (Sharpie).
     Remove the type of material specified on page 5, paragraph
C.(2) of that Argo-Tech service bulletin, ``Parts and Material Supplied
by the Operator'' which references ``Primer, Yellow, Zinc Chromate, P/N
TT-P-1757.'' AA notes that the reference to this material should be
removed because it is not called out in the Accomplishment Instructions
of that Argo-Tech service bulletin. AA adds that this material is
called out in the component maintenance manual (CMM 28-20-6), but only
for protecting pins used in the Volute assembly, which is not affected
by the NPRM. AA states that this product is a known carcinogen and many
operators (including AA) and

repair stations have removed it from inventory.
    We acknowledge the inconsistencies in Argo-Tech Service Bulletin
398000-28-2, dated November 8, 2007, as noted above by the commenter.
As specified under ``Explanation of Relevant Service Information,''
above, Argo-Tech has revised the subject service bulletin to provide
clarification and address all of the inconsistencies noted. We have
revised this AD to refer to the revised Argo-Tech service bulletin.
    AA also requests that there be a change in the language in Step
3.D.18 of Argo-Tech Service Bulletin 398000-28-2, dated November 8,
2007, which specifies ``Solder leads to receptacle connector (50) per
MIL-STD-2000 * * *'' to read ``Solder leads to receptacle connector
(50) per MIL-STD-2000 (or equivalent procedure).'' AA notes that in
some cases it utilizes internal process specifications to accomplish
the equivalent of industry standard processes. AA adds that its
Material and Process Specification P17-1 STD-2000 provides soldering
processes equivalent to MIL-STD-2000.
    We do not agree that the language in Step 3.D.18 of that Argo-Tech
service bulletin should be changed. The process specified reflects the
pump design standard as qualified by Boeing and Argo-Tech, and
certified by the FAA in accordance with Boeing compliance data. In
addition, the process is CDCCL controlled in the associated fuel pump
component maintenance manual. Argo-Tech has revised Argo-Tech Service
Bulletin 398000-28-2 to provide clarification for the language in Step
3.D.18 of that service bulletin.
    In addition, AA points out that page 5, paragraph C.(2) of that
Argo-Tech service bulletin specifies in ``Parts and Material Supplied
by the Operator'' under ``Curing Agent, Epoxy Resin, P/N Versamid 125''
that ``EPI-CURE-3125'' is equivalent to ``Versamid 125.'' AA notes that
the specified curing agent is no longer procurable under the name
``Versamid 125,'' and according to its purchasing department ``EPI-CURE
3125'' is the same product. AA asks that this clarification be
included.
    We do not agree that the requested clarification should be included
in that Argo-Tech service bulletin. Argo-Tech continues to use and
procure Versamid 125, which is also a CDCCL-controlled consumable in
the associated fuel pump component maintenance manual. We have made no
change to the AD in this regard.

Request To Revise Boeing Service Information

    AA asks that we direct Boeing to revise Boeing Service Bulletins
DC9-28-212 and MD90-28-010, both dated February 22, 2008, to accurately
depict the physical boundaries of the center wing tank. AA states that
page 7 of Boeing Service Bulletin DC9-28-212 illustrates a typical
``twinjet'' airplane and shows the correct locations of the forward and
aft auxiliary tanks for Model DC-9 and MD-80 airplanes. AA notes that
the center wing tank is not illustrated properly because the drawing
points to what appears to be a small access panel on the right wing. AA
adds that past experience indicates that service bulletin illustrations
can often be inconsistent with the configuration of the actual
airplanes, engines, or components. AA indicates that this issue was
found during an FAA audit of ADs on Model MD-80 fleet in April 2008;
the findings indicated that some of the illustrations used to conduct
the audit did not accurately reflect the production or post-production
configuration of the airplane affected by the AD.
    We do not agree with the commenter. As specified under
``Explanation of Relevant Service Information,'' above, Boeing has
revised the Boeing service bulletins referred to in the NPRM. However,
per the Boeing type design and maintenance manual data, the center wing
tank pumps and access door are located on the right wing, not the left,
as inferred by the commenter. Therefore, we have made no change to the
AD in this regard.

Request To Revise Certain Sections in the Argo-Tech Service Information

    AA asks that we direct Argo-Tech to revise the illustrations in the
figures depicted in the stator and housing assembly modification
procedure in Argo-Tech Service Bulletin 398000-28-2, dated November 8,
2007, to include the following note:

    Note:  The configuration illustrated in this figure is for
reference only, and may vary from the operator's configuration. Any
discrepancies between the illustration and the operator's
configuration do not necessarily constitute non-compliance with the
requirements of this SB.

    AA adds that past experience indicates that service bulletin
illustrations can often be inconsistent with the configuration of the
actual airplane, engine, or components. AA notes that this issue was
brought to light during an FAA audit of ADs on the Model MD-80 fleet in
April 2008; the findings indicated that some of the illustrations used
to conduct the audit did not accurately reflect the production or post-
production configuration of the airplane affected by the AD. AA adds
that the FAA claimed these discrepancies were findings of non-
compliance.
    We do not agree with the commenter. The figures included in that
Argo-Tech service bulletin reflect the pump design standard qualified
by Boeing and Argo-Tech and certified by the FAA in accordance with
Boeing compliance data. A review of that Argo-Tech service bulletin
shows that none of the figures contain ``reference only'' information;
therefore, it would not be consistent to label some parts of the
figures and not others. Including a ``reference only'' note may allow
an obvious part discrepancy to escape further scrutiny. Therefore, we
have made no change to the AD in this regard.
    AA also asks that we direct Argo-Tech to revise Figure 2 [``Housing
Machining Details''] of that Argo-Tech service bulletin, to include the
following note regarding deviations:

    Note: Deviations to the requirements of Argo-Tech SB 398000-28-2
that are reviewed and approved in writing by Argo-Tech are
considered FAA-approved Alternative Means of Compliance (AMOCs) to
the requirements of this AD.

    AA states that, Figure 2 includes specific machining dimensions for
the housing; during the process of machining and inspecting parts in
its shops, it occasionally finds discrepancies between the dimensional
specifications contained in the repair or modification procedures and
the actual measured dimensions on the part. AA adds that in these
cases, it contacts the TCH or the OEM, as applicable, to request and
obtain technical concurrence to deviate from dimensional
specifications. AA notes that since that Argo-Tech service bulletin is
a subject of the NPRM, it would also need to request and obtain an AMOC
approval for this deviation. AA concludes that if the published AD has
provisions to allow the OEM to review, disposition, and approve minor
deviations to the dimensional specifications contained in that Argo-
Tech service bulletin, it would alleviate the need for operators to
request individual AMOC approvals from the FAA for these deviations.
    We do not agree with the commenter. Dimensional tolerances, as
provided by the OEM, must be maintained to make sure a part is within
the design specification limits and is maintained and operated in
accordance with the instructions for continued airworthiness

(ICA) of the certificated product. Any deviations must be reviewed and
approved; therefore, we can not pre-approve an AMOC procedure for
addressing all future unforeseeable quality issues in any AD. We have
made no change to the AD in this regard.

Request To Include Revisions to Component Maintenance Manual (CMM)

    AA asks that we direct Argo-Tech to revise any references to CMM
28-20-6 to include ``Revision 6,'' which is the mandated revision level
specified in related rulemaking (AD 2008-11-15). AA states that
paragraphs 1.K.1 and L. of Argo-Tech Service Bulletin 398000-28-2,
dated November 8, 2007, list ``Component Maintenance Manual 28-20-6''
with no revision level specified, and there are several references to
``CMM'' in paragraph 3., ``Accomplishment Instructions,'' with no
revision level specified. AA adds that, to ensure consistency and
strict legal compliance in regard to work accomplished on the subject
fuel boost pumps (and volutes), that Argo-Tech service bulletin should
specify that all work be done in accordance with CMM 28-20-6, Revision
6.
    We do not agree with the commenter. The CMM revision level is not
specified in that Argo-Tech service bulletin since the special
compliance item (SCI) is the controlling critical design configuration
control limitation (CDCCL) definition document, so the need for AMOCs
related to CMM revisions is not an issue. The compliance time in this
AD is 5 years, and the CMM could be revised several times during that
period. Specifying the CMM revision level in Argo-Tech Service Bulletin
398000-28-2 would necessitate revising both the Argo-Tech and Boeing
service bulletins after every revision of the CMM, which would require
operators to request an AMOC for each Boeing service bulletin revision.
In light of these facts, we have made no change to the AD.

Request To Clarify Certain Actions in Paragraph (g)

    Northwest Airlines (NWA) agrees with the intent of the NPRM. NWA
asks that we include a clarification in paragraph (f) of the NPRM that
excludes post-production removal of an auxiliary fuel tank to release
operators from doing actions in the Boeing service information that no
longer apply. NWA states that this would prevent the need for an AMOC
request.
    We agree with the commenter. The actions required by paragraph (g)
of this AD (referred to as paragraph (f) in the NPRM) do not apply to
certain airplanes; therefore, we have clarified the language in
paragraph (g) to specify that, for airplanes on which the auxiliary
fuel tanks have been removed, the actions do not apply.

Request To Clarify Unsafe Condition

    Boeing asks that we clarify the description of the unsafe condition
to note that the potential fuel tank ignition source, an energized fuel
pump rotor assembly, is not caused by uncommanded or dry operation of
the fuel boost pumps. Boeing states that uncommanded running of a fuel
pump results from failures in its command and control electrical
circuit and does not contribute to development of an energized rotor
assembly condition. Boeing adds that a fuel pump inlet exposed to the
ullage (dry operation of a fuel pump) is a necessary condition for
propagation of an ignition source into the fuel tank, but does not
contribute to development of an energized rotor assembly condition.
    We agree with the commenter for the reasons provided. We have
changed the description of the unsafe condition accordingly.

Request To Revise Costs of Compliance Section

    AA asks that we incorporate more accurate labor estimates. AA
states that for Group 1, Configurations 1 and 2, the NPRM specifies 1
work hour for a total cost per product of between $1,550 and $16,118.
AA notes that the cost impact estimates do not take into account the
cost to accomplish the modification in the shop. AA adds that for those
airplanes the estimate should be 9 work hours at an average rate of $90
per work hour; for a total cost of $2,385 and $2,940 for parts per MD-
82 airplane. Total labor and parts cost would be $5,325 per MD-82
airplane. AA concludes that the total fleet cost would be $1,262,025.
    AA also states that for Group 3, Configurations 1 and 2, the NPRM
specifies 3 work hours for a total cost per product of between $1,710
and $16,278. AA notes that the cost impact estimates do not take into
account the cost to accomplish the modification in the shop. AA adds
that for those airplanes the estimate should be 27 work hours at an
average labor rate of $90 per work hour, for a total cost of $2,430 and
$8,820 for parts per MD-83 airplane. AA concludes that the total fleet
cost would be $1,035,000.
    After considering the data presented by commenter, we agree that
the number of work hours required is higher than our previous estimate,
although not as high as provided by the commenter. Depending on
operator's capabilities to change (modify and reinstall) a pump we have
provided two estimates; a minimum and a maximum cost per airplane. The
minimum cost represents the cost for operators who have repair shop
resources and the capability to modify a pump and reinstall it. The
maximum cost represents the cost for operators who choose to replace
the pump with an OEM pump. The total labor hours to change (modify and
reinstall) a pump by operators is approximately 7 hours. The total
labor hours for replacing a pump with an OEM pump is approximately 3
hours. Depending on airplane grouping, there may be a minimum of 2
pumps or as many as 6 pumps per airplane. The cost impact information,
below, has been revised to add a second table to indicate this higher
amount.

Explanation of Change to Applicability

    We have changed the applicability in this AD to identify model
designations as published in the most recent type certificate data
sheet for the affected models.

Explanation of Additional Paragraph in the AD

    We have added a new paragraph (e) to this AD to provide the Air
Transport Association (ATA) of America subject code 28; Fuel. This code
is added to make this AD parallel with other new AD actions. We have
reidentified subsequent paragraphs accordingly.

Conclusion

    We reviewed the relevant data, considered the comments received,
and determined that air safety and the public interest require adopting
the AD with the changes described previously. We also determined that
these changes will not increase the economic burden on any operator or
increase the scope of the AD.

Explanation of Change to Costs of Compliance

    Since issuance of the NPRM, we have increased the labor rate in the
Costs of Compliance from $80 per work hour to $85 per work hour. The
Costs of Compliance information, below, reflects this increase in the
specified hourly labor rate.

Costs of Compliance

    We estimate that this AD affects 804 airplanes of U.S. registry.
The following table provides the estimated costs for U.S. operators to
comply with the modification specified in this AD.

                                                                     Estimated Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Average
  Airplane group-- number of pumps   Configuration               Work hours               labor rate            Parts               Cost per product
                                                                                per hour
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Group 1--2 pumps...................              1  7 per pump.........................          $85  Between $1,470 and        Between $4,130 and
                                                                                $7,600.                   $16,390.
Group 1--2 pumps...................              2  3 per pump.........................           85  $16,038 (per new pump)..  $32,586.
Group 3--6 pumps...................              1  7 per pump.........................           85  Between $1,470 and        Between $12,390 and
                                                                                $7,600.                   $49,170.
Group 3--6 pumps...................              2  3 per pump.........................           85  $16,038 (per new pump)..  $97,758.
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* Note: For Group 2, 4, 5, 6, and 7 airplanes, the costs are calculated by the number of pumps per airplane; the range in the table above includes the
  fewest to the greatest number of pumps per airplane. Group 2, 4, 5, 6, and 7 airplanes are included in that range.

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

    This AD will not have federalism implications under Executive Order
13132. This AD will not have a substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government.
    For the reasons discussed above, I certify that this AD:
    (1) Is not a ``significant regulatory action'' under Executive
Order 12866,
    (2) Is not a ``significant rule'' under 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.
    You can find our regulatory evaluation and the estimated costs of
compliance in the AD Docket.

List of Subjects in 14 CFR Part 39

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

Adoption of the Amendment

0
Accordingly, under the authority delegated to me by the Administrator,
the FAA amends 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

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

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

Sec.  39.13  [Amended]

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

2010-25-04 McDonnell Douglas Corporation: Amendment 39-16537. Docket
No. FAA-2008-0934; Directorate Identifier 2008-NM-113-AD.

Effective Date

    (a) This airworthiness directive (AD) is effective January 11,
2011.

Affected ADs

    (b) None.

Applicability

    (c) This AD applies to McDonnell Douglas Corporation Model DC-9-
31, DC-9-32, DC-9-32 (VC-9C), DC-9-32F, DC-9-32F (C-9A, C-9B), DC-9-
33F, DC-9-34, DC-9-34F, DC-9-41, DC-9-51, DC-9-81 (MD-81), DC-9-82
(MD-82), DC-9-83 (MD-83), and DC-9-87 (MD-87), MD-88, and MD-90-30
airplanes; certificated in any category; as identified in Boeing
Service Bulletins DC9-28-212 and MD90-28-010, both Revision 1, both
dated June 16, 2009.

Unsafe Condition

    (d) This AD results from fuel system reviews conducted by the
manufacturer. We are issuing this AD to prevent possible sources of
ignition in a fuel tank caused by an electrical fault in the fuel
boost pumps. An ignition source in the fuel tank could result in a
fire or an explosion and consequent loss of the airplane.

Subject

    (e) Air Transport Association (ATA) of America Code 28: Fuel.

Compliance

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

Modification

    (g) Within 60 months after the effective date of this AD: Modify
the fuel boost pumps for the center wing, and forward or aft
auxiliary fuel tanks, as applicable, by doing all the applicable
actions specified in the Accomplishment Instructions of Boeing
Service Bulletins DC9-28-212 (for Model DC-9-30, DC-9-40, and DC-9-
50 series airplanes); and Model DC-9-81 (MD-81), DC-9-82 (MD-82),
DC-9-83 (MD-83), DC-9-87 (MD-87), and MD-88 airplanes) and MD90-28-
010 (for Model MD-90-30 airplanes), both Revision 1, both dated June
16, 2009. For airplanes on which the auxiliary fuel tanks have been
removed before the effective date of this AD, the actions for the
auxiliary fuel tanks specified in this paragraph are not required.

Prior or Concurrent Action

    (h) Prior to or concurrently with accomplishing the modification
required by paragraph (g) of this AD: Do the modification specified
in Argo-Tech Service Bulletin 398000-28-2, Revision 1, dated
December 2, 2008.

Credit for Actions Done In Accordance With Previous Issue of the
Service Information

    (i) Actions done before the effective date of this AD in
accordance with the service information identified in Table 1 of
this AD are acceptable for compliance with the corresponding
requirements of paragraphs (g) and (h) of this AD.

                   Table 1--Credit Service Information
------------------------------------------------------------------------
               Document                               Date
------------------------------------------------------------------------
Argo[dash]Tech Service Bulletin        November 8, 2007.
 398000-28-2.

Boeing Service Bulletin DC9-28-212...  February 22, 2008.
Boeing Service Bulletin MD90-28-010..  February 22, 2008.
------------------------------------------------------------------------

Alternative Methods of Compliance (AMOCs)

    (j)(1) The Manager, Los Angeles Aircraft Certification Office
(ACO), FAA, ATTN: Serj Harutunian, Aerospace Engineer, Propulsion
Branch, ANM-140L, FAA, Los Angeles Aircraft Certification Office,
3960 Paramount Boulevard, Lakewood, California 90712-4137; telephone
(562) 627-5254; fax<PHONE_NUMBER>; has the authority to approve
AMOCs for this AD, if requested using the procedures found in 14 CFR
39.19.
    (2) To request a different method of compliance or a different
compliance time for this AD, follow the procedures in 14 CFR 39.19.
Before using any approved AMOC on any airplane to which the AMOC
applies, notify your principal maintenance inspector (PMI) or
principal avionics inspector (PAI), as appropriate, or lacking a
principal inspector, your local Flight Standards District Office.
The AMOC approval letter must specifically reference this AD.

Material Incorporated by Reference

    (k) You must use the applicable service information contained in
Table 2 of this AD to do the actions required by this AD, unless the
AD specifies otherwise.
    (1) The Director of the Federal Register approved the
incorporation by reference of this service information under 5
U.S.C. 552(a) and 1 CFR part 51.

               Table 2--Material Incorporated by Reference
------------------------------------------------------------------------
            Document               Revision              Date
------------------------------------------------------------------------
Argo[dash]Tech Service Bulletin           1  December 2, 2008.
 398000-28-2.
Boeing Service Bulletin DC9-28-           1  June 16, 2009.
 212.
Boeing Service Bulletin MD90-28-          1  June 16, 2009.
 010.
------------------------------------------------------------------------

    (2) For Boeing service information identified in this AD,
contact Boeing Commercial Airplanes, Attention: Data & Services
Management, 3855 Lakewood Boulevard, MC D800-0019, Long Beach,
California 90846-0001; telephone<PHONE_NUMBER>, extension 2; fax 206-
766-5683; e-mail<EMAIL_ADDRESS>Internet https://www.myboeingfleet.com. For Argo-Tech service information identified
in this AD, contact Argo-Tech Corporation, 23555 Euclid Avenue,
Cleveland, Ohio 44117; telephone<PHONE_NUMBER>.
    (3) You may review copies of the service information at the FAA,
Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton,
Washington. For information on the availability of this material at
the FAA, call<PHONE_NUMBER>.
    (4) You may also review copies of the service information that
is incorporated by reference at the National Archives and Records
Administration (NARA). For information on the availability of this
material at NARA, call<PHONE_NUMBER>, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.

    Issued in Renton, Washington, on November 24, 2010.
Ali Bahrami,
Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2010-30518 Filed 12-6-10; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 79, Number 220 (Friday, November 14, 2014)]
[Notices]
[Pages 68323-68327]
[FR Doc No: 2014-26947]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73559; File No. SR-BATS-2014-018)

Self-Regulatory Organizations; BATS Exchange, Inc.; Order
Disapproving a Proposed Rule Change To Adopt Rule 14.11(k) to List
Managed Portfolio Shares and to List and Trade Shares of Certain Funds
of the Spruce ETF Trust

November 7, 2014
    On August 4, 2014, BATS Exchange, Inc. (``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to adopt new BATS Rule 14.11(k), which would permit the Exchange
to list Managed Portfolio Shares, which are shares of actively managed
exchange-traded funds (``ETFs'') for which the portfolio is disclosed
quarterly, and to list and trade shares of certain funds of the Spruce
ETF Trust (``Trust'') \3\ under proposed BATS Rule 14.11(k). The
proposed rule change was published for comment in the Federal Register
on August 13, 2014.\4\ The Commission received one comment letter on
the proposal.\5\ On September 24, 2014, pursuant to Section 19(b)(2) of
the Exchange Act,\6\ the Commission designated a longer period within
which to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\7\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that the Trust, which would be the
issuer of the funds, filed an Application for an Order under Section
6(c) of the Investment Company Act of 1940 (``1940 Act'') and rules
thereunder (File No. 812-13953), dated September 1, 2011
(``Exemptive Application''). The Commission published notice of this
application (``Notice of an Application for Exemptive Relief'') on
October 21, 2014. See Investment Company Act Release No. 31301 (Oct.
21, 2014), 79 FR 63964 (Oct. 27, 2014).
    \4\ See Securities Exchange Act Release No. 72787 (Aug. 7,
2014), 79 FR 47488 (``Notice'').
    \5\ See Letter from Gary L. Gastineau, President, ETF
Consultants.com, Inc., to Elizabeth M. Murphy, Secretary,
Commission, dated Aug. 30, 2014 (``Comment Letter'').
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 73199, 79 FR 58844
(September 30, 2014). The Commission designated November 11, 2014 as
the date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change.
---------------------------------------------------------------------------

    This Order disapproves the proposed rule change.

I. Description of the Proposal

    The Exchange proposes to: (1) Add new BATS Rule 14.11(k) which
would permit the listing of Managed Portfolio Shares; and (2) list and
trade shares (``Shares'') of the following funds (each a ``Fund'' and,
collectively, the ``Funds'') under the proposed rule: Large Cap Fund,
Large Cap Value Fund, Large Cap Growth Fund, Large/Mid Cap Fund, Large/
Mid Cap Value Fund, Large/Mid Cap Growth Fund, Large Cap Long-Short
Fund, Large Cap Value Long-Short Fund, Large Cap Growth Long-Short
Fund, Large/Mid Cap Long-Short Fund, and Large/Mid Cap Value Long-Short
Fund, Large/Mid Cap Growth Long-Short Fund, and Large Cap Growth Active
Insights Fund. The discussion below summarizes the Exchange's proposal,
details of which are described in the Notice.\8\
---------------------------------------------------------------------------

    \8\ See Notice, supra note 4.
---------------------------------------------------------------------------

A. Proposed Listing Rules

    The Exchange's proposal would define the term ``Managed Portfolio
Share'' as a security that (a) is issued by an investment company
(``Investment Company'') organized as an open-end management investment
company or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent with
the Investment Company's investment objectives and policies; (b) is
issued in a predetermined Creation Unit \9\ size in

exchange for a cash amount equal to the next determined Net Asset Value
(``NAV''),\10\ (c) pursuant to the ``Small Allotment Redemption
Option,'' may be redeemed for cash by any Beneficial Owner \11\ in any
size less than a Redemption Unit \12\ for a cash amount equal to the
next determined NAV for at least 15 calendar days, in the event that
for 10 consecutive Business Days, or such shorter period as determined
by the issuer, the midpoint of the national best bid and offer at the
time of the calculation of the NAV (the ``Bid/Ask Price''),\13\ for the
security has a discount of 5% or greater from the NAV; and (d) when
aggregated in a number of shares equal to a Redemption Unit, or
multiples thereof, may be redeemed at an Authorized Participant's \14\
request, which each Authorized Participant would be paid through a
blind trust established for its benefit a portfolio of securities and/
or cash with a value equal to the next determined NAV.
---------------------------------------------------------------------------

    \9\ Under the proposal, a ``Creation Unit'' is a specified
minimum number of Managed Portfolio Shares that an Authorized
Participant may purchase from the issuer for the current net asset
value.
    \10\ Depending on the context, the term ``NAV'' may refer to the
NAV per Share, the NAV per Creation Unit, or the NAV of a fund.
    \11\ Under the proposal, a ``Beneficial Owner'' is defined as:
(1) A natural person; (2) a trust established for the benefit of a
natural person or a group of related family members; or (3) a tax
deferred retirement plan where investments are selected by a natural
person purchasing for its own account.
    \12\ Under the proposal, a ``Redemption Unit'' is a specified
number of Managed Portfolio Shares that an Authorized Participant
may sell to the issuer for the current NAV and which is also used
for determining whether a Beneficial Owner may redeem for cash. See
infra note 14.
    \13\ The records relating to Bid/Ask Prices would be retained by
the Funds and its service providers.
    \14\ Certain large market participants, typically broker-
dealers, can become ``Authorized Participants'' with respect to the
Funds. Each Authorized Participant would enter into a contractual
relationship with a Fund or Funds, allowing it to engage in
redemptions of Shares directly with the issuer.
---------------------------------------------------------------------------

    Funds issuing Managed Portfolio Shares would be actively-managed,
and in that respect would be similar to Managed Fund Shares, which are
actively-managed funds listed and traded under BATS Rule 14.11(i).
Managed Portfolio Shares, however, would differ from Managed Fund
Shares in the following important respects. First, in contrast to
Managed Fund Shares, for which a ``Disclosed Portfolio'' is required to
be disseminated at least once daily,\15\ the portfolio for an issue of
Managed Portfolio Shares would be disclosed at least quarterly in
accordance with normal disclosure requirements otherwise applicable to
open-end investment companies registered under the 1940 Act.\16\
Second, creations of Managed Portfolio Shares would generally be
effected through a delivery of only cash, whereas creations of Managed
Fund Shares are generally effected through an in-kind delivery of
securities and cash. Third, in connection with the redemption of shares
in Redemption Unit size, the in-kind delivery of any portfolio
securities would generally be effected through a blind trust for the
benefit of the redeeming Authorized Participant, and the blind trust
would liquidate the portfolio securities pursuant to instructions from
the Authorized Participant without disclosing the identity of those
securities to the Authorized Participant. Fourth, pursuant to the Small
Allotment Redemption Option, Beneficial Owners would be able to redeem
shares for cash directly from a fund in any size less than a Redemption
Unit at the fund's NAV in limited circumstances.
---------------------------------------------------------------------------

    \15\ BATS Rule 14.11(i)(3)(B) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of NAV at the end of the
business day. BATS Rule 14.11(i)(4)(B)(ii)(a) requires that the
Disclosed Portfolio be disseminated at least once daily and that it
be made available to all market participants at the same time.
    \16\ A mutual fund is required to file with the Commission its
complete portfolio schedules for the second and fourth fiscal
quarters on Form N-SAR under the 1940 Act, and is required to file
its complete portfolio schedules for the first and third fiscal
quarters on Form N-Q under the 1940 Act, within 60 days of the end
of the quarter. Form N-Q requires funds to file the same schedules
of investments that are required in annual and semi-annual reports
to shareholders. These forms are available to the public on the
Commission's Web site at www.sec.gov.
---------------------------------------------------------------------------

    For each series of Managed Portfolio Shares, an estimated value,
defined in the proposed rule as the ``Intraday Indicative Value''
(``IIV''), that reflects an estimated intraday value of a fund's
portfolio would be disseminated. The IIV would be based upon all of a
fund's holdings as of the close of the prior business day and would be
widely disseminated by one or more major market data vendors at least
every 15 seconds during the Exchange's Regular Trading Hours (normally,
9:30 a.m. to 4:00 p.m., Eastern Time).
    The Exchange's proposal provides that the Exchange would file
separate proposals under Section 19(b) of the Exchange Act before
listing and trading any series of Managed Portfolio Shares.

B. Description of the Funds

    BlackRock Fund Advisors would be the investment adviser
(``Adviser'') to the Funds.\17\ State Street Bank and Trust Company
would be the administrator, custodian, and transfer agent for the Trust
(``Custodian'' or ``Transfer Agent''). BlackRock Investments, LLC
(``Distributor'') would serve as the distributor for the Trust.
---------------------------------------------------------------------------

    \17\ BlackRock Fund Advisors is an indirect wholly owned
subsidiary of BlackRock, Inc.
---------------------------------------------------------------------------

    Under normal circumstances,\18\ each Fund would invest at least 80%
of its net assets in a portfolio of long positions (or engage in
borrowings for the purpose of establishing short positions for the
Long-Short Funds) in U.S. equity securities.\19\ The Funds may in some
instances also invest in non-U.S. equity securities with similar market
capitalization, liquidity, and risk-return profiles to the U.S. equity
securities eligible for investment. Each Fund would hold equity
securities of at least 13 non-affiliated issuers, primarily from the
1,200 largest U.S. stocks by market capitalization as determined by The
Frank Russell Company annually. Generally, the Large/Mid Cap Funds
would select securities from a universe of approximately the 1,200
largest equity securities traded on U.S. exchanges and the Large Cap
Funds would select securities from a universe of approximately the
1,000 largest equity securities traded on U.S. exchanges.
---------------------------------------------------------------------------

    \18\ The term ``under normal circumstances'' includes, but is
not limited to, the absence of adverse market, economic, political,
or other conditions, including extreme volatility or trading halts
in the equity markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot, or labor disruption, or any similar intervening
circumstance.
    \19\ Equity securities would include common stock, preferred
stock, securities convertible into common stock and securities or
other instruments whose price is linked to the value of common
stock, which includes, but is not limited to, shares of other
investment companies.
---------------------------------------------------------------------------

    A Fund may, to a limited extent (under normal circumstances, less
than 20% of the Fund's net assets), engage in transactions in futures
contracts, forward contracts, options, and swaps.\20\ A Fund may also
invest a portion of its assets in high-quality money market
instruments.
---------------------------------------------------------------------------

    \20\ Derivatives would include the following: treasury futures,
equity index futures, currency futures, currency forwards, interest
rate swaps, credit default swaps, total return swaps, equity index
options, and single stock equity options. The derivatives, excluding
currency forwards, would be exchange traded and/or centrally
cleared. Each Fund's use of derivatives may be used to enhance
leverage, but such leverage would never exceed 1/3 of a Fund's total
assets.
---------------------------------------------------------------------------

II. Summary of the Comment Letter

    The Commission received one letter opposing the proposed rule
change, which raises several concerns.\21\ First,

the commenter asserts that there is a ``significant risk'' that the
Internal Revenue Service (``IRS'') would deny the purported tax
benefits of the Funds' distinctive in-kind redemption program.\22\
Therefore, the commenter recommends that approval of the proposal be
conditioned on the issuer obtaining a favorable IRS determination of
the tax treatment through a Private Letter Ruling.\23\
---------------------------------------------------------------------------

    \21\ See supra note 5. The commenter notes that he has a
retained economic interest in a product that may be competitive with
Managed Portfolio Shares, and states that his views on the
Exchange's filing ``may be considered subject to a conflict of
interest.'' Comment Letter, supra note 5, at 1, n.1. He states that
his comments are made in the public interest and to the best of his
ability are not influenced by any conflict. See id.
    \22\ See id. at 4.
    \23\ See id.
---------------------------------------------------------------------------

    In addition, the commenter predicts that, compared to most existing
ETFs, the Shares would probably trade with significantly wider bid-ask
spreads, with more variable premiums and discounts, or with both,
because of what the commenter characterizes as the unreliability of the
Funds' proposed method for ensuring secondary market trading
efficiency. The commenter states that the Funds' market makers would
have only indirect, and likely imperfect, information about Fund
holdings.\24\ The commenter argues that effectively arbitraging the
Funds would be significantly more difficult than the arbitrage for most
existing foreign ETFs.\25\ The commenter also argues that there is no
support for the Exchange's contention that existing ETFs holding
portfolios of foreign securities, such as index-based ETFs holding
Asian stocks, have demonstrated efficient pricing characteristics even
though, because foreign stocks do not trade during the same hours as
U.S. ETFs, the ETFs holding foreign stocks do not provide opportunities
for riskless arbitrage transactions during much of the trading day.\26\
The commenter also cites a draft academic working paper \27\ for the
propositions that market trading efficiency varies significantly by
type and size of ETF; that funds with high share trading volumes,
liquid underlying holdings, and efficient arbitrage mechanisms trade
with relatively tight bid-ask spreads and more stable premiums and
discounts; and that funds lacking these characteristics generally
traded with wider spreads and more variable premiums and discounts.\28\
---------------------------------------------------------------------------

    \24\ See id. at 7.
    \25\ See id.
    \26\ See id. at 9.
    \27\ ``Inefficiencies in the Pricing of Exchange-Traded Funds,''
Antti Petajisto, September 20, 2013, available at http://www.petajisto.net/.
    \28\ See Comment Letter, supra note 5, at 8.
---------------------------------------------------------------------------

    The commenter also states its view that, for a number of reasons,
the dissemination of an IIV by the Funds would likely prove ineffective
in ensuring alignment of secondary market prices for the Shares with
the values of the underlying portfolios. The commenter asserts that,
during periods of rapid market movement, the use of last-sale prices to
calculate an IIV, coupled with the dissemination of the IIV only every
15 seconds, would mean that the IIV would be a lagging indicator of
actual portfolio values.\29\ Additionally, the commenter asserts that
the IIV may reflect clearly erroneous values for securities that have
not yet opened for trading on a particular business day or that are
subject to an intraday interruption in trading.\30\ The commenter also
states that no one would stand behind a Fund's IIV to ensure timeliness
and accuracy.\31\ The commenter predicts that, without a reliable IIV,
the Shares cannot and would not trade acceptably in the secondary
market.\32\
---------------------------------------------------------------------------

    \29\ See id. at 9.
    \30\ See id. at 9-10.
    \31\ See id. at 10.
    \32\ See id.
---------------------------------------------------------------------------

    The commenter predicts that frequent IIV errors would in turn cause
``erroneous share trades'' to be executed.\33\ The commenter states
that the proposal does not address the treatment of erroneous share
trades resulting from a faulty IIV--namely, whether IIV errors and
related erroneous trades would be detected by the Exchange, whether
such trades would be cancelled, and whether the Exchange would apply a
materiality standard for cancellations.\34\ The commenter argues that,
as a condition of approval, the Exchange should be required to monitor
the timeliness and accuracy of IIV dissemination and to implement
procedures to address trades when an erroneous IIV has been
disseminated.\35\
---------------------------------------------------------------------------

    \33\ See id. at 12.
    \34\ See id.
    \35\ See id.
---------------------------------------------------------------------------

    The commenter also predicts that the following elements of the
proposed redemption arrangements would introduce additional costs and
uncertainties for Authorized Participants:
     The Custodian would have a monopoly position as the sole
eligible provider of trustee services for the blind trust;
     The Adviser, rather than the Authorized Participant, would
negotiate the fees paid to the trustee;
     In contrast to existing ETFs, no Authorized Participant
would have the potential ability to use its market knowledge and market
position to enhance arbitrage profits (or offset arbitrage costs) by
managing sales of the distributed securities to minimize market impact
or to realize prices above the market close; and
     The Custodian, who stands in for the Authorized
Participant in the sale of distributed securities, would have no
apparent incentive to sell distributed securities with low market
impact or at prices above the close and would experience little or no
downside from doing the opposite.\36\
---------------------------------------------------------------------------

    \36\ See id. at 11.
---------------------------------------------------------------------------

    The commenter also asserts that redeeming Authorized Participants
would be exposed to potential costs and risks associated with not being
able to control disposition of significantly more concentrated
redemption proceeds, and the commenter argues that these extra costs
and risks associated with the blind trust arrangement would be passed
through to shareholders transacting in the secondary market, reflected
as wider bid-ask spreads, more volatile premiums and discounts for the
Shares, or both.\37\
---------------------------------------------------------------------------

    \37\ See id.
---------------------------------------------------------------------------

    The commenter posits that the lack of portfolio transparency would
favor market makers and other professional traders over other market
participants, such as investors.\38\ Notwithstanding the public
dissemination of the IIV, the commenter argues that market makers and
other professional traders would have a significant indirect
information advantage over other participants because of their ability
to glean information about a Fund's holdings through sophisticated data
analysis of changes in the IIV.\39\ In particular, the commenter
asserts that IIV disclosures might enable market makers and
professional traders to uncover a Fund's holdings and trading activity,
rendering the Fund susceptible to the dilutive effects of front
running.\40\ The commenter asserts that, prior to approval, the
proposal should be amended to include: (1) A discussion of the steps to
be taken to minimize reverse engineering risk; (2) a discussion of how
the Funds propose to resolve the conflict between providing market
makers with adequate information to support efficient Share trading and
protecting against reverse engineering; and (3) representations that
the Funds would adequately disclose reverse-engineering risk and the
conflicts the

Funds face in seeking to provide for efficient market trading and
protection against reverse engineering.\41\
---------------------------------------------------------------------------

    \38\ See id. at 13.
    \39\ See id. at 13-14.
    \40\ See id. The commenter discusses certain factors determining
a fund's susceptibility to reverse engineering using intraday
valuations disseminated at 15 second intervals. See id. at 14.
    \41\ See id. at 14.
---------------------------------------------------------------------------

    The commenter argues that the Commission should not grant the
issuer's pending request for exemptive relief under the 1940 Act to
maintain early Order Cut-Off Times for Fund redemptions, which are
intended to facilitate the timely sale of distributed securities by the
blind trusts that receive the proceeds of Authorized Participant
redemptions and the efficient processing of redemptions by retail
investors through the Small Allotment Redemption Option.\42\ The
commenter questions how the early Order Cut-Off Times would impact
secondary market trading and the Funds' proposed arbitrage
mechanism.\43\
---------------------------------------------------------------------------

    \42\ See id. at 15.
    \43\ See id.
---------------------------------------------------------------------------

    The commenter posits that a principal purpose of including the
Small Allotment Redemption Option in the proposal is to provide comfort
to the Commission and market participants that investors would be able
to redeem Shares with the Fund at or near NAV whenever secondary market
trading prices are at a significant discount to NAV.\44\ The commenter
argues that these provisions, as proposed, are inadequate for this
purpose because: (1) Shares could trade at persistently wide discounts
to NAV and still rarely, if ever, cause the Small Allotment Redemption
Option to be invoked due to the triggering events thresholds; (2) the
Small Allotment Redemption Option would be available only to a limited
set of shareholders and would be restricted to redemptions of less than
a Redemption Unit; (3) the expected early Order Cut-Off Time for
redemptions under the Small Allotment Redemption Option means that an
investor's ability to directly redeem Shares for cash would exist for
only a portion of each business day; and (4) investors who redeem
Shares would be subject to transaction fees imposed by the Fund of up
to 2% and may also be subject to broker-dealer processing fees.\45\ The
commenter recommends that the Commission impose the following
conditions for approval: (1) Modification of the triggering events;
\46\ (2) extension of eligibility for the Small Allotment Redemption
Option to all shareholders and establishment (and disclosure) of a
reasonable upper limit on the value of Shares that are eligible; (3)
establishing the close of the Exchange's Regular Trading Hours as the
Order Cut-off Time for redemptions under the Small Allotment Redemption
Option; and (4) establishment of a cap on transaction fees that the
Funds may charge on direct redemptions of Shares.\47\
---------------------------------------------------------------------------

    \44\ See id. at 15-16.
    \45\ See id. at 16.
    \46\ See id. at 17.
    \47\ See id. at 20.
---------------------------------------------------------------------------

    The commenter believes that the Funds would be permitted to hold
investments that are not well-suited to the continuous dissemination of
timely and accurate IIVs throughout the trading day.\48\ The commenter
asserts that the Funds should: (1) Be required to limit their non-cash
investments to U.S.-exchange-listed stocks with market caps of $5
billion or greater (consistent with the general understanding of large-
and medium-cap stocks; a universe of about 700 stocks currently); (2)
not be permitted to invest in illiquid assets; and (3) not be permitted
to employ investment leverage or hold short positions.\49\
---------------------------------------------------------------------------

    \48\ See id.
    \49\ See id. at 21.
---------------------------------------------------------------------------

    The commenter notes that the Exchange would permit trading in the
Shares between 8:00 a.m. and 5:00 p.m., but that the IIV would only be
disseminated during the Exchange's Regular Trading Hours, which are
between 9:30 a.m. and 4:00 p.m. The commenter asserts that the proposal
does not adequately address the significant risk that the prices of
Shares bought or sold in the Pre-Opening Session (8:00 a.m. to 9:30
a.m.) and After Hours Session (4:00 p.m. to 5:00 p.m.) would vary
widely from underlying portfolio values because an updated IIVs would
not be available.\50\ Therefore, the commenter suggests that trading in
Shares should be limited to the Exchange's Regular Trading Hours.\51\
---------------------------------------------------------------------------

    \50\ See id.
    \51\ See id.
---------------------------------------------------------------------------

    The commenter states that, given the importance of the IIV to the
decision-making process of current and prospective Fund investors, all
Fund investors should have ongoing access to current IIV values.\52\
The commenter suggests that each Fund's current IIV be provided at no
charge on a public Web site and made available to the public no later
than it is made available to any other market participant.\53\ The
commenter also suggests that the following information be published on
the Funds' Web site: real time IIVs and historical IIV information;
statistics regarding closing price premiums and discounts; statistics
regarding intraday estimated premiums and discounts; statistics
regarding bid-ask spreads; statistics regarding long or short equity
market exposure and the amount of investment leverage employed; and
statistics regarding transaction fees applicable to purchases of
Shares, redemptions through the Small Allotment Redemption Option and
Redemption Unit redemptions by Authorized Participants.\54\
---------------------------------------------------------------------------

    \52\ See id.
    \53\ See id. at 21-22.
    \54\ See id. at 22-23.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    Under Section 19(b)(2)(C) of the Exchange Act, the Commission shall
approve a proposed rule change of a self-regulatory organization if the
Commission finds that the proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder that are applicable to that organization.\55\ The Commission
shall disapprove a proposed rule change if it does not make such a
finding.\56\
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78s(b)(2)(C)(i).
    \56\ 15 U.S.C. 78s(b)(2)(C)(ii).
---------------------------------------------------------------------------

    After careful consideration, the Commission does not find that the
proposed rule change is consistent with the requirements of the
Exchange Act and the rules and regulations thereunder applicable to a
national securities exchange. In particular, the Commission does not
find that the proposed rule change is consistent with Section 6(b)(5)
of the Exchange Act, which requires that the rules of a national
securities exchange be designed, among other things, to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
to protect investors and the public interest.\57\
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78f(b)(5). In disapproving the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    Before an ETF can list and trade on a national securities exchange,
the ETF must have exemptive relief under the 1940 Act, and a national
securities exchange must have effective rules in place to list and
trade the ETF.\58\ As noted above, the Trust has filed an Exemptive
Application under the 1940

Act.\59\ As stated in the Notice of an Application for Exemptive
Relief, however, ``the Commission preliminarily believes that [the
Trust's] proposed ETFs do not meet the standard for exemptive relief
under section 6(c) of the [1940] Act,'' \60\ and accordingly, ``absent
a request for a hearing that is granted by the Commission, the
Commission intends to deny [the Trust's] request for an exemption under
section 6(c) of the [1940] Act as not necessary or appropriate in the
public interest and as not consistent with the protection of investors
and the purposes fairly intended by the policy and provisions of the
[1940] Act.'' \61\
---------------------------------------------------------------------------

    \58\ Neither an ETF that has obtained 1940 Act exemptive relief
but does not fall within Commission-approved exchange listing
standards, nor an ETF that falls within Commission-approved listing
standards but has been denied 1940 Act exemptive relief, can legally
be listed and traded on a national securities exchange.
    \59\ See note 3 and accompanying text, supra. The Trust, the
Advisor, and the Distributor submitted an application for an order
under section 6(c) of the 1940 Act for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the 1940 Act and rule 22c-1
under the 1940 Act; under sections 6(c) and 17(b) of the 1940 Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the 1940
Act; and under section 12(d)(1)(J) of the 1940 Act for an exemption
from sections 12(d)(1)(A) and 12(d)(1)(B) of the 1940 Act.
    \60\ Notice of Application for Exemptive Relief, supra note 3,
at 3.
    \61\ Id. at 31.
---------------------------------------------------------------------------

    The purpose of the Exchange's proposed rule change is to allow the
listing and trading of the proposed Funds and future funds of the same
type. The Commission does not believe that approving this proposed rule
change would be consistent with the requirement under the Exchange Act
that an exchange's rules be consistent with the protection of investors
and the public interest, because the Commission has stated its
intention to deny the Trust's request for exemptive relief under the
1940 Act and because denying this exemptive relief would mean that the
Funds could not legally operate.\62\
---------------------------------------------------------------------------

    \62\ The Commission's determinations under Section 6(c) of the
1940 Act with respect to the Funds are preliminary and could change
if a hearing were requested, the Commission were to grant the
request, and persuasive new information were presented. Under
Section 19(b)(2) of the Exchange Act, however, the Commission must
approve, disapprove, or institute proceedings to disapprove this
proposed rule change by November 11, 2014, and it must do so on the
basis of the facts as they currently exist, irrespective of any
information that might be presented to or considered by the
Commission at a later date in the context of its final determination
under Section 6(c) of the 1940 Act.
---------------------------------------------------------------------------

IV. Conclusion

    For the reasons set forth above, the Commission does not find that
the proposed rule change is consistent with the requirements of the
Exchange Act and the rules and regulations thereunder applicable to a
national securities exchange, and in particular, with Section 6(b)(5)
of the Exchange Act.\63\
---------------------------------------------------------------------------

    \63\ Having found for the reasons explained above that the
Exchange's proposed rule change is not consistent with the
requirements of the Exchange Act, the Commission does not believe it
is necessary to address each of the particular objections raised by
the commenter who opposes the proposed rule change.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act, that the proposed rule change (SR-BATS-2014-018) be, and
it hereby is, disapproved.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\64\
---------------------------------------------------------------------------

    \64\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26947 Filed 11-13-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 136 (Monday, July 18, 2022)]
[Notices]
[Page 42721]
[FR Doc No: 2022-15241]

=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY

[FRL-10015-01-R5]

Proposed CERCLA Administrative Settlement Agreement for Crest
Rubber Superfund Site, Alliance, Ohio

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed settlement agreement and request for public
comments.

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

SUMMARY: The Environmental Protection Agency (EPA) is giving notice of
a proposed administrative settlement for recovery of past response
costs concerning the Crest Rubber Superfund Site in Alliance, Ohio with
Chemionics Corporation. The EPA invites written public comments on the
Settlement for thirty (30) days following publication of this notice.
The settlement requires the settling party to pay $355,000 to the
Hazardous Substance Superfund.

DATES: Comments must be received on or before August 17, 2022.

ADDRESSES: The proposed settlement and related documents can be viewed
at the Superfund Records Center (SRC-7J), United States Environmental
Protection Agency, Region 5, 77 W Jackson Blvd., Chicago, IL 60604,
(312) 886-4465 and on-line at https://response.epa.gov/CrestRubberAlliance.
    You may send comments, referencing the Crest Rubber Superfund Site
in Alliance, Ohio and identified by Docket ID No. V-W-22-C-006, to the
following address: Milagros Bensing, Superfund & Emergency Management
Division (SE-5J), U.S. Environmental Protection Agency, Region 5, 77
West Jackson Boulevard, Chicago, Illinois 60604-3590.

FOR FURTHER INFORMATION CONTACT: Naeha Dixit, Office of Regional
Counsel (C-14J), United States Environmental Protection Agency, Region
5, 77 West Jackson Boulevard, Chicago, Illinois 60604. Naeha Dixit may
be reached by telephone at<PHONE_NUMBER> or via electronic mail at
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background Information

    In accordance with Section 122(i) of the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42
U.S.C. 9622(i), notice is hereby given of a proposed administrative
settlement for recovery of past response costs concerning the Crest
Rubber Site in Alliance, Ohio with Chemionics Corporation. EPA
completed a removal action at the Site that began on May 15, 2017. The
Site is located in an industrial/commercial area and is approximately
3.6 acres in size. The settlement requires the settling party to pay
$355,000 to the Hazardous Substance Superfund. The settlement includes
a covenant not to sue the settling party pursuant to Section 107(a) of
CERCLA, 42 U.S.C. 9607(a).

II. Opportunity To Comment

A. General Information

    For thirty (30) days following the date of publication of this
notice, the Agency will receive written comments relating to the
Settlement. The Agency will consider all comments received and may
modify or withdraw its consent to the Settlement if comments received
disclose facts or considerations which indicate that the Settlement is
inappropriate, improper, or inadequate.

B. Where do I send my comments or view responses?

    Your comments should be mailed to Cheryl McIntyre, Superfund &
Emergency Management Division (SE-5J), U.S. Environmental Protection
Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604-
3590. Be sure to label the comments with the Docket Number at the top
of this notice and/or the property name. The Agency's response to any
comments received will be available for public inspection at the
Superfund Records Center.

C. What should I consider as I prepare my comments for EPA?

    1. Submitting Confidential Business Information (CBI). Do not
submit ANY information you think or know is CBI to EPA through an
agency website or via email. Clearly mark on your written comments all
the information that you claim to be CBI. If you mail EPA your comments
on a disk or CD-ROM (CD), mark the outside of the CD as CBI and then
identify electronically within the CD the specific information that is
claimed as CBI. In addition to one complete version of your comments
that includes all the information claimed as CBI, you must submit for
inclusion in the public docket a second copy of your comments that does
not contain the information claimed as CBI. Information marked as CBI
will not be disclosed except in accordance with procedures set forth in
40 CFR part 2.
    2. Tips for Preparing Your Comments. When submitting comments,
remember to:
     Identify the subject of your comments by the docket number
and the site name in the title of this notice or the Federal Register
publication date and page number.
     Follow directions--the agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree with the terms of the
Settlement; suggest alternatives and substitute language for your
requested changes.
     Describe any assumptions and provide any technical
information and/or data that you used.
     If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
     Provide specific examples to illustrate your concerns and
suggest alternatives.
     Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
     Make sure to submit your comments by the identified
comment period deadline.

    Dated: July 11, 2022.
Douglas Ballotti,
Director, Superfund & Emergency Management Division.
[FR Doc. 2022-15241 Filed 7-15-22; 8:45 am]
BILLING CODE 6560-50-P