[Federal Register Volume 79, Number 41 (Monday, March 3, 2014)]
[Rules and Regulations]
[Pages 11693-11695]
[FR Doc No: 2014-02775]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2013-0466; Directorate Identifier 2012-NM-156-AD;
Amendment 39-17749; AD 2014-03-12]
RIN 2120-AA64

Airworthiness Directives; Dassault Aviation Airplanes

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

ACTION: Final rule.

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SUMMARY: We are superseding Airworthiness Directive (AD) 2002-23-19 for
all Dassault Aviation Model FALCON 2000 series airplanes. AD 2002-23-19
required repetitive operational tests, repetitive measurements, and
repetitive replacement of certain jackscrews. This new AD requires
revising the maintenance program to incorporate new or revised
maintenance requirements and airworthiness limitations. This AD was
prompted by the manufacturer revising the airplane maintenance manual
(AMM) maintenance requirements and airworthiness limitations. We are
issuing this AD to prevent reduced controllability of the airplane.

DATES: This AD becomes effective April 7, 2014.
    The Director of the Federal Register approved the incorporation by
reference of a certain publication listed in this AD as of April 7,
2014.

ADDRESSES: You may examine the AD docket on the Internet at http://www.regulations.gov/#!docketDetail;D=FAA-2013-0466 ; or in person at
the U.S. Department of Transportation, Docket Operations, M-30, West
Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE.,
Washington, DC.
    For service information identified in this AD, contact Dassault
Falcon Jet, P.O. Box 2000, South Hackensack, NJ 07606; telephone 201-
440-6700; Internet http://www.dassaultfalcon.com. You may view this
referenced service information at the FAA, Transport Airplane
Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the
availability of this material at the FAA, call<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Tom Rodriguez, Aerospace Engineer,
International Branch, ANM-116, Transport Airplane Directorate, FAA,
1601 Lind Avenue SW., Renton, WA 98057-3356; telephone<PHONE_NUMBER>;
fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Discussion

    We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR
part 39 to supersede AD 2002-23-19, Amendment 39-12963 (67 FR 71452,
December 2, 2002). AD 2002-23-19 applied to all Dassault Aviation Model
FALCON 2000 series airplanes. The NPRM published in the Federal
Register on July 12, 2013 (78 FR 41882). The NPRM proposed to revise
the maintenance program to incorporate new or revised maintenance
requirements and airworthiness limitations.
    The European Aviation Safety Agency (EASA), which is the Technical
Agent for the Member States of the European Community, has issued EASA
Airworthiness Directive 2012-0156, dated August 23, 2012 (referred to
after this as the Mandatory Continuing Airworthiness Information, or
``the MCAI''), to correct an unsafe condition for the specified
products. The MCAI states:

    The airworthiness limitations and maintenance requirements for
the Falcon 2000 type design are included in Dassault Aviation Falcon
2000 (F2000) Aircraft Maintenance Manual (AMM) chapter 5-40 and are
approved by the European Aviation Safety Agency (EASA). EASA issued
AD 2008-0221 [http://ad.easa.europa.eu/blob/easa_ad_2008_0221_Corrected.pdf/AD_2008-0221_1] to require accomplishment of the
maintenance tasks, and implementation of the airworthiness
limitations, as specified in Dassault Aviation F2000 AMM chapter 5-
40 at revision 12.
    Since that [EASA] AD was issued, Dassault Aviation have issued
F2000 AMM chapter 5-40 at revision 17, which introduces new or more
restrictive maintenance requirements and/or airworthiness
limitations.
    Dassault Aviation AMM chapter 5-40 revision 17 contains among
other changes the following requirements:
    --Inspection and test of horizontal stabilizer jackscrew;
    --Operational test of voltage monitoring circuits;
    --Upgrade of screwjack of flap actuators from the older to the
latest -3 version;
    --Revised Time Between Overhaul for screwjack of flap actuators
-3 version;
    --Revised interval for checking the screw/nut play on screwjack
of flap actuators -3 version;
    --Removal of service life limit for screwjack of flap actuators;
    --Test of flap asymmetry protection system. Compliance with the
flap asymmetry test is required by DGAC [Direction
G[eacute]n[eacute]rale de l'Aviation Civile] France AD F-1999-038-
008(B)R1 [which can be found in the AD docket at http://www.regulations.gov/#!documentDetail;D=FAA-2013-0466-0002. F2000 AMM
chapter 5-40 at revision 17 introduces extended inspection interval;
    --Inspection procedures of fuselage and wings;
    --Check of overpressure tightness on pressurization control
regulating valves. Compliance with this check is required by EASA AD
2008-0072 [http://ad.easa.europa.eu/blob/easa_ad_2008_0072.pdf/AD_2008-0072_1]. F2000 AMM chapter 5-40 at revision 17 introduces
extended inspection interval.
The maintenance tasks and airworthiness limitations, as specified in
the F2000 AMM chapter 5-40, have been identified as mandatory
actions for continued airworthiness of the F2000 type design.
Failure to comply with AMM chapter 5-40 at revision 17 might
constitute an unsafe condition.
* * * * *
    The required action is revising the maintenance program to
incorporate all airworthiness limitations and maintenance tasks
specified in Chapter 5-40, Airworthiness Limitations, Revision 18,
dated July 2012, of Chapter 5, Maintenance Planning Document, of the
Dassualt Falcon 2000 Maintenance Manual. You may examine the MCAI in
the AD docket on the Internet at http://www.regulations.gov/#!documentDetail;D=FAA-2013-0466-0002.

Comments

    We gave the public the opportunity to participate in developing
this AD. We received no comments on the NPRM (78 FR 41882, July 12,
2013) or on the determination of the cost to the public.

Explanation of Changes to This Final Rule

    After the NPRM (78 FR 41882, July 12, 2013) was published, we
determined that it was not necessary to retain the requirements of AD
2010-26-05, Amendment 39-16544 (75 FR 79952, December 21, 2010), in
this final rule.

Paragraphs (g), (h), and (i) of the NPRM were not carried over into
this final rule, and the paragraphs that were carried over into this
final rule have been redesignated accordingly.
    We have concluded that the actions required by this final rule
address the unsafe condition.
    Because paragraphs (g), (h), and (i) of the NPRM (78 FR 41882, July
12, 2013) were not carried over into this final rule, we revised the
Costs of Compliance paragraph in this final rule to omit the costs
associated with those paragraphs.

Conclusion

    We reviewed the available data and determined that air safety and
the public interest require adopting this AD with the changes described
previously, and minor editorial changes. We have determined that these
changes:
     Are consistent with the intent that was proposed in the
NPRM (78 FR 41882, July 12, 2013) for correcting the unsafe condition;
and
     Do not add any additional burden upon the public than was
already proposed in the NPRM (78 FR 41882, July 12, 2013).

Costs of Compliance

    We estimate that this AD affects 229 airplanes of U.S. registry.
    We estimate that it takes about 1 work-hour per product to comply
with the basic requirements of this AD. The average labor rate is $85
per work-hour. Based on these figures, we estimate the cost of this AD
on U.S. operators to be $19,465, or $85 per product.

Authority for This Rulemaking

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

Regulatory Findings

    We determined that this 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 the DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979);
    3. Will not affect intrastate aviation in Alaska; and
    4. 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.

Examining the AD Docket

    You may examine the AD docket on the Internet at http://www.regulations.gov/#!docketDetail;D=FAA-2013-0466-0002; or in person
at the Docket Operations office 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 street address for the Docket Operations office
(telephone<PHONE_NUMBER>) is in the ADDRESSES section.

List of Subjects in 14 CFR Part 39

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

Adoption of the Amendment

    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 removing Airworthiness Directive (AD)
2002-23-19, Amendment 39-12963 (67 FR 71452, December 2, 2002), and
adding the following new AD:

2014-03-12 Dassault Aviation: Amendment 39-17749. Docket No. FAA-
2013-0466; Directorate Identifier 2012-NM-156-AD.

(a) Effective Date

    This airworthiness directive (AD) becomes effective April 7,
2014.

(b) Affected ADs

    This AD supersedes AD 2002-23-19, Amendment 39-12963 (67 FR
71452, December 2, 2002). Certain requirements of this AD terminate
certain requirements of AD 2010-26-05, Amendment 39-16544 (75 FR
79952, December 21, 2010).

(c) Applicability

    This AD applies to Dassault Aviation Model FALCON 2000
airplanes, certificated in any category, all serial numbers.

(d) Subject

    Air Transport Association (ATA) of America Code 05, Time limits
and maintenance checks.

(e) Reason

    This AD was prompted by manufacturer revisions to the airplane
maintenance manual (AMM) that introduce new or more restrictive
maintenance requirements and airworthiness limitations. We are
issuing this AD to prevent reduced controllability of the airplane.

(f) Compliance

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

(g) Revision of the Maintenance Program

    Within 30 days after the effective date of this AD, revise the
maintenance program to incorporate the information specified in
Chapter 5-40, Airworthiness Limitations, Revision 18, dated July
2012, of Chapter 5, Maintenance Planning Document, of the Dassault
Falcon 2000 Maintenance Manual. The initial compliance time for the
tasks are at the applicable times specified in Chapter 5-40,
Airworthiness Limitations, Revision 18, dated July 2012, of Chapter
5, Maintenance Planning Document, of the Dassault Falcon 2000
Maintenance Manual, or within 30 days after the effective date of
this AD, whichever occurs later. Clarification of compliance time
terminology used in the tables in the service information is
provided in paragraphs (g)(1) through (g)(6) of this AD.
    (1) The term ``landings'' in the ``First Inspection'' column of
any table in the service information specified in paragraph (g) of
this AD means total airplane landings.
    (2) The term ``flight hours'' in the ``First Inspection'' column
of any table in the service information specified in paragraph (g)
of this AD means total flight hours.
    (3) The term ``flight cycles'' in the ``First Inspection''
column of any table in the service information specified in
paragraph (g) of this AD means total flight cycles.
    (4) For Task 30-11-09-350-801 30-103 identified in the service
information specified in paragraph (g) of this AD, the initial
compliance time is the later of the times specified in paragraphs
(g)(4)(i) and (g)(4)(ii) of this AD.
    (i) Prior to the accumulation of 2,400 total flight hours or
2,000 total flight cycles, or within 2,400 flight hours or 2,000
flight

cycles after the effective date of this AD, whichever occurs first.
    (ii) Within 30 days after the effective date of this AD.
    (5) For Task 52-20-00-610-801-01 52-205 identified in the
service information specified in paragraph (g) of this AD, the
initial compliance time is 24 months after the effective date of
this AD.
    (6) The limited service life of part number F2MA721512100 is
3,750 total flight cycles on the part or 6 years since the
manufacturing date of the part, whichever occurs first.

(h) Terminating Action

    Accomplishment of the actions required by paragraph (g) of this
AD terminates the requirements of paragraph (g) of AD 2010-26-05,
Amendment 39-16544 (75 FR 79952, December 21, 2010), for all
Dassault Aviation Model FALCON 2000 airplanes.

(i) No Alternative Actions or Intervals

    After accomplishing the revision required by paragraph (g) of
this AD, no alternative actions (e.g., inspections) or intervals may
be used unless the actions or intervals are approved as an
alternative method of compliance in accordance with the procedures
specified in paragraph (j)(1) of this AD.

(j) Other FAA AD Provisions

    The following provisions also apply to this AD:
    (1) Alternative Methods of Compliance (AMOCs): The Manager,
International Branch, ANM-116, Transport Airplane Directorate, 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 International Branch, send it to ATTN: Tom
Rodriguez, Aerospace Engineer, International Branch, ANM-116,
Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton,
WA 98057-3356; telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>. Information
may be emailed to<EMAIL_ADDRESS>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. The
AMOC approval letter must specifically reference this AD.
    (2) Airworthy Product: For any requirement in this AD to obtain
corrective actions from a manufacturer or other source, use these
actions if they are FAA-approved. Corrective actions are considered
FAA-approved if they are approved by the State of Design Authority
(or their delegated agent). You are required to assure the product
is airworthy before it is returned to service.

(k) Related Information

    Refer to Mandatory Continuing Airworthiness Information (MCAI)
European Aviation Safety Agency Airworthiness Directive 2012-0156,
dated August 23, 2012, for related information. The MCAI can be
found in the AD docket on the Internet at http://www.regulations.gov/#!documentDetail;D=FAA-2013-0466-0002.

(l) Material Incorporated by Reference

    (1) The Director of the Federal Register approved the
incorporation by reference (IBR) of the service information listed
in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
    (2) You must use this service information as applicable to do
the actions required by this AD, unless this AD specifies otherwise.
    (i) Chapter 5-40, Airworthiness Limitations, Revision 18, dated
July 2012, of Chapter 5, Maintenance Planning Document, of the
Dassualt Falcon 2000 Maintenance Manual.
    (ii) Reserved.
    (3) For service information identified in this AD, contact
Dassault Falcon Jet, P.O. Box 2000, South Hackensack, NJ 07606;
telephone<PHONE_NUMBER>; Internet http://www.dassaultfalcon.com.
    (4) You may view this service information at the FAA, Transport
Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For
information on the availability of this material at the FAA, call
425-227-1221.
    (5) You may view this service information that is incorporated
by reference at the National Archives and Records Administration
(NARA). For information on the availability of this material at
NARA, call<PHONE_NUMBER>, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued in Renton, Washington, on February 3, 2014.
Jeffrey E. Duven,
Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2014-02775 Filed 2-28-14; 8:45 am]
BILLING CODE 4910-13-P


versions of these proposed fee changes.\76\
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    \76\ See, e.g., SR-PEARL-2022-03, SR-PEARL-2022-04, SR-PEARL-
2022-11.
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\77\ at any time within
60 days of the date of filing of a proposed rule change pursuant to
Section 19(b)(1) of the Act,\78\ the Commission summarily may
temporarily suspend the change in the rules of a self-regulatory
organization (``SRO'') if it appears to the Commission that such action
is necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of the Act.
As discussed below, the Commission believes a temporary suspension of
the proposed rule change is necessary and appropriate to allow for
additional analysis of the proposed rule change's consistency with the
Act and the rules thereunder.
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    \77\ 15 U.S.C. 78s(b)(3)(C).
    \78\ 15 U.S.C. 78s(b)(1).
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    When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\79\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements.'' \80\
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    \79\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
    \80\ See Id.
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    Among other things, exchange proposed rule changes are subject to
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which
requires the rules of an exchange to: (1) Provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \81\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \82\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\83\
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    \81\ 15 U.S.C. 78f(b)(4).
    \82\ 15 U.S.C. 78f(b)(5).
    \83\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's fee change, the Commission
intends to further consider whether the proposed fees are consistent
with the statutory requirements applicable to a national securities
exchange under the Act. In particular, the Commission will consider
whether the proposed rule change satisfies the standards under the Act
and the rules thereunder requiring,

among other things, that an exchange's rules provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using its facilities; not be designed to permit unfair discrimination
between customers, issuers, brokers or dealers; and do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\84\
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    \84\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule change.\85\
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    \85\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections
19(b)(3)(C) \86\ and 19(b)(2)(B) \87\ of the Act to determine whether
the Exchange's proposed rule change should be approved or disapproved.
Institution of such proceedings is appropriate at this time in view of
the legal and policy issues raised by the proposed rule change.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described below, the Commission seeks and encourages
interested persons to provide comments 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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    \86\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
    \87\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\88\ the Commission is
providing notice of the grounds for possible disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of whether the Exchange has sufficiently
demonstrated how the proposed rule change is consistent with Sections
6(b)(4),\89\ 6(b)(5),\90\ and 6(b)(8) \91\ of the Act. Section 6(b)(4)
of the Act requires that the rules of a national securities exchange
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and other persons using its
facilities. Section 6(b)(5) of the Act requires that the rules of a
national securities exchange be designed, among other things, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system and, in general, to protect investors and the public
interest, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act
requires that the rules of a national securities exchange not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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    \88\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
    \89\ 15 U.S.C. 78f(b)(4).
    \90\ 15 U.S.C. 78f(b)(5).
    \91\ 15 U.S.C. 78f(b)(8).
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    The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, in addition to any
other comments they may wish to submit about the proposed rule change.
In particular, the Commission seeks comment on the following aspects of
the proposal and asks commenters to submit data where appropriate to
support their views:
    1. Cost Estimates and Allocation. The Exchange states that it is
not asserting that the proposed fees are constrained by competitive
forces.\92\ Rather, the Exchange states that its proposed fees are
based on a ``cost-plus model,'' employing a ``conservative approach,''
and that the expenses are ``directly related'' to 10Gb ULL connectivity
and Full Service MEO Ports, and not any other product or service
offered by the Exchange.\93\ In explaining its costs, should the
Exchange identify more specifically which, if any, of its costs are
incurred solely to provide 10Gb ULL connectivity and solely to provide
Full Service MEO Ports? Regarding the allocations provided by the
Exchange as described in greater detail above, do commenters believe
that the Exchange provided sufficient detail about how it determined
these allocations and why they are reasonable? \94\ Why or why not? Do
commenters believe that the Exchange provided sufficient context to
permit an independent review and assessment of the reasonableness of
the allocations? Do commenters believe that the Exchange provided
sufficient detail or explanation to support its claim that ``no expense
amount is allocated twice,'' \95\ whether among the sub-categories of
expenses in this filing, across the Exchange's fee filings for other
products or services, or over time?
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    \92\ See supra Section II.A.2.
    \93\ See id.
    \94\ See id.
    \95\ See id.
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    2. Revenue Estimates and Profit Margin Range. The Exchange uses a
single monthly revenue figure (April 2022) as the basis for calculating
its projected combined profit margin of 15%.\96\ The Exchange argues
that projecting revenues on a per month basis is reasonable ``as the
revenue generated from access services subject to the proposed fee
generally remains static from month to month.'' \97\ Yet the Exchange
also acknowledges that ``profit margin may also fluctuate from month to
month based on the uncertainty of predicting how many connections and
ports may be purchased from month to month as Members and non-Members
are free to add and drop connections and ports at any time based on
their own business decisions.'' \98\ Do commenters believe a single
month provides a reasonable basis for a revenue projection? If not, why
not? Should the Exchange provide a range of profit margins that it
believes are reasonably possible, and the reasons therefor? The
Exchange also provided its baseline by analyzing March 2022.\99\ Do
commenters believe that March 2022 is an appropriate month for a
baseline? What are commenters' views on the Exchange providing a
combined profit margin for both 10Gb ULL connectivity and Full Service
MEO Ports, rather than separate margins for each?
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    \96\ See id.
    \97\ See id.
    \98\ See id.
    \99\ See id.
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    3. Reasonableness. The Exchange states that its proposed fees are
``reasonable because they will permit recovery of the Exchange's costs
in providing access services to supply 10Gb ULL connectivity and Full
Service MEO Ports and will not result in the Exchange generating a
supra-competitive profit.'' \100\ The Exchange offers several
justifications for why its estimated profit margin (which is blended
and not discussed separately for each service) is not a supra-
competitive profit, including: (a) When it launched operations in 2017,
it chose

to forgo revenue by offering certain products at lower rates than other
options exchanges to attract order flow; (b) the Exchange has been
successful in controlling its costs; (c) a profit margin should not be
judged alone based on its size, but on whether the ultimate fee
reflects the value of the services provided, and (d) the Exchange's
proposed fees remain similar to or less than fees charged for access
provided by other options exchanges with similar market share. Do
commenters agree that these factors are relevant to assessment of
whether the fees are reasonable for each service? Should such an
assessment include consideration of any factors other than costs; and
if so, what factors should be considered, and why?
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    \100\ See id.
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    4. Periodic Reevaluation. The Exchange has stated that it will
conduct a review of the cost-based fees subject to this proposal one
year after the date of the proposal, and annually thereafter.\101\ In
light of the impact that the number of connections and ports purchased
has on profit margins, and the potential for costs to decrease (or
increase) over time, what are commenters' views on the need for
exchanges to commit to reevaluate, on an ongoing and periodic basis,
their cost-based fees to ensure that the fees stay in line with their
stated profitability projections and do not become unreasonable over
time, for example, by failing to adjust for efficiency gains, cost
increases or decreases, and changes in amounts purchased? How formal
should that process be, how often should that reevaluation occur, and
what metrics and thresholds should be considered? How soon after a new
fee change is implemented should an exchange assess whether its revenue
and/or cost estimates were accurate and at what threshold should an
exchange commit to file a fee change if its estimates were inaccurate?
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    \101\ See id.
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    5. Tiered Structure for Full Service MEO Ports Fees. The Exchange
states that proposed tiered-pricing structure is reasonable, equitably
allocated, and not unfairly discriminatory because for a flat fee the
Exchange provides each Member two Full Service MEO Ports for each
matching engine to which the Member is connected, and further, it is
the model adopted by the Exchange when it launched operations for its
Full Service MEO Port fees.\102\ What are commenters' views on the
adequacy of the information the Exchange provides regarding the
proposed differentials in fees? Do commenters believe that the proposed
price differences are supported by the Exchange's assertions that it
set the level of each proposed new fee in a manner that it equitable
and not unfairly discriminatory?
---------------------------------------------------------------------------

    \102\ See id.
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
[SRO] that proposed the rule change.'' \103\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\104\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\105\
Moreover, ``unquestioning reliance'' on an SRO's representations in a
proposed rule change would not be sufficient to justify Commission
approval of a proposed rule change.\106\
---------------------------------------------------------------------------

    \103\ 17 CFR 201.700(b)(3).
    \104\ See id.
    \105\ See id.
    \106\ See Susquehanna Int'l Group, LLP v. Securities and
Exchange Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017)
(rejecting the Commission's reliance on an SRO's own determinations
without sufficient evidence of the basis for such determinations).
---------------------------------------------------------------------------

    The Commission believes it is appropriate to institute proceedings
to allow for additional consideration and comment on the issues raised
herein, including as to whether the proposal is consistent with the
Act, any potential comments or supplemental information provided by the
Exchange, and any additional independent analysis by the Commission.

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. In particular, the Commission invites the written views of
interested persons concerning whether the proposal is consistent with
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the
Act, or the rules and regulations thereunder. The Commission asks that
commenters address the sufficiency and merit of the Exchange's
statements in support of the proposal, in addition to any other
comments they may wish to submit about the proposed rule change.
Although there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral
presentation.\107\
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act 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 an SRO.
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 proposal should be approved or
disapproved by June 7, 2022. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by June 21,
2022.
    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 protected]. Please include
File No. SR-PEARL-2022-18 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-PEARL-2022-18. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of

10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File No. SR-PEARL-2022-18 and should be
submitted on or before June 7, 2022. Rebuttal comments should be
submitted by June 21, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\108\ that File No. SR-PEARL-2022-18 be, and hereby is, temporarily
suspended. In addition, the Commission is instituting proceedings to
determine whether the proposed rule change should be approved or
disapproved.
---------------------------------------------------------------------------

    \108\ 15 U.S.C. 78s(b)(3)(C).
    \109\ 17 CFR 200.30-3(a)(12), (57) and (58).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\109\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10514 Filed 5-16-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 206 (Wednesday, October 26, 2022)]
[Notices]
[Pages 64824-64828]
[FR Doc No: 2022-23230]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96113; File No. SR-OCC-2021-802]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Partial Amendments No. 1, 2, 3, and 4 and Notice of
No Objection to Advance Notice, as Modified by Partial Amendments No.
1, 2, 3, and 4 Relating to OCC's Adoption of Cloud Infrastructure for
New Clearing, Risk Management, and Data Management Applications

October 20, 2022.

I. Introduction

    On October 8, 2021, the Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'')
advance notice SR-OCC-2021-802 (``Advance Notice'') pursuant to Section
806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, entitled Payment, Clearing and Settlement
Supervision Act of 2010 (``Clearing Supervision Act''),\1\ and Rule
19b-4(n)(1)(i) \2\ under the Securities Exchange Act of 1934
(``Exchange Act''),\3\ in connection with a proposed adoption of third-
party-hosted cloud infrastructure (also generally referred to as the
``Cloud'') for OCC's new clearing, risk management, and data management
applications. On November 2, 2021, the Commission published notice of
the Advance Notice in the Federal Register to solicit public comment
and to extend the review period for the Advance Notice.\4\ The
Commission has received no comments regarding the changes proposed in
the Advance Notice.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
    \4\ Securities Exchange Act Release No. 93433 (Oct. 27, 2021),
86 FR 60503 (Nov. 2, 2021) (File No. SR-OCC-2021-802) (``Notice of
Filing'').
---------------------------------------------------------------------------

    On November 16, 2021, OCC filed Partial Amendment No. 1 to the
Advance Notice.\5\ On December 13, 2021, OCC filed Partial Amendment
No. 2 to the Advance Notice.\6\ On July 1, 2022, OCC filed Partial
Amendment No. 3 to the Advance Notice.\7\ On September 12, 2022, OCC
filed Partial Amendment No. 4 to the Advance Notice.\8\
---------------------------------------------------------------------------

    \5\ Partial Amendment No. 1 appended an Exhibit 2 to documents
previously filed as part of the Advance Notice on October 8, 2021.
The Exhibit 2 consists of a communication from OCC to its Clearing
Members concerning the changes discussed in the Advance Notice.
Partial Amendment No. 1 did not change the purpose of or basis for
the Advance Notice.
    \6\ Partial Amendment No. 2 replaced confidential Exhibits 3f
and 3g previously filed as part of the Advance Notice on October 8,
2021 with revised confidential Exhibits 3f and 3g and added new
confidential Exhibit 3gg to the Advance Notice. Exhibits 3f and 3gg
are two of the documents that collectively comprise the agreement
with the Cloud service provider (``CSP'') and were updated as OCC
further negotiated and modified the terms of that agreement. Exhibit
3g provides a summary of the terms and conditions of OCC's agreement
with the CSP designed to enable OCC to comply with Regulation SCI.
Partial Amendment No. 2 did not change the purpose of or basis for
the Advance Notice.
    \7\ Partial Amendment No. 3 replaced the revised confidential
Exhibits 3f and 3g that were previously filed in connection with
Partial Amendment No. 2 with further revised confidential Exhibits
3f and 3g and added new confidential Exhibit 3hh to the Advance
Notice. Exhibit 3hh is a Gantt chart regarding OCC's Cloud
transition plan. Partial Amendment No. 3 did not change the purpose
of or basis for the Advance Notice.
    \8\ Partial Amendment No. 4 again replaced confidential Exhibit
3f filed as part of the Advance Notice, as modified by Partial
Amendments Nos. 2 and 3, with revised confidential Exhibit 3f.
Partial Amendment No. 4 did not change the purpose of or basis for
the Advance Notice.
---------------------------------------------------------------------------

    On January 27, 2022, the Commission requested that OCC provide it
with additional information regarding the Advance Notice, pursuant to
Section 806(e)(1)(D) of the Clearing Supervision Act,\9\ which tolled
the Commission's period of review of the Advance Notice until 120 days
\10\ from the date the requested information was received by the
Commission.\11\ The Commission received OCC's response to the
Commission's request for additional information on March 3, 2022.\12\
On

June 14, 2022, the Commission made a second request for OCC to provide
additional information regarding the Advance Notice, which tolled the
Commission's period of review of the Advance Notice until 120 days \13\
from the date the requested information was received by the
Commission.\14\ OCC responded to the request, and the Commission
received the information on June 22, 2022.\15\
---------------------------------------------------------------------------

    \9\ 12 U.S.C. 5465(e)(1)(D).
    \10\ The Commission may extend the review period for an
additional 60 days (to 120 days total) for proposed changes that
raise novel or complex issues. See 12 U.S.C. 5465(e)(1)(H).
    \11\ See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); Memorandum
from Office of Clearance and Settlement, Division of Trading and
Markets, titled ``Commission's Request for Additional Information''
(Jan. 27, 2022), available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20113044-265605.pdf.
    \12\ See Memorandum from Office of Clearance and Settlement,
Division of Trading and Markets, titled ``Response to the
Commission's Request for Additional Information'' (Mar. 4, 2022),
available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20118637-271511.pdf.
    \13\ See supra note 10.
    \14\ See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); Memorandum
from Office of Clearance and Settlement, Division of Trading and
Markets, titled ``Commission's Second Request for Additional
Information'' (June 14, 2022), available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20132534-303027.pdf.
    \15\ See Memorandum from Office of Clearance and Settlement,
Division of Trading and Markets, titled ``Response to the
Commission's Request for Additional Information'' (June 23, 2022),
available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20138832-308537.pdf.
---------------------------------------------------------------------------

    The Commission is publishing this notice to solicit comments on
Partial Amendments No. 1, 2, 3, and 4 from interested persons and, for
the reasons discussed below, is hereby providing notice of no objection
to the Advance Notice.\16\
---------------------------------------------------------------------------

    \16\ References to the Advance Notice from this point forward
refer to the Advance Notice as modified by Partial Amendments Nos.
1, 2, 3, and 4.
---------------------------------------------------------------------------

II. Background \17\
---------------------------------------------------------------------------

    \17\ Capitalized terms used but not defined herein have the
meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------

    OCC is the only clearing agency for standardized U.S. securities
options listed on Commission-registered national securities exchanges
(``listed options''). In addition to clearing and settling listed
options, OCC serves other financial markets, including the commodity
futures, commodity options, security futures, securities lending, and
the over-the-counter options markets. Further, OCC provides central
counterparty (``CCP'') clearing services for all of these markets and
performs critical functions in the clearance and settlement process.
OCC's role as the sole CCP for these markets is operationally complex
and makes OCC an integral part of the national system for clearance and
settlement.
    The current iterations of OCC's core clearing, risk management, and
data management applications (``ENCORE'') were launched in 2000 and
designed to operate in on-premises data centers.\18\ As part of a
larger technology initiative it calls ``Renaissance,'' OCC now proposes
essentially to migrate ENCORE's functions to the virtual equivalent of
a traditional on-premises data center (a ``Virtual Private Cloud'')
hosted by a third party CSP by utilizing Cloud-based hardware and
systems software instead of its current on-premises hardware and
systems software. OCC refers to the migration of ENCORE's functionality
to a Virtual Private Cloud as the adoption of a ``Cloud
Infrastructure.'' OCC's proposed adoption of a Cloud Infrastructure
would offer more resiliency,\19\ security, and scalability than OCC's
current on-premises infrastructure, in part, because the on-premises
data centers require the acquisition and installation of additional
hardware and systems software to accommodate scaled resources or new
applications, while the Virtual Private Cloud does not. Although OCC is
not proposing changes to ENCORE's functionality at this time (only to
migrate that functionality to a Virtual Private Cloud, utilizing cloud-
based hardware and systems software), OCC's goal is to eventually
retire ENCORE and implement new, improved clearing, risk management,
and data management applications to replace ENCORE. In part because of
the improved resiliency, security, and scalability noted above, the
adoption of Cloud Infrastructure is a necessary building block for that
goal.
---------------------------------------------------------------------------

    \18\ See Notice of Filing, 86 FR at 60504. ENCORE receives trade
and post-trade data from various sources on a transaction-by-
transaction basis; maintains clearing member positions; calculates
margin and clearing fund requirements; and provides reporting to OCC
staff, regulators, and clearing members.
    \19\ In this context, ``resiliency'' is the ``ability to
anticipate, withstand, recover from, and adapt to adverse
conditions, stresses, attacks, or compromises on systems that
include cyber resources.'' Systems Security Engineering: Cyber
Resiliency Considerations for Engineering of Trustworthy Secure
Systems, Spec. Publ. NIST SP No. 800-160, vol. 2 (2018).
---------------------------------------------------------------------------

    The proposed migration of ENCORE's functions to a Virtual Private
Cloud would include scalable resources that would: (i) handle various
computationally intensive applications with load-balancing and resource
management (``Compute''); (ii) provide configurable storage
(``Storage''); and (iii) host network resources and services
(``Network''). At the same time, reliance on a single CSP for OCC's
core clearing, risk management, and data management applications also
introduces certain risks. To mitigate those risks, OCC also proposes to
retain a physical on-premises data center as a backup to the primary
Cloud system, which would be utilized in the unlikely event of a multi-
region outage of the Compute, Storage, and Network services at the CSP
that affect OCC operations. Taken together, the move to a Cloud
Infrastructure combined with the proposed backup on-premises data
center would affect various aspects of OCC's operations including (i)
resiliency, (ii) security, and (iii) scalability while mitigating one
of the primary risks associated with relying on a single CSP. The move
to a Cloud Infrastructure also would introduce additional risks
associated with a migration to a Cloud Infrastructure, which OCC has
identified and addressed through various controls, mitigation efforts,
and policies and procedures. A summary of each of these aspects of
OCC's operations, as well as the primary attendant risks associated
with the proposed migration to a Cloud Infrastructure, is provided
below.

A. Resiliency

    OCC currently operates ENCORE in two on-premises data centers
located in Texas and Illinois. OCC proposes to provision Compute,
Storage, and Network resources in two separate, logically isolated
Virtual Private Clouds that are capable of operating autonomously from
each other and are located in geographically diverse regions.\20\
Specifically, OCC would operate in three availability zones within each
region, effectively providing for six levels of redundancy within a
Cloud Infrastructure. The two Virtual Private Clouds would run in a
``hot/warm'' configuration. The ``hot'' Virtual Private Cloud would be
operational and accept data traffic, while the ``warm'' Virtual Private
Cloud would have applications on stand-by while simultaneously
receiving the same incoming data and receiving replicated data from the
``hot'' Virtual Private Cloud. OCC believes that this proposed systems
architecture would significantly reduce operational complexity,
mitigate the risk of human error, and provide increased resiliency and
assured capacity.\21\
---------------------------------------------------------------------------

    \20\ In this context, ``separate'' refers to the physical
separation of the hardware housing the Virtual Private Clouds.
``Logically isolated'' is a similar concept from a network
perspective, where the Virtual Private Clouds are virtually
``separated'' from each other on the network. The purpose of
physically and logically separating the Virtual Private Clouds is to
minimize the degree to which one event could impair both Clouds at
the same time. This is similar to the concept of locating OCC's
current data centers far enough apart that a natural or manmade
disaster affecting one data center is unlikely to affect the other.
    \21\ Notice of Filing, 86 FR at 60505.
---------------------------------------------------------------------------

    In addition to the Virtual Private Clouds, OCC would operate an on-
premises backup data center that would be separate from the Cloud
Infrastructure. Like the ``warm'' Virtual

Private Cloud, the on-premises data center would receive the same
incoming data and replicated data from the ``hot'' Virtual Private
Cloud. The on-premises data center would provide continuity of
operations in the event that OCC loses access to its Cloud
Infrastructure. For example, OCC might rely on the on-premises data
center to maintain continuity of services in response to either a brief
operational disruption of OCC's Virtual Private Clouds or a longer
outage resulting from termination of OCC's relationship with the
CSP.\22\
---------------------------------------------------------------------------

    \22\ In the Notice of Filing, OCC specifically addresses the
potential risk of its CSP terminating its relationship with OCC. See
id. at 60511. The CSP may not unilaterally terminate the
relationship with OCC absent good cause or without sufficient notice
to allow OCC to transition to an alternate CSP or to the on-premises
solution for its Compute, Storage, and Network needs. In the
additional information it provided on March 3, 2022, OCC represents
that, in the event the CSP ceases to support OCC's proposed Cloud
Infrastructure, the on-premises data center would be capable of
independently operating OCC's core clearing, risk management, and
data management applications until such time as OCC is able to
implement a new Cloud Infrastructure with another CSP.
---------------------------------------------------------------------------

B. Security

    OCC has developed a Cloud security program to allow OCC to manage
the security of the core applications that would run on the Cloud
Infrastructure. OCC's Cloud security program also would provide OCC
with tools to assess and monitor the CSP's management of the Cloud
Infrastructure's security.\23\ As described below, the proposed Cloud
security program focuses on four elements: (i) access controls; (ii)
data governance; (iii) configuration management; and (iv) testing.
---------------------------------------------------------------------------

    \23\ OCC is not proposing to change or remove its current
physical and cyber security standards, which OCC states are designed
to align with the National Institute of Standards and Technology
(``NIST''), Cyber Security Framework, and Center for internet
Security benchmarks. See Notice of Filing, 86 FR at 60505.
---------------------------------------------------------------------------

    OCC is also proposing to implement tools provided by the CSP and
selected third parties that are not currently available for use in
OCC's on-premises data centers.\24\
---------------------------------------------------------------------------

    \24\ For example, OCC intends to implement Cloud security
capabilities designed to automate and standardize how OCC deploys
and monitors IT system configurations as well as how OCC encrypts
data. The proposed Cloud Infrastructure would also allow OCC to take
advantage of services for setting up credentials and end-to-end
configuration change management and scanning.
---------------------------------------------------------------------------

1. Access Controls
    OCC proposes to enforce a strict separation of duties and least-
privileged access \25\ for infrastructure, applications, and data to
protect the confidentiality, availability, and integrity of the data.
Using third-party tools, OCC would automate appropriate role-based
access to the core applications running in the Cloud. For the on-
premises data center, OCC would implement additional risk management
measures. Specifically, OCC would explicitly set up the infrastructure
for all connectivity to and from the on-premises data center and rely
on heavily monitored ``jump hosts'' (e.g., data feeds in and out,
mechanisms for the delivery of the software, and a minimum management
interface that requires multi-factor authentication for access). OCC
would also limit access to approved users of the on-premises data
center via dedicated private circuits.
---------------------------------------------------------------------------

    \25\ ``Least-privileged access'' means users will have only the
permissions needed to perform their work, and no more.
---------------------------------------------------------------------------

2. Data Governance
    OCC's Enterprise Security Standards describe the data governance
framework applicable to OCC's proposed Cloud Infrastructure, such as
data moving between systems within the Cloud.\26\ For example, the
Enterprise Security Standards require any system related to the Cloud
Infrastructure to: (i) store data and information in the United States
throughout its lifecycle; (ii) be able to retrieve and access the data
and information throughout its lifecycle; (iii) encrypt data in the
Cloud with key pairs kept and owned by OCC; (iv) comply with United
States federal and applicable state data regulations regarding data
location; and (v) enable secure disposition of non-records. Other OCC
policies, such as its existing Information Classification and Handling
Policy,\27\ establish the overall data governance framework applied to
the management, use, and governance of OCC information accessed,
stored, or transmitted through the Cloud Infrastructure.
---------------------------------------------------------------------------

    \26\ OCC provided its Enterprise Security Standards in a
confidential exhibit to File No. SR-OCC-2021-802.
    \27\ OCC provided its Information Classification and Handling
Policy in a confidential exhibit to File No. SR-OCC-2021-802.
---------------------------------------------------------------------------

3. Configuration Management
    To improve configuration management, OCC proposes to rely on pre-
established system configurations, specifically the use of automated
delivery of business and security capability via ``Infrastructure as
Code,'' \28\ to consistently and transparently deploy security controls
on demand. OCC would also employ continuous configuration monitoring
and periodic vulnerability scanning. Further, OCC would perform regular
reviews and testing of its systems running in the Cloud while also
relying on regular reviews and testing reports provided by the CSP.\29\
OCC also proposes to use third-party solutions and CSP tools to track
metrics, monitor log files, set alarms, and act on changes to OCC's
core applications and the environment in which they operate.
---------------------------------------------------------------------------

    \28\ ``Infrastructure as Code'' is the process of managing and
setting up computer data centers through machine-readable definition
files, rather than through physical hardware configuration or
interactive configuration tools.
    \29\ As confidential exhibits to File No. SR-OCC-2021-802, OCC
provided documents governing the CSP's obligations to provide such
information to OCC. See supra note 6.
---------------------------------------------------------------------------

4. Testing
    OCC proposes the use of various security testing techniques for the
Cloud Infrastructure. Through a risk-based analysis, an OCC team
dedicated to security testing would determine what types of security
testing techniques are appropriate for new assets and applications.
Such techniques include automated security testing; \30\ manual
penetration testing; \31\ and Blue Team testing.\32\ OCC would employ
processes for managing and remediating the results of its security
testing.
---------------------------------------------------------------------------

    \30\ Automated security testing uses industry standard security
testing tools and/or other security engineering techniques
specifically configured for each test.
    \31\ Manual penetration testing uses information gathered from
automated testing or other sources to identify vulnerabilities and
deliver payloads with the intent to break, change, or gain access to
the unauthorized area within a system.
    \32\ Blue Team testing identifies security threats and risks in
the operating environment and analyzes the network, system, and
Software-as-a-Service environments and their current state of
security readiness to ensure that they are as secure as possible
before deploying to a production environment. Software-as-a-Service
is a software licensing and delivery model in which software is
licensed on a subscription basis and is centrally hosted.
---------------------------------------------------------------------------

    Moving to a third-party-hosted Cloud infrastructure does present
the risk that OCC would be overly reliant on the CSP to provide test
results reliably and consistently. However, as indicated in
confidential information provided by OCC, the CSP agreement provides
assurances that the CSP would provide OCC with test cases, test
planning, and auditable evidence of testing execution, including test
results.\33\ These test results would allow OCC to work with the CSP to
make any changes, as needed, to rectify any technical issues that
arise. Additionally, the CSP agreement includes provisions related to
business continuity testing and intrusion reporting to facilitate the
flow of security information to OCC.
---------------------------------------------------------------------------

    \33\ As confidential exhibits to File No. SR-OCC-2021-802, OCC
provided documents governing the CSP's obligations to provide such
information to OCC. See supra note 6.

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

C. Scalability

    OCC's proposal to migrate from their current on-premises
infrastructure to the Cloud represents a tradeoff in risk management.
Accommodating scaled resources or new applications in OCC's current on-
premises data centers would require OCC to acquire and install
additional hardware and software. The availability of on-demand scaling
in a Virtual Private Cloud could present a risk if OCC were not to
receive resources from the CSP when requested. However, based on the
confidential information provided by OCC in connection with the Advance
Notice, OCC will contract with the CSP for at least as much capacity as
it maintains in its current on-premises facilities, as well as for a
plan to provide additional capacity.
    Increasing the capability of OCC's current on-premises data
centers, which are designed to handle a capacity in excess of prior
peak transaction volumes, would require the acquisition and
installation of additional hardware and software. In contrast,
operating in a Cloud Infrastructure would allow OCC to quickly
provision or de-provision Compute, Storage, or Network resources to
meet demands, including elevated trade volumes. Moving to a third-
party-hosted Cloud Infrastructure does present a novel risk: that the
CSP does not deliver the additional capacity that OCC might need at a
moment's notice. However, OCC asserts that the fact that it will
contract with the CSP for at least as much capacity as OCC currently
maintains in its current on-premises facilities, combined with the
CSP's contractual obligation to provide additional capacity to OCC on
demand, would mitigate this risk significantly.\34\
---------------------------------------------------------------------------

    \34\ As confidential exhibits to File No. SR-OCC-2021-802, OCC
provided documents governing the CSP's obligations to provide
capacity to OCC. See supra note 6.
---------------------------------------------------------------------------

    The Cloud Infrastructure would also provide more flexibility for
OCC to model and create development and test environments for
backtesting and stress testing, as well as other systems development
needs because of OCC's ability to increase capacity on demand under the
express terms of the contract with the CSP. OCC also states that the
increased scalability of the Cloud Infrastructure would allow OCC to
run certain backtesting processes at a fraction of the time currently
required.\35\
---------------------------------------------------------------------------

    \35\ See Notice of Filing, 86 FR at 60505.
---------------------------------------------------------------------------

III. Discussion and Notice of No Objection

    Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, the stated purpose of the Clearing
Supervision Act is instructive: to mitigate systemic risk in the
financial system and promote financial stability by, among other
things, promoting uniform risk management standards for systemically
important financial market utilities (``SIFMUs'') and strengthening the
liquidity of SIFMUs.\36\
---------------------------------------------------------------------------

    \36\ See 12 U.S.C. 5461(b).
---------------------------------------------------------------------------

    Section 805(a)(2) of the Clearing Supervision Act authorizes the
Commission to prescribe regulations containing risk management
standards for the payment, clearing, and settlement activities of
designated clearing entities engaged in designated activities for which
the Commission is the supervisory agency.\37\ Section 805(b) of the
Clearing Supervision Act provides the following objectives and
principles for the Commission's risk management standards prescribed
under Section 805(a): \38\
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 5464(a)(2).
    \38\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

     to promote robust risk management;
     to promote safety and soundness;
     to reduce systemic risks; and
     to support the stability of the broader financial system.
    Section 805(c) provides, in addition, that the Commission's risk
management standards may address such areas as risk management and
default policies and procedures, among other areas.\39\
---------------------------------------------------------------------------

    \39\ 12 U.S.C. 5464(c).
---------------------------------------------------------------------------

    The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act and Section 17A of the
Exchange Act (the ``Clearing Agency Rules'').\40\ The Clearing Agency
Rules require, among other things, each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures that are reasonably designed to meet certain minimum
requirements for its operations and risk management practices on an
ongoing basis.\41\ As such, it is appropriate for the Commission to
review advance notices against the Clearing Agency Rules and the
objectives and principles of these risk management standards as
described in Section 805(b) of the Clearing Supervision Act. As
discussed below, the Commission believes the changes proposed in the
Advance Notice are consistent with the objectives and principles
described in Section 805(b) of the Clearing Supervision Act,\42\ and in
the Clearing Agency Rules, in particular Rule 17Ad-22(e)(17)(ii).\43\
---------------------------------------------------------------------------

    \40\ 17 CFR 240.17Ad-22. See Exchange Act Release No. 68080
(Oct. 22, 2012), 77 FR 66220 (Nov. 2, 2012) (S7-08-11). See also
Exchange Act Release No. 78961 (Sep. 28, 2016), 81 FR 70786, 70806
(Oct. 13, 2016) (S7-03-14) (``Covered Clearing Agency Standards'').
OCC is a ``covered clearing agency'' as defined in Rule 17Ad-
22(a)(5).
    \41\ 17 CFR 240.17Ad-22.
    \42\ 12 U.S.C. 5464(b).
    \43\ 17 CFR 240.17Ad-22(e)(17)(ii).
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A. Consistency With Section 805(b) of the Clearing Supervision Act

    The Commission believes that the proposal contained in OCC's
Advance Notice is consistent with the stated objectives and principles
of Section 805(b) of the Clearing Supervision Act. Specifically, as
discussed below, the Commission believes that the changes proposed in
the Advance Notice are consistent with promoting robust risk
management, promoting safety and soundness, reducing systemic risks,
and supporting the stability of the broader financial system.\44\
---------------------------------------------------------------------------

    \44\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

    The Commission believes that OCC's proposal to host its core
clearing, risk management, and data management applications in a Cloud
Infrastructure is consistent with robust risk management, specifically
operational risk management, and the promotion of safety and soundness.
The Commission believes that, when supported by the appropriate legal
agreements and system configurations, OCC's proposed Cloud
Infrastructure may provide opportunities for improvements in
resiliency, security, and scalability compared to infrastructures in
traditional, on-premises data centers. Based on a careful review of the
complete record, including the confidential information provided by
OCC, the Commission believes the proposed systems architecture--
comprising of a virtual multi-zone Cloud Infrastructure, with an on-
premises data center as a physical backup--would provide a level of
security and resiliency to the OCC's applications beyond that provided
by OCC's current on-premises-only infrastructure. The Commission
further believes that the legal agreements underlying the relationship
between OCC and the CSP are designed to support OCC's ability to comply
with its regulatory obligations related to the management of
operational risk. Additionally, the inclusion of an on-premises backup
provides an additional layer of redundancy to mitigate the low-
probability risk of a multi-region outage at a single CSP.
    Moreover, the Commission believes that, to the extent the proposed
changes are consistent with promoting OCC's robust risk management as
well as safety and soundness, they are also consistent with supporting
the stability of the

broader financial system. OCC has been designated as a SIFMU, in part,
because its failure or disruption could increase the risk of
significant liquidity or credit problems spreading among financial
institutions or markets.\45\ The Commission believes that the proposed
changes would support OCC's ability to continue providing services to
the U.S. options markets by establishing multiple backup systems across
the proposed Cloud Infrastructure and an on-premises backup while also
allowing OCC to quickly set up additional capacity or applications as
necessary. OCC's continued operations would, in turn, help support the
stability of the financial system by reducing the risk of significant
operational problems spreading among market participants that rely on
OCC's central role in the options market.
---------------------------------------------------------------------------

    \45\ See Financial Stability Oversight Council (``FSOC'') 2012
Annual Report, Appendix A, https://home.treasury.gov/system/files/261/here.pdf (last visited Feb. 17, 2022).
---------------------------------------------------------------------------

    Accordingly, and for the reasons stated above, the Commission
believes the changes proposed in the Advance Notice are consistent with
Section 805(b) of the Clearing Supervision Act.\46\
---------------------------------------------------------------------------

    \46\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(17)(ii) Under the Exchange Act

    Rule 17Ad-22(e)(17)(ii) under the Exchange Act requires that a
covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to manage the
covered clearing agency's operational risks by ensuring that systems
have a high degree of security, resiliency, operational reliability,
and adequate, scalable capacity.\47\
---------------------------------------------------------------------------

    \47\ 17 CFR 240.17Ad-22(e)(17)(ii).
---------------------------------------------------------------------------

    As described in Section II.A. above, OCC proposes to increase the
resiliency of its systems by migrating from two on-premises data
centers to two separate, logically isolated Virtual Private Clouds with
an on-premises backup data center. As described in Section II.B. above,
OCC proposes to expand its existing physical and cyber security program
with a focus on: (i) access controls; (ii) data governance; (iii)
configuration management; and (iv) testing, as well as the
implementation of additional tools not currently available for use in
OCC's on-premises data centers. As described in Section II.C. above,
operating in a Cloud Infrastructure would allow OCC to quickly scale
resources to meet elevated trade volumes as well as run risk management
processes, such as backtesting, more quickly than is currently
possible.
    Accordingly, the Commission believes that the changes proposed in
the Advance Notice are consistent with Rule 17Ad-22(e)(17)(ii) under
the Exchange Act.\48\
---------------------------------------------------------------------------

    \48\ Id.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act, that the Commission does not object to
Advance Notice (SR-OCC-2021-802), as modified by Partial Amendments No.
1, 2, 3, and 4 and that OCC is authorized to implement the proposed
change as of the date of this notice.

    By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-23230 Filed 10-25-22; 8:45 am]
BILLING CODE P


[Federal Register Volume 88, Number 137 (Wednesday, July 19, 2023)]
[Rules and Regulations]
[Pages 46073-46075]
[FR Doc No: 2023-15227]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 100

[Docket Number USCG-2023-0536]
RIN 1625-AA08

Special Local Regulation; Iron Man 70.3 Triathlon, Lake Erie;
Sandusky, OH

AGENCY: Coast Guard, DHS.

ACTION: Temporary final rule.

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SUMMARY: The Coast Guard will establish and enforce a special local
regulation for the Ironman 70.3 Ohio Triathlon from 4:30 a.m. through
10 a.m. on July 23. 2023. This special local regulation is necessary to
safely control vessel movements in the vicinity of the triathlon and
provide for the safety of the general boating public and commercial
shipping. During this enforcement period, no person or vessel may enter
the regulated area without the permission of the Coast Guard Patrol
Commander.

DATES: This special local regulation will be enforced from 4:30 a.m.
through 10 a.m. on July 23, 2023.

ADDRESSES: To view documents mentioned in this preamble as being
available in the docket, go to https://www.regulations.gov, type USCG-
2023-0536 in the ``SEARCH'' box and click ``SEARCH.'' Next, in the
Document Type column, select ``Supporting & Related Material.''

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email the Command Duty Officer, MST1 Karl Dirksmeyer, Marine
Safety Unit

Toledo, Coast Guard; telephone<PHONE_NUMBER>, email [email protected].

SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations

CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
Sec.  Section
U.S.C. United States Code

II. Background Information and Regulatory History

    The Coast Guard is issuing this temporary final rule without prior
notice and opportunity to comment pursuant to authority under section
4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This
provision authorizes an agency to issue a rule without prior notice and
opportunity to comment when the agency, for good cause finds that those
procedures are ``impracticable, unnecessary, or contrary to the public
interest.'' Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good
cause exists for not publishing a notice of proposed rulemaking (NPRM)
with respect to this rule because we must establish this special local
regulation by July 23, 2023.
    Under 5 U.S.C. 553(d)(3) the Coast Guard finds that good cause
exists for making this rule effective less than 30 days after
publication in the Federal Register. Delaying the effective date of
this regulation would be impracticable.

III. Legal Authority and Need for Rule

    The Coast Guard is issuing this rule under authority in 46 U.S.C.
70041. The Captain of the Port Detroit (COTP) has determined that
potential hazards associated with the Ironman 70.3 Ohio Triathlon on
July 23, 2023, will be a safety concern within 400 yards of the Dock
Channel from the Jackson Street Pier to the Shelby Street Boat Launch
for five and a half hours. This rule is needed to protect personnel,
vessels, and the marine environment in the navigable waters near the
Jackson St. Pier, Sandusky, OH.

IV. Discussion of the Rule

    This rule establishes a special local regulation from 4:30 a.m.
through 10 a.m. on July 23, 2023. In light of the aforementioned
hazards, the COTP has determined that a special local regulation is
necessary to protect spectators, vessels, and participants. The special
local regulation will encompass the following waterway: all U.S.
navigable waters of Lake Erie within a 400 yard radius of the dock
channel in Sandusky Bay in Sandusky, OH, between the Jackson Street
Pier and the Shelby Street Boat Launch. The COTP or his designated on-
scene representative will notify the public of the enforcement of this
rule by all appropriate means, including a Broadcast Notice to
Mariners.

V. Regulatory Analyses

    We developed this rule after considering numerous statutes and
Executive orders related to rulemaking. Below we summarize our analyses
based on a number of these statutes and Executive orders, and we
discuss First Amendment rights of protestors.

A. Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits. This rule has not been designated a ``significant
regulatory action,'' under Executive Order 12866. Accordingly, this
rule has not been reviewed by the Office of Management and Budget
(OMB).
    This regulatory action determination is based on the size,
location, duration and time-of-day of the special local regulation.
Vessel traffic will not be able to safely transit around this regulated
area which would impact a small designated area of Sandusky Bay for a
short duration, during the morning when vessel traffic is normally low.
Moreover, the Coast Guard would issue a Broadcast Notice to Mariners
via VHF-FM marine channel 16 about the zone, and the rule would allow
vessels to seek permission to enter the zone.

B. Impact on Small Entities

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as
amended, requires Federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule
will not have a significant economic impact on a substantial number of
small entities.
    While some owners or operators of vessels intending to transit the
area may be small entities, for the reasons stated in section V.A
above, this rule will not have a significant economic impact on any
vessel owner or operator.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this rule. If the rule would affect your
small business, organization, or governmental jurisdiction and you have
questions concerning its provisions or options for compliance, please
call or email the person listed in the FOR FURTHER INFORMATION CONTACT
section.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247). The Coast Guard will not retaliate against small
entities that question or complain about this rule or any policy or
action of the Coast Guard.

C. Collection of Information

    This rule will not call for a new collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

D. Federalism and Indian Tribal Governments

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has 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. We have analyzed this rule under that order and have
determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132.
    Also, this rule does not have tribal implications under Executive
Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it does not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a

State, local, or tribal government, in the aggregate, or by the private
sector of $100,000,000 (adjusted for inflation) or more in any one
year. Though this rule will not result in such an expenditure, we do
discuss the effects of this rule elsewhere in this preamble.

F. Environment

    We have analyzed this rule under Department of Homeland Security
Directive 023-01, Rev. 1, associated implementing instructions, and
Environmental Planning COMDTINST 5090.1 (series), which guide the Coast
Guard in complying with the National Environmental Policy Act of 1969
(42 U.S.C. 4321-4370f), and have determined that this action is one of
a category of actions that do not individually or cumulatively have a
significant effect on the human environment. This special local
regulation lasts five and one half hours that will prohibit entry
within 400 yard radius of the Dock Channel in Sandusky Bay, between the
Jackson Street Pier and the Shelby Street Boat Launch. It is
categorically excluded from further review under paragraph L[61] of
Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1. A
Record of Environmental Consideration supporting this determination is
available in the docket. For instructions on locating the docket, see
the ADDRESSES section of this preamble.

G. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to call or email the person listed in the FOR
FURTHER INFORMATION CONTACT section to coordinate protest activities so
that your message can be received without jeopardizing the safety or
security of people, places or vessels.

List of Subjects in 33 CFR Part 100

    Marine safety, Navigation (water), Reporting and record keeping
requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard amends
33 CFR part 100 as follows:

PART 100--SAFETY OF LIFE ON NAVIGABLE WATERS

0
1. The authority citation for part 100 continues to read as follows:

    Authority:  46 U.S.C. 70041; 33 CFR 1.05-1.

0
2. Add Sec.  100.T05-911 to read as follows:

Sec.  100.T05-911  Special Local Regulations; Ironman 70.3 Triathlon,
Lake Erie; Sandusky Bay, OH.

    (a) Location. This special local regulation lasts 5.5 hours and
will limit entry within the navigable waters of Sandusky Bay within a
within a 400-yard radius of the Dock Channel between located at
position 41[deg]27'36.48'' N, 082[deg]42'54.84'' W and
41[deg]27'25.05'' N, 082[deg]43'26.64'' W. All geographic coordinates
are North American Datum of 1983 (NAD 83).
    (b) Enforcement Period. The regulation will be enforced from 4:30
a.m. through 10 a.m. on July 23, 2023. The Captain of the Port Detroit
will announce specific enforcement periods by Broadcast Notice to
Mariners (BNM).
    (c) Regulations.
    (1) In accordance with the general regulations in Sec.  100.911(b),
No vessel may enter, transit through, or anchor within the regulated
area without the permission of the Coast Guard Patrol Commander.
    (2) Vessel operators desiring to enter or operate within the
regulated area shall contact the Coast Guard Patrol Commander to obtain
permission to do so. Vessel operators given permission to enter or
operate within the regulated area must comply with all directions given
to them by the Coast Guard Patrol Commander.

    Dated: July 13, 2023.
Richard P. Armstrong,
Captain, U.S. Coast Guard, Captain of the Port Detroit.
[FR Doc. 2023-15227 Filed 7-18-23; 8:45 am]
BILLING CODE 9110-04-P