[Federal Register Volume 86, Number 193 (Friday, October 8, 2021)]
[Notices]
[Pages 56338-56344]
[FR Doc No: 2021-21988]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93256; File No. SR-NASDAQ-2021-007]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change To Adopt Additional Initial
Listing Criteria for Companies Primarily Operating in Jurisdictions
That Do Not Provide the PCAOB With the Ability To Inspect Public
Accounting Firms

October 4, 2021.

I. Introduction

    On February 1, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt additional initial listing criteria for
companies primarily operating in jurisdictions that do not provide the
Public Company Accounting Oversight Board (``PCAOB'') with the ability
to inspect public accounting firms. The proposed rule change was
published for comment in the Federal Register on February 16, 2021.\3\
On March 26, 2021, pursuant to Section 19(b)(2) of the Act,\4\ 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.\5\ On May 17, 2021, the Commission instituted proceedings to
determine whether to approve or disapprove the

proposed rule change.\6\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 91089 (February 9,
2021), 86 FR 9549 (``Notice''). Comments on the proposed rule change
can be found at: https://www.sec.gov/comments/sr-nasdaq-2021-007/srnasdaq2021007.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 91413, 86 FR 17263
(April 1, 2021). The Commission designated May 17, 2021 as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to approve or disapprove, the
proposed rule change.
    \6\ See Securities Exchange Act Release No. 91904, 86 FR 27659
(May 21, 2021).
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II. Description of the Proposed Rule Change

    The Exchange states that the Exchange's rules, in addition to
federal securities laws, require that a company's financial statements
included in its initial registration statement or annual report be
audited by an independent public accountant that is registered with the
PCAOB.\7\ According to the Exchange, the Exchange and investors rely on
the work of auditors to provide reasonable assurances that the
financial statements provided by a company are free of material
misstatements, and on the PCAOB's critical role in overseeing the
quality of the auditor's work.\8\ The Exchange states its belief that
accurate financial statement disclosure is critical for investors to
make informed investment decisions.\9\
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    \7\ See Notice, supra note 3, at 9549. See also Nasdaq Rules
5210(b) and 5250(c)(3) (requiring for initial and continued listing
on Nasdaq that companies must be audited by an independent public
accountant that is registered as a public accounting firm with the
PCAOB); 15 U.S.C. 7212(a) (Registration with the PCAOB); 17 CFR
210.2-01 (Qualifications of Accountants).
    \8\ See Notice, supra note 3, at 9550.
    \9\ See id.
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    The Exchange states that the former Chairman and former Chief
Accountant of the Commission and the former Chairman of the PCAOB have
raised concerns that national barriers on access to information can
impede effective regulatory oversight of U.S.-listed companies with
operations in certain countries, including the PCAOB's inability to
inspect the audit work and practices of auditors in those
countries.\10\ The Exchange states that similar concerns have been
expressed by members of Congress, the State Department, and the
President's Working Group on Financial Markets.\11\ The Exchange states
that it shares these concerns and believes the lack of transparency
from certain markets raises concerns about the accuracy of disclosures,
accountability, and access to information, particularly when a company
is based in a jurisdiction that does not provide the PCAOB with access
to conduct inspections of public accounting firms that audit Nasdaq-
listed companies (``Restrictive Market'').\12\
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    \10\ See id. (citing to various statements by former Commission
Chairman Jay Clayton, former Commission Chief Accountant Wes
Bricker, and former PCAOB Chairman William D. Duhnke III, available
at https://www.sec.gov/news/public-statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other; https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting; and https://www.sec.gov/news/public-statement/clayton-emerging-markets-roundtable-2020-07-09). See id. at 9550,
n.8.
    \11\ See id. at 9550 (citing to ``Congress Passes Legislation to
De-List Chinese Companies Unless U.S. Has Access to Audit
Workpapers'' (December 2, 2020), available at https://sherman.house.gov/media-center/press-releases/congress-passes-legislation-to-de-list-chinese-companies-unless-us-has; Former
Commission Chairman Jay Clayton, ``Statement after the Enactment of
the Holding Foreign Companies Accountable Act'' (December 18, 2020),
available at https://www.sec.gov/news/public-statement/clayton-hfcaa-2020-12#_ftn5; Press Statement of Michael R. Pompeo, Former
Secretary of State, New Nasdaq Restrictions Affecting Listing of
Chinese Companies (June 4, 2020), available at https://2017-2021-translations.state.gov/2020/06/04/new-nasdaq-restrictions-affecting-listing-of-chinese-companies/index.html; President's Working Group
on Financial Markets: Report on Protecting United States Investors
from Significant Risks from Chinese Companies (July 24, 2020),
available at https://home.treasury.gov/system/files/136/PWG-Report-on-Protecting-United-States-Investors-from-Significant-Risks-from-Chinese-Companies.pdf). See id. at 9550, nn.9-11.
    \12\ See id. at 9550.
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    The Exchange further states that such concerns can be compounded
when a company from a Restrictive Market lists on the Exchange through
an initial public offering (``IPO'') or a business combination with a
small offering size or a low public float percentage because such
companies may not attract market attention and develop sufficient
public float, investor base, and trading interest to provide the depth
and liquidity necessary to promote fair and orderly trading.\13\
According to the Exchange, such securities may trade infrequently, in a
more volatile manner and with a wider bid-ask spread, all of which may
result in trading at a price that may not reflect their true market
value.\14\ Furthermore, the Exchange states that less liquid securities
may be more susceptible to price manipulation and that, in particular,
the risk of price manipulation due to insider trading is more acute
with respect to a company that principally administers its business in
a Restrictive Market (``Restrictive Market Company''), particularly if
a company's financial statements contain undetected material
misstatements due to error or fraud and the PCAOB is unable to inspect
the company's auditor to determine if it complied with PCAOB and
Commission rules and professional standards in connection with its
performance of audits.\15\ The Exchange states that risk to investors
in such cases may be compounded because regulatory investigations into
price manipulation, insider trading, and compliance concerns may be
impeded and investor protections and remedies may be limited in such
cases due to obstacles encountered by U.S. authorities in bringing or
enforcing actions against the companies and insiders.\16\
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    \13\ See id.
    \14\ See id. The Exchange also states that foreign issuers are
more likely to issue a portion of an offering to investors in their
home country, which raises concerns that such investors will not
contribute to the liquidity of the security in the U.S. secondary
market. See id.
    \15\ See id.
    \16\ See id.
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    Nasdaq states that it believes the U.S. capital markets can provide
Restrictive Market Companies with access to additional capital to fund
ground-breaking research and technological advancements and that such
companies provide U.S. investors with opportunities to diversify their
portfolio by providing exposure to Restrictive Markets.\17\ However,
Nasdaq further states that it believes that Restrictive Market
Companies present unique potential risks to U.S. investors due to
restrictions on the PCAOB's ability to inspect the audit work and
practices of auditors in those countries, which create concerns about
the accuracy of disclosures, accountability, and access to
information.\18\ Nasdaq states that it believes its proposal will
reduce trading volatility and price manipulation and help to ensure
that Restrictive Market Companies have sufficient investor base and
public float to support fair and orderly trading on the Exchange.\19\
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    \17\ See id. at 9553-54. See also Letter from Jeffrey S. Davis,
Senior Vice President, General Counsel, Nasdaq, Inc. (April 30,
2021) (``Nasdaq Response Letter''), at 2.
    \18\ See Notice, supra note 3, at 9554.
    \19\ See id. See also Nasdaq Response Letter, supra note 17, at
3.
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    Specifically, the Exchange proposes to adopt a definition of
``Restrictive Market'' \20\ and to apply additional initial listing
requirements to a Restrictive Market Company listing on the Exchange in
connection with an IPO or a business combination.\21\ The

Exchange also proposes to prohibit a Restrictive Market Company from
listing on the Nasdaq Capital Market in connection with a Direct
Listing,\22\ but to allow a Restrictive Market Company to list on the
Nasdaq Global Select Market or Nasdaq Global Market in connection with
a Direct Listing, provided that such company meets all applicable
initial listing requirements for such market.
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    \20\ See infra note 24 and accompanying text.
    \21\ The Exchange states that, currently, it may rely upon its
discretionary authority under Nasdaq Rule 5101 to deny initial
listing or apply additional or more stringent criteria when it is
concerned that a small offering size for an IPO may not reflect the
company's initial valuation or may not ensure sufficient liquidity
to support trading in the secondary market. Pursuant to Nasdaq Rule
5101, Nasdaq has broad discretionary authority over the initial and
continued listing of securities in Nasdaq in order to maintain the
quality of and public confidence in its market, to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and to protect investors and the
public interest. Nasdaq may use such discretion to deny initial
listing, apply additional or more stringent criteria for the initial
or continued listing of particular securities, or suspend or delist
particular securities based on any event, condition, or circumstance
that exists or occurs that makes initial or continued listing of the
securities on Nasdaq inadvisable or unwarranted in the opinion of
Nasdaq, even though the securities meet all enumerated criteria for
initial or continued listing on Nasdaq. See Nasdaq Rule 5101.
    \22\ Nasdaq defines ``Direct Listing'' as the listing of
``companies that have sold common equity securities in private
placements, which have not been listed on a national securities
exchange or traded in the over-the-counter market pursuant to FINRA
Form 211 immediately prior to the initial pricing.'' See Nasdaq Rule
IM-5315-1.
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A. Definition of Restrictive Market

    The Exchange proposes to adopt a new definition of Restrictive
Market in Nasdaq Rule 5005(a)(37).\23\ As proposed, a Restrictive
Market will be defined as a jurisdiction that does not provide the
PCAOB with access to conduct inspections of public accounting firms
that audit Nasdaq-listed companies.\24\ Under the proposed rule, Nasdaq
will consider a company's business to be principally administered in a
Restrictive Market if: (i) The company's books and records are located
in that jurisdiction; (ii) at least 50% of the company's assets are
located in such jurisdiction; or (iii) at least 50% of the company's
revenues are derived from such jurisdiction.\25\
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    \23\ The Exchange proposes to renumber current paragraphs
(a)(37) through (a)(46) of Nasdaq Rule 5005 in connection with the
addition of the definition of Restrictive Market. See Notice, supra
note 3, at 9551.
    \24\ See proposed Nasdaq Rule 5005(a)(37). The Exchange states
that the PCAOB maintains a map of where it can and cannot conduct
oversight activities on its website and publishes a list identifying
the public companies for which a PCAOB-registered public accounting
firm signed and issued an audit report and is located in a
jurisdiction where obstacles to PCAOB inspections exist. See Notice,
supra note 3, at 9551.
    \25\ See proposed Nasdaq Rule 5005(a)(37). The term ``Company''
means the issuer of a security listed or applying to list on Nasdaq.
See Nasdaq Rule 5005(a)(6). The Exchange provides the following
examples. Company X's books and records are located in Country Y,
which is not a Restrictive Market, while 90% of its revenues are
driven from operations in Country Z, which is a Restrictive Market.
Nasdaq would consider Company X's business to be principally
administered in Country Z, so Company X would be considered a
Restrictive Market Company. Alternatively, Company A's books and
records are located in Country B, which is a Restrictive Market, but
90% of its revenues are derived from Country C, which is not a
Restrictive Market. Nasdaq would consider Company A's business to be
principally administered in Country B, so Company A would be
considered a Restrictive Market Company. See Notice, supra note 3,
at 9551.
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B. Minimum Offering Size or Public Float Percentage Requirement for an
IPO

    The Exchange proposes to adopt new Nasdaq Rule 5210(k)(i) to
require a Restrictive Market Company listing its Primary Equity
Security \26\ on Nasdaq in connection with its IPO to offer a minimum
amount of securities in a Firm Commitment Offering \27\ in the U.S. to
Public Holders \28\ that (i) will result in gross proceeds to the
Company of at least $25 million or (ii) will represent at least 25% of
the Company's post-offering Market Value of Listed Securities,\29\
whichever is lower. A Restrictive Market Company listing on the
Exchange in connection with an IPO that is subject to the proposed rule
would also need to comply with all other applicable listing
requirements.\30\ The Exchange states that it believes this proposed
listing requirement for Restrictive Market Companies conducting an IPO
will provide greater support for the company's price, as determined
through the offering, and will help assure there will be sufficient
liquidity, U.S. investor interest, and distribution to support price
discovery once the security is listed.\31\ In addition, the Exchange
states that the proposal will help ensure that Restrictive Market
Companies seeking to list on the Exchange have sufficient investor base
and public float to support fair and orderly trading on the
Exchange.\32\
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    \26\ Nasdaq Rule 5005(a)(33) defines ``Primary Equity Security''
as ``a Company's first class of Common Stock, Ordinary Shares,
Shares or Certificates of Beneficial Interest of Trust, Limited
Partnership Interests or American Depositary Receipts (ADR) or
Shares (ADS).''
    \27\ Nasdaq Rule 5005(a)(17) defines ``Firm Commitment
Offering'' as ``an offering of securities by participants in a
selling syndicate under an agreement that imposes a financial
commitment on participants in such syndicate to purchase such
securities.''
    \28\ Nasdaq Rule 5005(a)(36) defines ``Public Holders'' as
``holders of a security that includes both beneficial holders and
holders of record, but does not include any holder who is, either
directly or indirectly, an Executive Officer, director, or the
beneficial holder of more than 10% of the total shares
outstanding.''
    \29\ ``Market Value'' means the consolidated closing bid price
multiplied by the measure to be valued. See Nasdaq Rule 5000(a)(23).
``Listed Securities'' means securities listed on Nasdaq or another
national securities exchange. See Nasdaq Rule 5000(a)(22).
    \30\ The Exchange provides the following examples to illustrate
the proposed rule. First, Company X, which principally administers
its business in a Restrictive Market, is applying to list on Nasdaq
Global Market and has an expected post-offering Market Value of
Listed Securities of $75,000,000. Since 25% of $75,000,000 is
$18,750,000, which is lower than $25,000,000, pursuant to the
requirements of the proposed rule, Company X would be eligible to
list based on a Firm Commitment Offering in the U.S. to Public
Holders of at least $18,750,000. Company X would also need to comply
with the other applicable listing requirements of the Nasdaq Global
Market, including a Market Value of Unrestricted Publicly Held
Shares of at least $8 million. See Notice, supra note 3, at 9551;
Nasdaq Rule 5405(b)(1)(C). See also Nasdaq Rules 5005(a)(45)
(definition of ``Unrestricted Publicly Held Shares''), 5005(a)(46)
(definition of ``Unrestricted Securities''), and 5005(a)(37)
(definition of ``Restricted Securities''). As another example,
Company Y, which also principally administers its business in a
Restrictive Market, is applying to list on the Nasdaq Global Select
Market and its post-offering Market Value of Listed Securities is
expected to be $200,000,000. Since 25% of $200,000,000 is
$50,000,000, which is higher than $25,000,000, pursuant to the
requirements of the proposed rule, Company Y would be eligible to
list based on a Firm Commitment Offering in the U.S. to Public
Holders that will result in gross proceeds of at least $25,000,000.
Company Y would also need to comply with the other applicable
listing requirements of the Nasdaq Global Select Market, including a
Market Value of Unrestricted Publicly Held Shares of at least $45
million. See Notice, supra note 3, at 9551-52; Nasdaq Rule
5315(f)(2)(C).
    \31\ See Notice, supra note 3, at 9552.
    \32\ See id.
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    The Exchange further states that it has observed that Restrictive
Market Companies listing on Nasdaq in connection with an IPO with an
offering size below $25 million or public float ratio below 25% have a
high rate of compliance concerns.\33\ The Exchange states that it
believes the proposed listing requirement for Restrictive Market
Companies conducting an IPO will mitigate such compliance concerns.\34\
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    \33\ See id. Specifically, the Exchange states that 39 out of
113 Restrictive Market Companies that listed on Nasdaq through an
IPO from January 1, 2015 to September 30, 2020 would not have
qualified under the requirement in proposed Nasdaq Rule 5210(k)(i)
because they had offering amounts of $25 million or less. According
to Nasdaq, two of these companies were considered to be Restrictive
Market Companies because they had at least 50% of the company's
assets located in a Restrictive Market, and 37 met the definition
because they had at least 50% of the company's revenues derived from
a Restrictive Market. Of those companies that would not have
qualified under the requirement in proposed Nasdaq Rule 5210(k)(i),
twenty, or 51%, were cited for a compliance issue, which Nasdaq
states is a significantly higher rate than other Restrictive Market
Companies (16%). The Exchange also states that, during the same
period, 25 out of 84 (or 30%) of Restrictive Market Companies that
had a ratio of offering size to Market Value of Listed Securities of
25% or less failed to comply with one or more listing standards
after listing, which, according to the Exchange, is a significantly
higher non-compliance rate than for other foreign companies (11%)
and other Restrictive Market Companies (21%) that had such listings.
The Exchange also found that, during the same period, 35 Restrictive
Market Companies would not have met either the $25 million offering
size requirement or the 25% of the company's post-offering Market
Value of Listed Securities requirement, and 18 of those companies
were cited for a compliance concern. See id.
    \34\ See id.

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C. Minimum Market Value of Unrestricted Publicly Held Shares
Requirement for a Business Combination

    The Exchange proposes to adopt new Nasdaq Rule 5210(k)(ii) to
require a Company that is conducting a business combination, as
described in Nasdaq Rule 5110(a) \35\ or IM-5101-2,\36\ with a
Restrictive Market Company to have a minimum Market Value of
Unrestricted Publicly Held Shares \37\ following the business
combination equal to the lesser of (i) $25 million or (ii) 25% of post-
business combination entity's Market Value of Listed Securities. A
Restrictive Market Company subject to the proposed rule would also need
to comply with all other applicable listing requirements.\38\
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    \35\ Nasdaq Rule 5110(a) (Business Combinations with non-Nasdaq
Entities Resulting in a Change of Control) sets forth requirements
applicable to a Company that engages in a business combination with
a non-Nasdaq entity, resulting in a change of control of the Company
and potentially allowing the non-Nasdaq entity to obtain a Nasdaq
Listing.
    \36\ Nasdaq Rule IM-5101-2 (Listing of Companies Whose Business
Plan is to Complete One or More Acquisitions) sets forth
requirements applicable to a Company whose business plan is to
complete an IPO and engage in a merger or acquisition with one or
more unidentified companies within a specific period of time.
    \37\ Nasdaq Rule 5005(a)(45) defines ``Unrestricted Publicly
Held Shares'' as Publicly Held Shares that are Unrestricted
Securities. ``Publicly Held Shares'' means shares not held directly
or indirectly by an officer, director or any person who is the
beneficial owner of more than 10 percent of the total shares
outstanding. See Nasdaq Rule 5005(a)(35). ``Unrestricted
Securities'' means securities that are not subject to resale
restrictions for any reason, including, but not limited to,
securities: (i) Acquired directly or indirectly from the issuer or
an affiliate of the issuer in unregistered offerings such as private
placements or Regulation D offerings; (ii) acquired through an
employee stock benefit plan or as compensation for professional
services; (iii) acquired in reliance on Regulation S, which cannot
be resold within the United States; (iv) subject to a lockup
agreement or a similar contractual restriction; or (v) considered
``restricted securities'' under Rule 144. See Nasdaq Rules
5005(a)(46) and (37).
    \38\ The Exchange provides the following examples to illustrate
the proposed rule. First, Company A is currently listed on the
Nasdaq Capital Market and plans to acquire a company that
principally administers its business in a Restrictive Market, in
accordance with IM-5101-2. Following the business combination,
Company A intends to transfer to the Nasdaq Global Select Market.
Company A expects the post-business combination entity to have a
Market Value of Listed Securities of $250,000,000. Since 25% of
$250,000,000 is $62,500,000, which is higher than $25,000,000,
pursuant to the requirements of the proposed rule, to qualify for
listing the post-business combination entity must have a minimum
Market Value of Unrestricted Publicly Held Shares of at least
$25,000,000. The company would also need to comply with the other
applicable listing requirements of the Nasdaq Global Select Market,
including a Market Value of Unrestricted Publicly Held Shares of at
least $45,000,000. See Notice, supra note 3, at 9552; Nasdaq Rule
5315(f)(2)(C). As another example, Company B is currently listed on
Nasdaq Capital Market and plans to combine with a non-Nasdaq entity
that principally administers its business in a Restrictive Market,
resulting in a change of control as defined in Nasdaq Rule 5110(a),
whereby the non-Nasdaq entity will become the Nasdaq-listed company.
Following the change of control, Company B expects the listed
company to have a Market Value of Listed Securities of $50,000,000.
Since 25% of $50,000,000 is $12,500,000, which is lower than
$25,000,000, pursuant to the requirements of the proposed rule, the
listed company must have a minimum Market Value of Unrestricted
Publicly Held Shares following the change of control of at least
$12,500,000. The post-business combination company would also need
to comply with all other applicable listing requirements of the
Nasdaq Capital Market, including a Market Value of Unrestricted
Publicly Held Shares of at least $5 million. See Notice, supra note
3, at 9552; Nasdaq Rule 5505(b)(3)(C).
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    The Exchange states that it believes that a business combination as
described in Nasdaq Rule 5110(a) or IM-5101-2 involving a Restrictive
Market Company presents similar risks to U.S. investors as an IPO of a
Restrictive Market Company, and therefore, Nasdaq believes it is
appropriate to apply similar thresholds to post-business combination
entities to ensure that a company listing through a business
combination would have satisfied equivalent standards that apply to an
IPO.\39\ The Exchange further states that it believes that the proposed
listing requirement for post-business combination entities would help
to provide an additional assurance that there are sufficient freely
tradable shares and investor interest to support fair and orderly
trading on the Exchange when the target company principally administers
its business in a Restrictive Market.\40\
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    \39\ See Notice, supra note 3, at 9553. The Exchange states that
it found that out of seven business combinations involving
Restrictive Market Companies from 2015 through September 30, 2020,
five would not have qualified under proposed Nasdaq Rule 5210(k)(ii)
to have a minimum Market Value of Unrestricted Publicly Held Shares
following the business combination of $25 million or 25% of the
post-business combination entity's Market Value of Listed
Securities, whichever is lower. The Exchange states that all five of
these companies have been cited for a deficiency after the
completion of their business combination. On the other hand, Nasdaq
states that only one out of the two business combinations involving
Restrictive Market Companies that would have qualified under
proposed Nasdaq Rule 5210(k)(ii) during such period was cited for a
compliance concern. See id.
    \40\ See id.
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D. Direct Listings of Restrictive Market Companies

    The Exchange proposes to adopt new Nasdaq Rule 5210(k)(iii) to
provide that a Restrictive Market Company that is listing its Primary
Equity Security on Nasdaq in connection with a Direct Listing, as
defined in Nasdaq Rule IM-5315-1,\41\ would be permitted to list on:
(i) The Nasdaq Global Select Market, provided that the Company meets
all applicable listing requirements for the Nasdaq Global Select Market
and the additional requirements of Nasdaq Rule IM-5315-1, or (ii) the
Nasdaq Global Market, provided that the Company meets all applicable
listing requirements for the Nasdaq Global Market and the additional
requirements of Nasdaq Rule IM-5405-1.\42\ On the other hand, proposed
Nasdaq Rule 5210(k)(iii) would provide that a Restrictive Market
Company would not be permitted to list on the Nasdaq Capital Market in
connection with a Direct Listing, notwithstanding the fact that the
Company may meet the applicable initial listing requirements for the
Nasdaq Capital Market and the additional requirements in Nasdaq Rule
IM-5505-1.\43\
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    \41\ See supra note 22.
    \42\ See Notice, supra note 3, at 9553.
    \43\ See id.
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    The Exchange's rules currently set forth initial listing
requirements for companies listing on the Nasdaq Global Select Market,
Nasdaq Global Market, and Nasdaq Capital Market,\44\ and additional
listing requirements for Companies conducting a Direct Listing on such
markets.\45\ The Exchange states that it believes it is appropriate to
permit Restrictive Market Companies to list through a Direct Listing on
the Nasdaq Global Select Market or Nasdaq Global Market because such
companies would be subject to the additional listing requirements set
forth in Nasdaq Rule IM-5315-1 or IM-5405-1, respectively.\46\ On the
other hand, the Exchange states that it does not believe that the
additional requirements for Direct Listing on the Nasdaq Capital
Market, set forth in Nasdaq Rule IM-5501-1, are sufficient to overcome
concerns regarding sufficient liquidity and investor interest to
support fair and orderly trading on the Exchange with respect to
Restrictive Market Companies.\47\
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    \44\ See Nasdaq Rules 5315, 5405, and 5505.
    \45\ See Nasdaq Rules IM-5315-1, IM-5405-1, and IM-5505-1.
    \46\ See Notice, supra note 3, at 9553.
    \47\ See id. As an example, the Exchange states that the Nasdaq
Global Select Market and Nasdaq Global Market require a company to
have at least 1,250,000 and 1.1 million Unrestricted Publicly Held
Shares, respectively, and a Market Value of Unrestricted Publicly
Held Shares of at least $45 million and $8 million, respectively.
See Nasdaq Rules 5315(e)(2), 5315(f)(2)(C), 5405(a)(2), and
5405(b)(1)(C). In contrast, the Nasdaq Capital Market only requires
a company to have at least 1 million Unrestricted Publicly Held
Shares and a Market Value of Unrestricted Publicly Held Shares of at
least $5 million. See Nasdaq Rules 5505(a)(2) and 5505(b)(3)(C);
Notice, supra note 3, at 9553, n.34.

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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\48\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\49\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest, and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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    \48\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
    \49\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange has proposed to adopt enhanced initial listing
standards for Restrictive Market Companies conducting an IPO or engaged
in a business combination in order to help assure the existence of
adequate investor base and public float to support fair and orderly
trading for securities issued by Restrictive Market Companies that are
listing on the Exchange for the first time.\50\ In addition, the
Exchange has proposed to prohibit Direct Listings on Nasdaq Capital
Market of securities issued by Restrictive Market Companies due to
concerns regarding liquidity and fair and orderly trading.\51\ As
stated by the Exchange, listed companies that are based in
jurisdictions that do not provide the PCAOB with access to conduct
inspections of public accounting firms that audit Nasdaq-listed
companies raise concerns regarding the accuracy of disclosures,
accountability, and access to information with respect to such
companies and present unique potential risks to U.S. investors due to
restrictions on the PCAOB's ability to inspect the audit work and
practices of auditors in those countries.\52\ The Exchange also states
that less liquid securities may be more susceptible to price
manipulation and that, in particular, the risk of price manipulation
due to insider trading is more acute with respect to Restrictive Market
Companies, particularly if a company's financial statements contain
undetected material misstatements due to error or fraud and the PCAOB
is unable to inspect the company's auditor to determine if it complied
with PCAOB and Commission rules and professional standards in
connection with its performance of audits.\53\
---------------------------------------------------------------------------

    \50\ See supra notes 32 and 40 and accompanying text.
    \51\ See supra note 47 and accompanying text.
    \52\ See supra notes 10-12 and accompanying text.
    \53\ See supra note 15 and accompanying text.
---------------------------------------------------------------------------

    Further, the Exchange states that Nasdaq and investors rely on the
work of auditors to provide reasonable assurances that the financial
statements provided by a company are free of material
misstatements.\54\ The Exchange states that the PCAOB's inability to
inspect the audit work and practices of auditors in certain countries
weakens the assurance that the auditor obtained sufficient appropriate
audit evidence to express its opinion on a company's financial
statements, and decreases confidence that the auditor complied with
PCAOB and Commission rules and professional standards in connection
with the auditor's performance of audits.\55\ Absent reasonable
assurances from an auditor that a company's financial statements and
related disclosures are free from material misstatements, the Exchange
states that there is a risk that a company that would otherwise not
have qualified to list on Nasdaq may satisfy Nasdaq's listing standards
by presenting financial statements that contain undetected material
misstatements.\56\ The Exchange therefore believes that the proposed
rule change would provide greater assurances to investors that a
company truly meets Nasdaq's financial listing requirements by imposing
heightened listing criteria on a Restrictive Market Company, thereby
preventing fraudulent and manipulative acts, protecting investors, and
promoting the public interest.\57\
---------------------------------------------------------------------------

    \54\ See supra note 8 and accompanying text.
    \55\ See Notice, supra note 3, at 9554.
    \56\ See id.
    \57\ See id. See also Nasdaq Response Letter, supra note 17, at
3.
---------------------------------------------------------------------------

    The Commission has consistently recognized that the development and
enforcement of meaningful listing standards for an exchange is of
critical importance to financial markets and the investing public.\58\
Among other things, the Commission has stated that listing standards
provide the means for an exchange to screen issuers that seek to become
listed, and to provide listed status only to those that are bona fide
companies that have or will have sufficient public float, investor
base, and trading interest likely to generate depth and liquidity
sufficient to promote fair and orderly markets.\59\ Meaningful listing
standards are also important given investor expectations regarding the
nature of securities that have achieved an exchange listing, and the
role of an exchange in overseeing its market and assuring compliance
with its listing standards.\60\
---------------------------------------------------------------------------

    \58\ See infra notes 59-60.
    \59\ See, e.g., Securities Exchange Act Release Nos. 81856
(October 11, 2017), 82 FR 48296, 48298 (October 17, 2017) (SR-NYSE-
2017-31); 81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017)
(SR-NYSE-2017-11); 65708 (November 8, 2011), 76 FR 70799, 70802
(November 15, 2011) (``SR-NASDAQ-2011-073 Approval Order''); 63607
(December 23, 2010), 75 FR 82420, 82422 (December 30, 2010) (``SR-
NASDAQ-2010-137 Approval Order''); and 57785 (May 6, 2008), 73 FR
27597, 27599 (May 13, 2008) (``SR-NYSE-2008-17 Approval Order'').
The Commission has stated that adequate listing standards, by
promoting fair and orderly markets, are consistent with Section
6(b)(5) of the Act, in that they are, among other things, designed
to prevent fraudulent and manipulative acts and practices, promote
just and equitable principles of trade, and protect investors and
the public interest. See, e.g., Securities Exchange Act Release Nos.
82627 (February 2, 2018), 83 FR 5650, 5653, n.53 (February 8, 2018)
(SR-NYSE-2017-30); 87648 (December 3, 2019), 84 FR 67308, 67314,
n.42 (December 9, 2019) (SR-NASDAQ-2019-059); and 88716 (April 21,
2020), 85 FR 23393, 23395, n.22 (April 27, 2020) (SR-NASDAQ-2020-
001).
    \60\ See, e.g., SR-NASDAQ-2011-073 Approval Order, supra note
59, 76 FR at 70802; SR-NASDAQ-2010-137 Approval Order, supra note
59, 75 FR at 82422; and SR-NYSE-2008-17 Approval Order, supra note
59, 73 FR at 27599.
---------------------------------------------------------------------------

    The Commission has also previously stated that when the PCAOB is
unable to inspect auditors there is a lack of transparency with respect
to the audit quality provided by such firms and that the inability of
the PCAOB to inspect auditors of certain registrants could generate
uncertainty regarding their financial reporting quality.\61\ The
Commission has stated that, as a result, there is uncertainty regarding
the reliability of the financial information of issuers audited by
firms that are not inspected by the PCAOB, which can potentially lead
to suboptimal investment decisions by investors.\62\ Given these
heightened risks identified by the Commission with respect to issuers
audited by firms that the PCAOB is unable to inspect, the Commission
concludes that the Exchange's proposal to impose heightened listing
requirements on companies that principally administer their business in
a jurisdiction that does not provide the PCAOB with access to conduct
inspections of public accounting firms that audit Nasdaq-listed
companies (i.e., Restrictive Market Companies) is consistent with the
Act and not

designed to permit unfair discrimination. Furthermore, the Commission
believes that the objective criteria proposed by the Exchange for
determining whether a company's business is principally administered in
a Restrictive Market \63\ should help to ensure that the Exchange
applies the heightened listing standards to companies in a manner that
is not designed to permit unfair discrimination consistent with Section
6(b)(5) of the Act.
---------------------------------------------------------------------------

    \61\ See Holding Foreign Companies Accountable Act Disclosure,
Securities Exchange Act Release No. 91364 (March 18, 2021), 86 FR
17528 (April 5, 2021), at 17534, 17537.
    \62\ See id. at 17534-35.
    \63\ See supra note 25 and accompanying text.
---------------------------------------------------------------------------

    With respect to the proposed heightened initial listing standards,
the Commission believes that the proposed requirements should allow the
Exchange to more accurately determine whether a Restrictive Market
Company conducting an IPO or a post-business combination entity
involving a Restrictive Market Company does not have adequate
distribution and liquidity and is thus not suitable for listing and
trading on the Exchange. The Exchange has provided data showing that it
has observed that Restrictive Market Companies listing on Nasdaq in
connection with an IPO and post-business combination entities involving
Restrictive Market Companies that did not meet the proposed listing
requirements have more non-compliance issues than similar companies
that would have met the proposed listing requirements.\64\ The
Commission has previously stated that a Firm Commitment Offering is
designed to promote appropriate price discovery and assists in creating
a liquid market.\65\ In addition, the Commission believes that having a
minimum Market Value of Unrestricted Publicly Held Shares requirement
should allow an exchange to more accurately determine whether a
security does not have adequate distribution and liquidity, and should
therefore help to ensure that an exchange does not list securities that
do not have a sufficient market, with adequate depth and liquidity, and
without sufficient investor interest to support an exchange
listing.\66\ Thus, the Commission concludes that the proposals to
require (i) a Restrictive Market Company conducting an IPO to offer a
minimum amount of securities in the U.S. to Public Holders in a Firm
Commitment Offering and (ii) a company conducting a business
combination, as described in Nasdaq Rule 5110(a) or IM-5101-2, with a
Restrictive Market Company, to have a minimum Market Value of
Unrestricted Publicly Held Shares following the business combination,
and the proposed thresholds for such requirements, are consistent with
the requirements of Section 6(b)(5) of the Act that the rules of the
exchange be designed to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, and protect
investors and the public interest, and not be designed to permit unfair
discrimination.
---------------------------------------------------------------------------

    \64\ See supra notes 33 and 39 and accompanying text.
    \65\ See also Securities Exchange Act Release No. 86314 (July 5,
2019), 84 FR 33102 (July 11 2019) (SR-NASDAQ-2019-009) (Order
Approving Revisions to Nasdaq's Initial Listing Standards Related to
Liquidity), at 33112.
    \66\ See id. at 33111.
---------------------------------------------------------------------------

    One commenter states that the proposal is insufficient to address
the risk that a company may satisfy Nasdaq's listing standards by
presenting financial statements that contain undetected material
misstatements and that the proposed rules should include provisions
that would prohibit Restrictive Market Companies, including companies
listed prior to the effectiveness of the proposal, from engaging an
auditor or an accounting firm that is located in a jurisdiction that
limits the PCAOB's ability to inspect the auditor to assist with the
company audit.\67\ In addition, this commenter expresses concerns
raised by academics regarding the vulnerability of U.S. investors to
``low-ball `take private' transactions'' in Restricted Market
Companies, where ``[t]he goal is to delist U.S. shares at a depressed
buyout price and then relist in [a Restricted Market] at a much loftier
valuation.'' \68\ This commenter states that Nasdaq should promptly
limit the U.S. investor exposure to potentially unfair take-private
transactions by adopting provisions to prevent the initial listing of
Restrictive Market Companies.\69\ In response, the Exchange states
that, while the commenter may prefer a different proposal, the
commenter's suggested proposal is not the Exchange's proposal that is
currently before the Commission.\70\ The Exchange states that, instead,
to address the concerns Nasdaq has observed arising from the unique
potential risks to U.S. investors due to restrictions on the PCAOB's
ability to inspect the audit work and practices of auditors in
Restrictive Markets, Nasdaq has proposed heightened liquidity
requirements designed to ensure that Restrictive Market Companies have
sufficient investor base and public float to support fair and orderly
trading on the Exchange, which Nasdaq believes, as structured, are
consistent with Section 6(b)(5) of the Act.\71\
---------------------------------------------------------------------------

    \67\ See Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors (February 18, 2021) (``CII Letter
I''), at 4-5; Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors (May 27, 2021) (``CII Letter
II''), at 1-4.
    \68\ See CII Letter II, supra note 67, at 3 (citing Jesse Fried
& Matthew J. Schoenfeld, Delisting Chinese Firms: A Cure Likely
Worse than the Disease, Harv. L. Sch. F. On Corp. Governance (June
9, 2020), https://corpgov.law.harvard.edu/2020/06/09/delisting-chinese-firms-a-cure-likely-worse-than-the-disease/).
    \69\ See id. at 3-4.
    \70\ See Nasdaq Response Letter, supra note 17, at 3.
    \71\ See id.
---------------------------------------------------------------------------

    The proposed provisions suggested by the commenter are not part of
Nasdaq's proposal, and the Commission must approve the proposal if it
finds that the proposal is consistent with the Act and rules
thereunder. The Commission believes the Exchange's proposal is
reasonably designed to help address compliance concerns regarding
securities of Restrictive Market Companies and to help ensure fair and
orderly trading when such companies list on Nasdaq.
    The Commission concludes that it is consistent with the Act to
prohibit Restrictive Market Companies from listing on the Nasdaq
Capital Market in connection with a Direct Listing. In support of its
proposal, the Exchange states that it does not believe the listing
requirements for Direct Listings on the Nasdaq Capital Market set forth
in Nasdaq's rules are sufficient to overcome the risks that Restrictive
Market Companies present with respect to liquidity.\72\ Given the
heightened concerns enumerated by the Commission regarding companies
that cannot be inspected by the PCAOB,\73\ the Commission believes that
the proposal to prohibit Restrictive Market Companies from listing on
the Nasdaq Capital Market in connection with a Direct Listing is
consistent with the requirements of Section 6(b)(5) of the Act that the
rules of the exchange be designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, and protect investors and the public interest, and not be
designed to permit unfair discrimination.
---------------------------------------------------------------------------

    \72\ See supra note 47 and accompanying text. See also Nasdaq
Rules 5505 and IM-5505-1.
    \73\ See supra notes 61-62 and accompanying text.
---------------------------------------------------------------------------

    In sum, the Commission concludes that the proposed new initial
listing requirements for Restrictive Market Companies, including the
prohibition on Direct Listings on Nasdaq Capital Market, will help
maintain fair and orderly markets and are designed to protect investors
and the public interest, and are not designed to permit unfair

discrimination given the risks that Restricted Market Companies
present, and should help the Exchange in determining whether a
Restricted Market Company will not have a sufficient market, with
adequate depth and liquidity, and sufficient investor interest to
support listing on the Exchange. A Restrictive Market Company subject
to the proposed initial listing requirements for an IPO or business
combination would also need to comply with all other applicable listing
requirements for the market tier on which it is listing.\74\
---------------------------------------------------------------------------

    \74\ See Nasdaq Rule 5000 Series.
---------------------------------------------------------------------------

    Based on the foregoing, the Commission finds that the proposed rule
change is consistent with the Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\75\ that the proposed rule change (SR-NASDAQ-2021-007) be, and
hereby is, approved.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
---------------------------------------------------------------------------

    \76\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21988 Filed 10-7-21; 8:45 am]
BILLING CODE 8011-01-P


                               Adjustment Memo
Analysis of HCFC-22 Servicing Needs in the U.S. Air Conditioning and Refrigeration Sector
            Additional Considerations for Estimating Virgin Demand
Background
In December 2009, EPA published its final hydrochlorofluorocarbon (HCFC) allocation rule, "Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export," (2009 Final Rule). That rule contained consumption and production allocations for HCFC-22, HCFC-142b and other HCFCs for the regulatory period of 2010 to 2014. As a result of the decision in Arkema v. EPA, which vacated the HCFC-22 and HCFC-142b allocations for 2011-2014, EPA published an interim final rule allocating HCFC-22 and HCFC-142b allowances for 2011. The proposed rulemaking that this memo accompanies proposes various options for providing HCFC-22 and HCFC-142b allowances in 2012 through 2014. The HCFC allowance system is part of EPA's Clean Air Act program to phase out ozone-depleting substances (ODS) and also supports U.S. compliance with the Montreal Protocol on Substances that Deplete the Ozone Layer. The most recent milestone of EPA's HCFC phaseout schedule was on January 1, 2010, limiting the production and import of HCFC-142b and HCFC-22 to specified amounts significantly lower than limits set for 2003 through 2009. Between 2010 and 2020, the production and import of HCFC-22 is permitted to service existing refrigeration and air conditioning (AC) equipment.
The allocation levels in EPA's 2009 Final Rule and 2011 Interim Final Rule were based in part on projections of HCFC-22 servicing demand, as estimated in The U.S. Phaseout of HCFCS: Projected Servicing Needs in the U.S. Air-Conditioning and Refrigeration Sector (known as the Servicing Tail Report). The report (1) examined the primary sources of HCFC-22 for the service of the installed base of refrigeration and AC equipment after 2010, (2) estimated the amounts of HCFC-22 recovered from equipment that could be subsequently recycled or reclaimed for reuse, and (3) based on these projections, estimated servicing demand for virgin HCFC-22.
Since the 2009 Final Rule was published, the Agency has heard from stakeholders that the market for HCFC-22 has evolved. Stakeholders cite a number of factors that indicate a change in the market, including low HCFC-22 prices, increased reuse in certain end uses, increased installation of dry-shipped condensing units for repair, un-expended consumption allocations for HCFC-22 in past years, and reports of a potential surplus inventory of HCFC-22. Some of these factors have been identified in public comments by industry members. In addition to this information, the U.S. economy is in a dramatically different position than when the Servicing Tail Report was developed.
This analysis summarizes industry feedback and suggests adjustments to the amount of modeled servicing demand for HCFC-22 in 2012 through 2014. In the proposed rule for 2012 through 2014, EPA is seeking comment on the assumptions EPA is making in this memo.
Methodology Overview
The analysis uses EPA's Vintaging Model to form the basis of quantitative estimates of current and projected HCFC-22 servicing demand, including from virgin and used sources. The Vintaging Model estimates the annual chemical emissions from industry sectors that have historically used ODS, including AC, refrigeration, foams, solvents, aerosols, and fire protection. Within these industry sectors, there are 59 independently modeled end-uses. The model uses information on the market size and growth for each end-use, as well as a history and projections of the market transition from ODS to alternatives. As ODS are phased out, a percentage of the market share originally filled by the ODS is allocated to each of its substitutes. The model tracks emissions of annual "vintages" of new equipment that enter into operation by incorporating information on estimates of the quantity of equipment or products sold, serviced, and retired or retrofitted each year, and the quantity of the compound required to manufacture, charge, and/or maintain the equipment. EPA's Vintaging Model uses this market information to build an annual inventory of in-use stocks of equipment and the ODS and non-ODS substitutes in each end-use.
Estimates of HCFC-22 servicing demand from EPA's Vintaging Model were the starting point for this analysis. Targeted industry research -- through interviews and public submissions -- was conducted to identify factors affecting the current market for HCFC-22. Then, overall servicing demand was adjusted to account for surplus inventory from past years and supplies of recovered refrigerant (either reclaimed or directly reused in the owner's equipment). More detail is provided on these sources and adjustments in the sections that follow.
Projected HCFC-22 Servicing Needs
Refrigeration and AC equipment commonly requires servicing, which may include adding refrigerant to account for refrigerant losses that occur over time. While EPA banned the production and import of HCFC-22 for use in new appliances starting in 2010, the agency continues to allow limited production and import of virgin HCFC-22 to service appliances manufactured prior to January 1, 2010.
Figure 1 presents projected HCFC-22 demand for servicing equipment in 2012, 2013, and 2014. These estimates were developed based on EPA's Vintaging Model. As shown, approximately 56,200 metric tons (MT) of HCFC-22 will be required to service AC and refrigeration equipment in 2012, 51,200 MT in 2013, and 45,900 MT in 2014. Residential AC represents the majority of HCFC-22 demand for 2012 to 2014.
HCFC-22 servicing demand projected in this analysis differs slightly from the demand presented in the 2009 Servicing Tail Report and the 2009 Final Rule.  These differences result from updates to the Vintaging Model. EPA's Vintaging Model is periodically updated and peer-reviewed as new information is incorporated. Since the 2009 Final Rule, updates to unitary AC and water & ground-source heat pump growth rates, future growth rates, stock of refrigerated appliances, and residential unitary AC servicing emission rates were applied to produce these estimates.

Figure 1: 2012-2014 Demand for Servicing Refrigeration and AC Equipment, by End Use*

*"Other" refers to window units, packaged terminal units, dehumidifiers, water & ground source heat pumps, motor vehicle AC, small & medium retail food and mobile AC.
Sources of HCFC-22 for Servicing
As of 2010, only existing sources of HCFC-22 and a controlled quantity of virgin HCFC-22 (limited through allowance allocations distributed by EPA) are available to the AC and refrigeration industry to meet servicing demand. Existing sources, which can offset the need for virgin HCFC-22, include (1) recycled HCFC-22, (2) reclaimed HCFC-22 and (3) imported, used HCFC-22. Previously-produced virgin material may have also been stored in inventory; this surplus inventory can also offset the need for additional virgin production and imports. HCFC-22 can also be obtained through inter-pollutant transfers of allowances. Of the five sources described below, this analysis will focus on recycled and reclaimed HCFC-22, as well as surplus inventory of virgin material.

   * Recycled: Recycled HCFC-22 refers to material that has been extracted from an appliance and cleaned for reuse without meeting all the requirements for reclamation. EPA regulations allow for recharge of recycled refrigerants into the same piece of equipment or another piece of equipment with the same owner. EPA does not collect data on the amount of HCFC-22 that is recycled.
   * Reclaimed: Refrigerants that are resold to be used in other equipment must be reclaimed to a standard level of purity based on the ARI Standard 700, to ensure sufficient purity of the reclaimed refrigerant. Certified reclaimers must report to EPA the total quantity of material sent to them each year for reclamation, the mass of refrigerant reclaimed that year and the mass of waste products generated that year.
   * Surplus Inventory from Past Years: Refrigerants that are imported, produced or reclaimed in previous calendar years can be stored in inventory and sold in later years. This practice is possible at all levels of the refrigerant distribution chain (producers, distributors, technicians, etc.).
   * Used imports: Used HCFC-22 can be imported via EPA's shipment-by-shipment petition process. The petition process ensures that HCFCs have been used (and were not newly produced) prior to import. Currently, the quantity of used HCFC-22 import is minimal and has not been included in this analysis.
   * Inter-pollutant transfers of allowances: Another source of HCFC-22 can result from allowance holders transferring their allowances from one HCFC to HCFC-22, which EPA permits on an annual and ODP-weighted basis with a 0.1 percent deduction. Industry sources have indicated that the number of inter-pollutant transfers is low, so this factor has not been included in this analysis.
Adjusting for Additional Considerations to Estimate Virgin HCFC-22 Demand
Based on new industry research, EPA could adjust servicing demand as modeled by the Vintaging Model to produce estimates that better reflect current and anticipated market conditions. These adjustments incorporate new information about (1) surplus inventory from past years, (2) the capacity of reclaimers to meet servicing demands, and (3) recovery and reuse of HCFC-22 in the large retail food sector (i.e., supermarkets), as described below. A list of companies consulted for this analysis is provided at the end of this report.
   * Exhibit 1: HCFC-22 Economics
Industry representatives report substantial reclamation capacity and access to recovered materials to meet a large proportion of servicing demand -- as long as the price for virgin HCFC-22 increases sufficiently to provide a market incentive for recovery and reclamation. The fact that 2010 HCFC-22 consumption allowances were not fully expended suggests that there is more than sufficient virgin HCFC-22 in the aftermarket, and that supply of virgin HCFC-22 would have to decrease sizably to cause the price for virgin HCFC-22 to increase.
Currently virgin HCFC-22 is priced at around $4.50 per pound; some industry representatives suggest that this price would have to exceed $8.00 per pound for reclaimed HCFC-22 to become competitive, given reclamation costs associated with storage, handling, processing, and cross-contamination.
Surplus Inventory Drawdown: Because HCFC-22 inventory information is not officially reported to EPA, this analysis relies on estimates provided by industry. Feedback suggests approximately 100 million pounds (45,400 MT) of surplus HCFC-22 from past years was in inventory at the end of 2010. Half of that figure (22,700 MT, or about six months worth of demand) is comprised of packaged virgin HCFC-22 and the rest is bulk gas in large storage containers (e.g., ISO tanks). There is less certainty on the amount of bulk gas in inventory; various factors may have contributed. For example, industry contacts suggested that a cooler-than-anticipated summer in 2009 may have resulted in significant quantities going to inventory due to low servicing demands. Entities may also be holding virgin HCFC-22 produced prior to 2010 in anticipation of higher prices in future years or as preparation for the 2010 stepdown under the Montreal Protocol.
      This analysis assumes surplus inventory between 22,700 and 45,400 MT existed at the beginning of 2012. Given expectations about the transition away from HCFCs, as well as the 2015 and 2020 HCFC phase-out milestones, it is estimated that the complete drawdown could take somewhere between four to eight years. This analysis also assumes that surplus inventory of virgin HCFC-22 will be drawn down at an annual rate of approximately 6,000 MT. This quantity is an average estimate given the ranges in amounts and potential drawdown periods. EPA is seeking comment on this assumption in the proposed rule for 2012 through 2014.
   * Reclaimer Capacity Adjustment: In its 2009 Final Rule, EPA estimated that 12,500 MT of HCFC-22 would be provided annually by recovery and reclamation through 2014. To date, reported reclaimed amounts have been lower, purportedly because of weak economic incentives. Specifically, the relatively low price of virgin HCFC-22 has challenged the economic viability of reclamation practices. However, recent interviews with reclaimers suggest that reclamation facilities have the technical capacity to meet a greater proportion of servicing demand, if the price is right (see Exhibit 1). A number of those interviewed stated that reclaimers were currently operating significantly below capacity. Interviews suggest that anywhere from 25% to 80% of servicing demands could be met by increasing the utilization of existing machinery and increasing the number of operational shifts in a week. This analysis uses 12,500 MT as a low bound for reclamation (consistent with the 2009 Final Rule), and 35% of total servicing demand in 2012 (19,700 MT) as the higher bound. EPA is seeking comment on this assumption in the proposed rule for 2012 through 2014.
   * Large Retail Food Recovery and Reuse Adjustment: Industry sources suggest that recovery and direct reuse is a widespread practice amongst supermarkets; however, the extent of recovery and reuse can vary significantly between chains, depending largely on the extent to which supermarkets are converting their HCFC-22 equipment to alternatives. For example, some supermarkets that have converted a substantial proportion of their HCFC-22 equipment indicated that they have sufficient recovered HCFC-22 in stock for servicing such that they do not anticipate a need to purchase any more virgin material in the future. Other supermarkets that have not converted from HCFC-22 equipment as aggressively indicated that as low as 10% to 20% of their servicing needs are met by material recovered from retrofitted stores they own. This analysis assumes that recovery and reuse can meet a range of 20% to 70% of the servicing needs of the large retail food sector. EPA is seeking comment on this assumption in the proposed rule for 2012 through 2014. Specifically, EPA is interested in learning if the percentage used in the final rule should be closer to 20% or 70%.
Table 1 summarizes the assumptions and adjustments that could be applied to the original HCFC-22 servicing demand. Two scenarios are considered: a Larger Allocation Scenario and a Smaller Allocation Scenario. Under both scenarios, EPA would allocate fewer consumption allowances relative to the 2009 Final Rule.
Table 1: Annual Adjustments to Total Servicing Demand
Adjustment
                          Larger Allocation Scenario
                          Smaller Allocation Scenario
Assumed annual drawdown of surplus HCFC-22 inventory
                                   6,000 MT
                    (13% to 26% of total surplus per year)
Market-wide servicing demand met by reclaimed HCFC-22
                                  12,500 MT
                                 (22% in 2012)
                                   19,700 MT
                                 (35% in 2012)
Servicing demand met by recovered HCFC-22 in the large retail food sector
                                1,100 - 1,600 MT
                                (20% per year)
                               3,800 - 5,500 MT
                                (70% per year)

Applying the adjustments shown in Table 1 results in a range of changes in servicing demand, which account for the portion of total demand that can be met through recovery and reuse, reclamation, and surplus drawdown.
Table 2 shows how these adjustments yield new overall estimates of demand for virgin HCFC-22 from 2012 through 2014.

Table 2: Results of Adjustments to HCFC-22 Servicing Demand (Metric Tons)

                                     2012
                                     2013
                                     2014

                          Larger Allocation Scenario
                          Smaller Allocation Scenario
                          Larger Allocation Scenario
                          Smaller Allocation Scenario
                          Larger Allocation Scenario
                          Smaller Allocation Scenario
Total Servicing Demand (Vintaging Model)
                                    56,200
                                    51,200
                                    45,900
 Surplus Inventory Drawdown
                                    -6,000
                                    -6,000
                                    -6,000
 Market-wide Servicing Demand Met by Reclaimed HCFC-22
                                    -12,500
                                    -19,700
                                    -12,500
                                    -19,700
                                    -12,500
                                    -19,700
 Servicing Demand Met by Reused HCFC-22 in Large Retail Food Equipment
                                    -1,600
                                    -5,500
                                    -1,300
                                    -4,600
                                    -1,100
                                    -3,800
Total Adjustment
                                    -20,100
                                    -31,200
                                    -19,800
                                    -30,300
                                    -19,600
                                    -29,500
Revised Allocation
                                    36,200
                                    25,100
                                    31,400
                                    20,800
                                    26,300
                                    16,400
Totals may not sum due to independent rounding.
Allocations for HCFC-22 from 2012 to 2014
Adjusting total servicing demand based on the above factors provides a new estimate of HCFC-22 virgin demand in 2012, 2013 and 2014. These new virgin demand estimates suggest that EPA should allocate fewer allowances for 2012 through 2014 than were provided in the 2009 Final Rule.
Table 3 presents revised demand, the allowance levels in the 2009 Final Rule, and the percentage change in overall consumption allocations based on these values. As shown, a consumption allowance reduction of 11% to 38% is possible for 2012, 13% to 42% for 2013, and 15% to 47% for 2014.
Table 3: Allocation Adjustment Relative to the 2009 Final Rule (Metric Tons)

                                     2012
                                     2013
                                     2014

                          Larger Allocation Scenario
                          Smaller Allocation Scenario
                          Larger Allocation Scenario
                          Smaller Allocation Scenario
                          Larger Allocation Scenario
                          Smaller Allocation Scenario
HCFC-22 Consumption Allowances in the 2009 Final Rule
                                    40,700
                                    35,900
                                    31,100
Revised Allocation
                                    36,200
                                    25,100
                                    31,400
                                    20,800
                                    26,300
                                    16,400
Percentage Allocation Change Relative to the 2009 Final Rule
                                     -11%
                                     -38%
                                     -13%
                                     -42%
                                     -15%
                                     -47%
Totals may not sum due to independent rounding.
Table 4 shows the possible allocation amounts for 2012 through 2014 as both an aggregate amount and percentage of baseline. The proposed HCFC-22 consumption baseline for 2012 through 2014 is 141,864,931 kg.
Table 4: Summary of Proposed Allocation Adjustments (Metric Tons)

                                     2012
                                     2013
                                     2014

                          Larger Allocation Scenario
                          Smaller Allocation Scenario
                          Larger Allocation Scenario
                          Smaller Allocation Scenario
                          Larger Allocation Scenario
                          Smaller Allocation Scenario
Revised Allocation
                                    36,200
                                    25,100
                                    31,400
                                    20,800
                                    26,300
                                    16,400
Percentage  of Baseline Allocated
                                     25.5%
                                     17.7%
                                     22.1%
                                     14.7%
                                     18.5%
                                     11.6%
Totals may not sum due to independent rounding.

List of Companies Consulted
Airgas Specialty Products Inc. Personal communication with ICF International. October 7, 2011.
Coolgas. Personal communication with ICF International. October 6, 2011.
Food Lion. Personal communication with ICF International. October 3, 2011.
Hudson Technologies Company. Personal communication with ICF International. October 7, 2011.
National Refrigerants, Inc. Personal communication with ICF International. October 12, 2011.
RemTec International. Personal communication with ICF International. October 4 and 17, 2011.
Supervalu. Personal communication with ICF International. October 5, 2011.
Weis Markets. Personal communication with ICF International. October 3, 2011.


[Federal Register Volume 77, Number 160 (Friday, August 17, 2012)]
[Rules and Regulations]
[Pages 49702-49705]
[FR Doc No: 2012-19396]

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

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2012-0423; Directorate Identifier 2011-NM-095-AD;
Amendment 39-17156; AD 2012-16-09]
RIN 2120-AA64

Airworthiness Directives; Embraer S.A. Airplanes

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

ACTION: Final rule.

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SUMMARY: We are superseding two existing airworthiness directives (AD)
for all Embraer S.A. Model ERJ 170 and ERJ 190 airplanes. Those ADs
currently require revising the airplane flight manual (AFM) to
introduce limitations for the use of auxiliary power unit (APU) bleed
and to prohibit dispatch with a failed air management system (AMS)
controller card. This new AD requires replacing the AMS controller
processor module with one containing new software, and a new AFM
revision. This AD was prompted by reports of the possible loss of
automatic activation of the engine inlet ice protection system. We are
issuing this AD to prevent the possibility of a right-hand (RH) engine
compressor stall after the APU becomes the active bleed source for the
left side, which may result in an engine failure; and to prevent the
intermittent communication failure between the AMS controller cards and
both secondary power distribution assemblies (SPDAs), which could lead
to the loss of automatic activation of the engine inlet ice protection
system when flying in icing conditions, which could result in ice
accretion in the engine inlet and subsequent dual engine failure.

DATES: This AD becomes effective September 21, 2012.
    The Director of the Federal Register approved the incorporation by
reference of certain publications listed in this AD as of September 21,
2012.
    The Director of the Federal Register approved the incorporation by
reference of a certain publication listed in this AD

as of September 9, 2010 (75 FR 52238, August 25, 2010).

ADDRESSES: You may examine the AD docket on the Internet at http://www.regulations.gov 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 FURTHER INFORMATION CONTACT: Cindy Ashforth, Aerospace Engineer,
International Branch, ANM-116, Transport Airplane Directorate, FAA,
1601 Lind Avenue SW., Renton, Washington 98057-3356; phone: 425-227-
2768; fax:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Discussion

    We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR
part 39 to include an AD that would apply to the specified products.
That NPRM was published in the Federal Register on May 1, 2012 (77 FR
25644), and proposed to supersede AD 2010-07-04, Amendment 39-16248 (75
FR 14333, March 25, 2010); and AD 2010-18-01, Amendment 39-16414 (75 FR
52238, August 25, 2010). That NPRM proposed to correct an unsafe
condition for the specified products. The MCAI states:

    This [Ag[ecirc]ncia Nacional de Avia[ccedil][atilde]o Civil
(ANAC)] AD results from the possibility of loss of automatic
activation of the engine inlet ice protection system when flying in
ice condition. Even though the failure is announced by the caution
messages ``A-I Eng 1 Fail'' [and] ``A-I Eng 2 Fail'', if the engines
inlet ice protection system is not manually activated, ice may
accrete in the engine inlet and causes engine to shut down.
    Also there is the possibility of right hand (RH) engine
compressor to stall after the Auxiliary Power Unit (APU) becomes the
active bleed source for the left side, following left hand (LH)
engine failure, under a condition where both engines are close to
idle, the APU is running, and the APU bleed button is pushed in
(automatic position).

The required actions include replacing the AMS controller processor
module with one containing new software and revising the Limitations
section of the AFM. You may obtain further information by examining the
MCAI in the AD docket.

Comments

    We gave the public the opportunity to participate in developing
this AD. We considered the comment received. The Air Line Pilots
Association, International (ALPA) stated that it fully supports the
NPRM (77 FR 25644, May 1, 2012).

Explanation of Change Made to the AD

    We have revised this AD to identify the legal name of the
manufacturer as published in the most recent type certificate data
sheet for the affected airplane models.

Conclusion

    We reviewed the available data, considered the comment received,
and determined that air safety and the public interest require adopting
the AD with the change described previously--and minor editorial
changes. We have determined that these minor changes:
     Are consistent with the intent that was proposed in the
NPRM (77 FR 25644, May 1, 2012) for correcting the unsafe condition;
and
     Do not add any additional burden upon the public than was
already proposed in the NPRM (77 FR 25644, May 1, 2012).

Costs of Compliance

    We estimate that this AD will affect about 253 products of U.S.
registry.
    The actions that are required by AD 2010-07-04, Amendment 39-16248
(75 FR 14333, March 25, 2010); and AD 2010-18-01, Amendment 39-16414
(75 FR 52238, August 25, 2010); and that are retained in this AD take
about 1 work-hour per product, at an average labor rate of $85 per
work-hour. Based on these figures, the estimated cost of the currently
required actions is $85 per product.
    We estimate that it will take about 1 work-hour per product to
comply with the new basic requirements of this AD. The average labor
rate is $85 per work-hour. Required parts will cost about $35 per
product. Where the service information lists required parts costs that
are covered under warranty, we have assumed that there will be no
charge for these parts. As we do not control warranty coverage for
affected parties, some parties may incur costs higher than estimated
here. Based on these figures, we estimate the cost of this AD to the
U.S. operators to be $30,360, or $120 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.
    We prepared a regulatory evaluation of the estimated costs to
comply with this AD and placed it in the AD docket.

Examining the AD Docket

    You may examine the AD docket on the Internet at http://www.regulations.gov; 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 the NPRM (77 FR 25644, May 1, 2012),
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. Comments will
be available in the AD docket shortly after receipt.

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
2010-07-04, Amendment 39-16248 (75 FR 14333, March 25, 2010); and AD
2010-18-01, Amendment 39-16414 (75 FR 52238, August 25, 2010); and
adding the following new AD:

2012-16-09 Embraer S.A.: Amendment 39-17156. Docket No. FAA-2012-
0423; Directorate Identifier 2011-NM-095-AD.

(a) Effective Date

    This airworthiness directive (AD) becomes effective September
21, 2012.

(b) Affected ADs

    This AD supersedes AD 2010-07-04, Amendment 39-16248 (75 FR
14333, March 25, 2010); and AD 2010-18-01, Amendment 39-16414 (75 FR
52238, August 25, 2010).

(c) Applicability

    This AD applies to Embraer S.A. Model ERJ 170-100 LR, -100 STD,
-100 SE., and -100 SU airplanes; Model ERJ 170-200 LR, -200 SU, and
-200 STD airplanes; Model ERJ 190-100 STD, -100 LR, -100 ECJ, and -
100 IGW airplanes; and Model ERJ 190-200 STD, -200 LR, and -200 IGW
airplanes; certificated in any category; all serial numbers.

(d) Subject

    Air Transport Association (ATA) of America Code 21: Air
Conditioning.

(e) Reason

    This AD was prompted by reports of the possible loss of
automatic activation of the engine inlet ice protection system. We
are issuing this AD to prevent the possibility of a right-hand (RH)
engine compressor stall after the auxiliary power unit (APU) becomes
the active bleed source for the left side, which may result in an
engine failure; and to prevent the intermittent communication
failure between the air management system (AMS) controller cards and
both secondary power distribution assemblies (SPDAs), which could
lead to the loss of automatic activation of the engine inlet ice
protection system when flying in icing conditions, which could
result in ice accretion in the engine inlet and subsequent dual
engine failure.

(f) Compliance

    You are responsible for having the actions required by this AD
performed within the compliance times specified, unless the actions
have already been done.

(g) Retained Revision for Certain Airplanes

    This paragraph restates the requirements of paragraph (g) of AD
2010-07-04, Amendment 39-16248 (75 FR 14333, March 25, 2010). For
airplanes equipped with AMS controller cards having part number (P/
N) 1001050-1-YYY or 1001050-2-YYY containing software version Black
Label 08 or lower installed: Within 10 days after April 9, 2010 (the
effective date of AD 2010-07-04), revise the Limitations section of
the AFM to include the following statement. This may be done by
inserting a copy of this AD in the AFM. Doing the actions required
by paragraph (i) of this AD terminates the requirements of this
paragraph.

    Dispatch with the message `RECIRC SMK DET FAIL' displayed on the
ground is prohibited unless troubleshooting action confirms the
message has not been triggered due to a failure of an AMS controller
card.

    Note 1 to paragraph (g) of this AD:  When a statement identical
to that in paragraph (g) of this AD has been included in the general
revisions of the AFM, the general revisions may be inserted into the
AFM, and the copy of this AD may be removed from the AFM.

(h) Retained AFM Revision for All Airplanes

    This paragraph restates the requirements of paragraph (g) of AD
2010-18-01, Amendment 39-16414 (75 FR 52238, August 25, 2010). For
all airplanes: Within 14 days after September 9, 2010 (the effective
date of AD 2010-18-01), revise the Limitations section of the
applicable AFM to include the information in EMBRAER Operational
Bulletin 170-001/09, Revision 1, dated February 10, 2010, as
specified in the operational bulletin. This operational bulletin
introduces limitations for the use of APU bleed. Doing the actions
required by paragraph (i) of this AD terminates the requirements of
this paragraph.

    Note 2 to paragraph (h) of this AD:  This may be done by
inserting a copy of EMBRAER Operational Bulletin 170-001/09,
Revision 1, dated February 10, 2010, into the AFM. When this
operational bulletin has been included in general revisions of the
AFM, the general revisions may be inserted in the AFM, provided the
relevant information in the general revision is identical to that in
the operational bulletin, and the operational bulletin can be
removed.

(i) New Requirement of This AD: Load Software or Replace AMS Controller
Module

    Within 3,300 flight hours after the effective date of this AD:
Replace existing Hamilton Sundstrand AMS controller processor
modules (slots 18 and 25) P/N 1001050-1-YYY, 1001050-2-YYY, 1001050-
3-YYY, or 1001050-4-YYY, with a new or serviceable AMS controller
processor module containing software version Black Label--11, or
later approved version of the software, in accordance with the
Accomplishment Instructions of Embraer Service Bulletin 170-21-0049,
dated November 29, 2010 (for Model ERJ 170 airplanes); Embraer
Service Bulletin 190-21-0035, dated November 29, 2010 (for Model ERJ
190 airplanes); or Embraer Service Bulletin 190LIN-21-0016, dated
February 23, 2011 (for Model ERJ 190-100 ECJ airplanes).

(j) Definition

    For the purposes of this AD, ``later-approved version of the
software,'' is defined as software having design approval holder
(DAH) design changes that have been approved after the publication
of Embraer Service Bulletin 170-21-0049, dated November 29, 2010
(for Model ERJ 170 airplanes); Embraer Service Bulletin 190-21-0035,
dated November 29, 2010 (for Model ERJ 190 airplanes); and Embraer
Service Bulletin 190LIN-21-0016, dated February 23, 2011 (for Model
ERJ 190-100 ECJ airplanes).

(k) New Requirement of This AD: Revise Limitations Section of AFM

    After doing the actions required by paragraph (i) of this AD,
before further flight, revise the Limitations section of the
applicable AFM by removing the limitation required by paragraph (g)
of this AD and the revision required by paragraph (h) of this AD.

(l) 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: Cindy
Ashforth, Aerospace Engineer, International Branch, ANM-116,
Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton,
Washington 98057-3356; phone:<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.

(m) Related Information

    Refer to MCAI Brazilian ADs 2011-05-01 and AD 2011-05-02, both
dated May 9, 2011, and the service information specified in
paragraphs (m)(1), (m)(2), (m)(3) and (m)(4) of this AD, for related
information.
    (1) EMBRAER Operational Bulletin 170-001/09, Revision 1, dated
February 10, 2010.
    (2) Embraer Service Bulletin 170-21-0049, dated November 29,
2010.
    (3) Embraer Service Bulletin 190-21-0035, dated November 29,
2010.
    (4) Embraer Service Bulletin 190LIN-21-0016, dated February 23,
2011.

(n) Material Incorporated by Reference

    (1) The Director of the Federal Register approved the
incorporation by reference (IBR) of the service information listed
in this

paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
    (2) You must use this service information as applicable to do
the actions required by this AD, unless the AD specifies otherwise.
    (3) The following service information was approved for IBR on
September 21, 2012.
    (i) Embraer Service Bulletin 170-21-0049, dated November 29,
2010.
    (ii) Embraer Service Bulletin 190-21-0035, dated November 29,
2010.
    (iii) Embraer Service Bulletin 190LIN-21-0016, dated February
23, 2011.
    (4) The following service information was approved for IBR on
September 9, 2010 (75 FR 52238, August 25, 2010).
    (i) EMBRAER Operational Bulletin 170-001/09, Revision 1, dated
February 10, 2010.
    (ii) Reserved.
    (5) For service information identified in this AD, contact
Embraer S.A., Technical Publications Section (PC 060), Av.
Brigadeiro Faria Lima, 2170--Putim--12227-901 S[atilde]o Jose dos
Campos--SP--BRASIL; telephone +55 12 3927-5852 or +55 12 3309-0732;
fax +55 12 3927-7546; email<EMAIL_ADDRESS>Internet http://www.flyembraer.com.
    (6) You may review copies of the 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>.
    (7) 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 an NARA facility, call<PHONE_NUMBER>, or go to http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.

    Issued in Renton, Washington, on July 31, 2012.
Michael Kaszycki,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2012-19396 Filed 8-16-12; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 86, Number 197 (Friday, October 15, 2021)]
[Rules and Regulations]
[Page 57358]
[FR Doc No: 2021-22492]

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

Coast Guard

33 CFR Part 165

[Docket No. USCG-2021-0788]

Safety Zone; Coast Guard Exercise Area, Hood Canal, Washington

AGENCY: Coast Guard, DHS.

ACTION: Notice of enforcement of regulation.

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SUMMARY: The Coast Guard will enforce safety zones surrounding vessels
involved in Coast Guard training exercises in Hood Canal, WA, from
October 25, 2021, through November 5, 2021. This action is necessary to
ensure the safety of the maritime public and vessels near training
exercises. During the enforcement period, entry into the safety zones
is prohibited, unless authorized by the Captain of the Port Sector
Puget Sound or their Designated Representative.

DATES: The regulations in 33 CFR 165.1339 will be enforced from 8 a.m.
on October 25, 2021, through 5 p.m. on November 5, 2021.

FOR FURTHER INFORMATION CONTACT: If you have questions about this
notice of enforcement, call or email Mr. Rob Nakama, Sector Puget Sound
Waterways Management Division, U.S. Coast Guard; telephone 206-217-
6051, email [email protected].

SUPPLEMENTARY INFORMATION: The Coast Guard will enforce the safety
zones around vessels involved in Coast Guard training exercises in Hood
Canal, WA, set forth in 33 CFR 165.1339, from 8 a.m. on October 25,
2021, through 5 p.m. on November 5, 2021. Under the provisions of 33
CFR 165.1339, no person or vessel may enter or remain within 500 yards
of any vessel involved in Coast Guard training exercises while such
vessel is transiting Hood Canal, WA, between Foul Weather Bluff and the
entrance to Dabob Bay, unless authorized by the Captain of the Port
Sector Puget Sound (COTP) or their Designated Representative. In
addition, the regulation requires all vessel operators seeking to enter
any of the zones during the enforcement period to first obtain
permission. You may seek permission by contacting the on-scene patrol
commander on VHF channel 13 or 16, or the Sector Puget Sound Joint
Harbor Operations Center at<PHONE_NUMBER>.
    You will be able to identify participating vessels as those flying
the Coast Guard Ensign. The COTP may also be assisted in the
enforcement of the zone by other federal, state, or local agencies. The
COTP will issue a general permission to enter the safety zones if the
training exercise is completed before 5 p.m. on November 5, 2021. In
addition to this notice of enforcement in the Federal Register, the
Coast Guard plans to provide notification of this enforcement period
via a Local Notice to Mariners.

    Dated: October 7, 2021.
P.M. Hilbert,
Captain, U.S. Coast Guard, Captain of the Port, Puget Sound.
[FR Doc. 2021-22492 Filed 10-14-21; 8:45 am]
BILLING CODE 9110-04-P