[Federal Register Volume 75, Number 35 (Tuesday, February 23, 2010)]
[Proposed Rules]
[Pages 7996-7998]
[FR Doc No: 2010-3484]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2009-0201; Directorate Identifier 2008-NE-47-AD]
RIN 2120-AA64

Airworthiness Directives; Thielert Aircraft Engines GmbH (TAE)
Models TAE 125-01 and TAE 125-02-99 Reciprocating Engines Installed in,
But Not Limited to, Diamond Aircraft Industries Model DA 42 Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Supplemental Notice of proposed rulemaking (NPRM); reopening of
comment period.

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SUMMARY: This supplemental NPRM revises an earlier proposed
airworthiness directive (AD) for the products listed above. This
proposed AD results from additional mandatory continuing airworthiness
information (MCAI) issued by an aviation authority of another country
to identify and correct an unsafe condition on an aviation product. The
MCAI describes the unsafe condition as: Engine in-flight shutdown
incidents have been reported on Diamond Aircraft Industries DA 42
airplanes equipped with TAE 125 engines. The investigations showed that
it was mainly the result of failure of the Proportional Pressure
Reducing Valve (PPRV) (also known as Propeller Control Valve) due to
high vibrations. This condition, if not corrected, could lead to
further cases of engine in-flight shutdown, possibly resulting in
reduced control of the aircraft. Since the release of European Aviation
Safety Agency (EASA) AD 2008-0145, the engine gearbox has been
identified as the primary source of vibrations for the PPRV, and it has
also been determined that failure of the electrical connection to the
PPRV could have contributed to some power loss events or in-flight
shutdowns. We are proposing this AD to prevent engine in-flight
shutdown, possibly resulting in reduced control of the aircraft.

DATES: We must receive comments on this proposed AD by March 25, 2010.

ADDRESSES: You may send comments by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov and follow the instructions for sending your
comments electronically.
     Mail: Docket Management Facility, U.S. Department of
Transportation, 1200 New Jersey Avenue, SE., West Building Ground
Floor, Room W12-140, Washington, DC 20590-0001.
     Hand Delivery: Deliver to Mail address above between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays.
     Fax:<PHONE_NUMBER>.

Examining the AD Docket

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

FOR FURTHER INFORMATION CONTACT: Tara Chaidez, Aerospace Engineer,
Engine Certification Office, FAA, Engine and Propeller Directorate, 12
New England Executive Park, Burlington, MA 01803; e-mail:
<EMAIL_ADDRESS>telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Comments Invited

    We invite you to send any written relevant data, views, or
arguments about this proposed AD. Send your comments to an address
listed under the ADDRESSES section. Include ``Docket No. FAA-2009-0201;
Directorate Identifier 2008-NE-47-AD'' at the beginning of your
comments. We specifically invite comments on the overall regulatory,
economic, environmental, and energy aspects of this proposed AD. We
will consider all comments received by the closing date and may amend
this proposed AD based on those comments.
    We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We
will also post a report summarizing each substantive verbal contact
with FAA personnel concerning this proposed AD. Using the search
function of the Web site, anyone can find and read the comments in any
of our dockets, including, if provided, the name of the individual who
sent the comment (or signed the comment on behalf of an association,
business, labor union, etc.). You may review the DOT's complete Privacy
Act Statement in the Federal Register published on April 11, 2000 (65
FR 19477-78).

Discussion

    EASA, which is the Technical Agent for the Member States of the
European Community, has issued AD 2009-0224, dated October 20, 2009, AD
2009-0193, dated August 27, 2009, and AD 2009-0193R1, dated December 1,
2009 (referred to after this as ``the MCAIs''), to correct an unsafe
condition for the specified products. These MCAIs state:

    Engine in-flight shutdown incidents have been reported on
Diamond Aircraft Industries DA 42 airplanes equipped with TAE 125
engines. The investigations showed that it was mainly the result of
failure of the PPRV due to high vibrations. This condition, if not
corrected, could lead to further cases of engine in-flight shutdown,
possibly resulting in reduced control of the aircraft.
    Since the release of EASA AD 2008-0145, the engine gearbox has
been identified as the primary source of vibrations for the PPRV,
and it has also been determined that failure of the electrical
connection to the PPRV could have contributed to some power loss
events or in-flight shutdowns.

Since we issued the original proposed AD on April 13, 2009 (74 FR
17795, April 17, 2009):
     TAE has identified the gearbox as the primary source of
vibrations causing the failures of the propeller control valves.
     EASA revised AD 2008-0145 with AD 2008-0145R1, which
reduced the applicability to cover only TAE 125-01 engines, superseded
AD 2008-0145R1 with AD 2009-0193, and revised that AD with AD 2009-
0193R1. AD 2009-0193R1 requires, for TAE 125-01 engines, initial and
repetitive replacements of the PPRV, inspection of the electrical
connectors of the PPRV and replacement of the connectors if damaged,
installation of a vibration isolator between the engine gearbox and the
propeller's constant speed unit, replacement of the aluminum pipe that
connects the PPRV to the constant speed unit with a flexible hose, and
replacement of the de-icing nozzle bracket with a redesigned bracket.
     EASA also issued AD 2009-0151 and superseded it with AD
2009-0224, which requires for TAE 125-02-99 engines, initial and
repetitive replacements of the PPRV, and installation of a vibration
isolator between the engine gearbox and the propeller's constant speed
unit.

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

Relevant Service Information

    Thielert Aircraft Engines GmbH has issued Service Bulletin (SB) No.
TM TAE 125-1007 P1, Revision 2, dated April 29, 2009, SB No. TM TAE
125-1009 P1, Revision 3, dated October 14,

2009, SB No. TM TAE 125-0018, Revision 1, dated November 12, 2008, and
SB No. TM TAE 125-0020, Revision 1, dated November 25, 2009. The
actions described in this service information are intended to correct
the unsafe condition identified in the MCAI.

Differences Between This Proposed AD and the MCAI

    We have reviewed the MCAIs and, in general, agree with their
substance. But we have found it necessary to not reference the second
paragraph of the unsafe condition from EASA AD 2009-0224. That sentence
stated that the problem has only manifested itself on those Thielert
engines installed on Diamond Aircraft Industries DA 42 aircraft. The
affected engines which require a PPRV could be used on other make and
model airplanes in the future.
    We also did not incorporate the February 28, 2010 compliance date
which is in EASA AD 2009-0193R1, or the January 31, 2010 compliance
date which is in EASA AD 2009-0224.

FAA's Determination and Requirements of This Proposed AD

    This product has been approved by the aviation authority of Germany
and is approved for operation in the United States. Pursuant to our
bilateral agreement with Germany, EASA has notified us of the unsafe
condition described in the MCAI. We are proposing this AD because we
evaluated all information provided by EASA and determined the unsafe
condition exists and is likely to exist or develop on other products of
the same type design. This proposed AD would require initial and
repetitive replacements of the PPRV and installation of a vibration
isolator to the gearbox assembly.

Costs of Compliance

    Based on the service information, we estimate that this proposed AD
would affect about 300 TAE 125-01 and TAE 125-02-99 reciprocating
engines installed in Diamond Aircraft Industries Model DA 42 airplanes
of U.S. registry. We also estimate that it would take about 0.25 work-
hour per engine to replace a PPRV and install a vibration isolator to
the gearbox assembly. The average labor rate is $85 per work-hour.
Required parts would cost about $275 per product. Based on these
figures, we estimate the cost of the proposed AD on U.S. operators to
be $88,875.

Authority for This Rulemaking

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

Regulatory Findings

    We determined that this proposed AD would not have federalism
implications under Executive Order 13132. This proposed AD would not
have a substantial direct effect on the States, on the relationship
between the national Government and the States, or on the distribution
of power and responsibilities among the various levels of government.
    For the reasons discussed above, I certify this proposed
regulation:
    1. Is not a ``significant regulatory action'' under Executive Order
12866;
    2. Is not a ``significant rule'' under the DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979); and
    3. Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.
    We prepared a regulatory evaluation of the estimated costs to
comply with this proposed AD and placed it in the AD docket.

List of Subjects in 14 CFR Part 39

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

The Proposed Amendment

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

PART 39--AIRWORTHINESS DIRECTIVES

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

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

Sec.  39.13  [Amended]

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

Thielert Aircraft Engines GmbH: Docket No. FAA-2009-0201;
Directorate Identifier 2008-NE-47-AD.

Comments Due Date

    (a) We must receive comments by March 25, 2010.

Affected Airworthiness Directives (ADs)

    (b) None.

Applicability

    (c) This AD applies to Thielert Aircraft Engines GmbH (TAE)
models TAE 125-01 and TAE 125-02-99 reciprocating engines designated
with part number (P/N) 05-7200-K000301 or 02-7200-1401R1. The
engines are installed on, but not limited to, Diamond Aircraft
Industries Model DA 42 airplanes.

Reason

    (d) Engine in-flight shutdown incidents have been reported on
Diamond Aircraft Industries DA 42 airplanes equipped with TAE 125
engines. The investigations showed that it was mainly the result of
failure of the Proportional Pressure Reducing Valve (PPRV) (also
known as Propeller Control Valve) due to high vibrations. This
condition, if not corrected, could lead to further cases of engine
in-flight shutdown, possibly resulting in reduced control of the
aircraft.
    Since the release of European Aviation Safety Agency (EASA) AD
2008-0145, the engine gearbox has been identified as the primary
source of vibrations for the PPRV, and it has also been determined
that failure of the electrical connection to the PPRV could have
contributed to some power loss events or in-flight shutdowns.
    We are issuing this AD to prevent engine in-flight shutdown,
possibly resulting in reduced control of the aircraft.

Actions and Compliance

    (e) Unless already done, do the following actions:

TAE 125-02-99 Reciprocating Engines

    (1) For TAE 125-02-99 reciprocating engines with engine P/N 05-
7200-K000301, within 55 flight hours after the effective date of
this AD:
    (i) Replace the existing PPRV with PPRV, P/N 05-7212-E002801.
Use paragraphs A. through B. of Thielert Service Bulletin (SB) No.
TM TAE 125-1007 P1, Revision 2, dated April 29, 2009, to do the
replacement.
    (ii) Install a vibration isolator, P/N 05-7212-K022302, to the
gearbox assembly. Use paragraphs 1 through 20 of Thielert SB No. TM
TAE 125-1009 P1, Revision 3, dated October 14, 2009, to do the
installation.

Repetitive PPRV Replacements

    (2) Thereafter, within every 300 flight hours, replace the PPRV,
P/N 05-7212-E002801, with the same P/N PPRV.

TAE 125-01 Reciprocating Engines

    (3) For TAE 125-01 reciprocating engines with engine P/N 02-
7200-1401R1, within 55 flight hours after the effective date of this
AD:
    (i) Replace the existing PPRV with a PPRV, P/N NM-0000-0124501
or P/N 05-7212-K021401. Use paragraph 1 of Thielert SB No. TM TAE
125-0018, Revision 1, dated November 12, 2008, to do the
replacement.

    (ii) Inspect the electrical connectors of the PPRV and replace
the connectors if damaged, and install a vibration isolator, P/N 05-
7212-K023801, to the gearbox assembly. Use paragraphs 1 through 27
of Thielert SB No. TM TAE 125-0020, Revision 1, dated November 25,
2009, to do the inspection and installation.

Repetitive PPRV Replacements

    (4) Thereafter, within every 300 flight hours, replace the PPRV
with a PPRV, P/N NM-0000-0124501 or P/N 05-7212-K021401.

FAA Differences

    (f) We have found it necessary to not reference the second
paragraph of the unsafe condition from the MCAI EASA AD 2009-0224.
That sentence stated that the problem has only manifested itself on
those Thielert engines installed on Diamond Aircraft Industries DA
42 aircraft. The affected engines which require a PPRV could be used
on other make and model airplanes in the future.
    (g) We also did not reference the February 28, 2010 compliance
date, which is in EASA AD 2009-0193R1, or the January 31, 2010
compliance date which is in EASA AD 2009-0224.

Alternative Methods of Compliance (AMOCs)

    (h) The Manager, Engine Certification Office, FAA, has the
authority to approve AMOCs for this AD, if requested using the
procedures found in 14 CFR 39.19.

Related Information

    (i) Refer to EASA AD 2009-0224, dated October 20, 2009 (TAE 125-
02-99), and EASA AD 2009-0193R1, dated December 1, 2009 (TAE 125-
01), for related information.
    (j) Refer to Thielert SB No. TM TAE 125-1007 P1, Revision 2,
dated April 29, 2009, and Thielert SB No. TM TAE 125-1009 P1,
Revision 3, dated October 14, 2009 (TAE 125-02-99), for related
information.
    (k) Refer to Thielert SB No. TM TAE 125-0018, Revision 1, dated
November 12, 2008, and Thielert SB No. TM TAE 125-0020, Revision 1,
dated November 25, 2009 (TAE 125-01), for related information.
    (l) Contact Thielert Aircraft Engines GmbH, Platanenstrasse 14
D-09350, Lichtenstein, Germany, telephone: +49-37204-696-0; fax:
+49-37204-696-2912; e-mail<EMAIL_ADDRESS>for a copy
of the service information referenced in this AD.
    (m) Contact Tara Chaidez, Aerospace Engineer, Engine
Certification Office, FAA, Engine and Propeller Directorate, 12 New
England Executive Park, Burlington, MA 01803; e-mail:
<EMAIL_ADDRESS>telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>,
for more information about this AD.

    Issued in Burlington, Massachusetts, on February 16, 2010.
Francis A. Favara,
Manager, Engine and Propeller Directorate, Aircraft Certification
Service.
[FR Doc. 2010-3484 Filed 2-22-10; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register: December 23, 2009 (Volume 74, Number 245)]
[Notices]
[Page 68294-68297]
[DOCID:fr23de09-99]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61174]

Order Granting Application for Extension of a Temporary
Conditional Exemption Pursuant to Section 36(a) of the Exchange Act by
the International Securities Exchange, LLC Relating to the Ownership
Interest of International Securities Exchange Holdings, Inc. in an
Electronic Communications Network

December 16, 2009.

I. Introduction

    On December 22, 2008, the Securities and Exchange Commission
(``Commission'') approved a proposal filed by the International
Securities Exchange, LLC (``ISE'' or ``Exchange'') in connection with
corporate transactions (the ``Transactions'') in which, among other
things, the parent company of ISE, International Securities Exchange
Holdings, Inc. (``ISE Holdings''), purchased a 31.54% ownership
interest in Direct Edge Holdings LLC (``Direct Edge''), the owner and
operator of Direct Edge ECN (``DECN''), a registered broker-dealer and
electronic communications network (``ECN'').\1\ Following the closing
of the Transactions (the ``Closing''), Direct Edge's wholly-owned
subsidiary, Maple Merger Sub LLC (``Merger Sub'') began to operate a
marketplace for the trading of U.S. cash equity securities by Equity
Electronic Access Members of ISE (the ``Facility''), under ISE's rules
and as a ``facility,'' as defined in Section 3(a)(2) of the Securities
Exchange Act of 1934 (``Exchange Act''),\2\ of ISE.\3\
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    \1\ See Securities Exchange Act Release No. 59135 (December 22,
2008), 73 FR 79954 (December 30, 2008) (order approving File No. SR-
ISE-2008-85).
    \2\ 15 U.S.C. 78c(a)(2).
    \3\ Under Section 3(a)(2) of the Act, the term ``facility,''
when used with respect to an exchange, includes ``its premises,
tangible or intangible property whether on the premises or not, any
right to the use of such premises or property or any service thereof
for the purpose of effecting or reporting a transaction on an
exchange (including, among other things, any system of communication
to or from the exchange, by ticker or otherwise, maintained by or
with the consent of the exchange), and any right of the exchange to
the use of any property or service.''
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    DECN, which operates as an ECN and submits its limit orders to the
Facility for display and execution, is an affiliate of ISE through ISE
Holdings' equity interest in DE Holdings. DECN also is a facility, as
defined in Section 3(a)(2) of the Exchange Act, of ISE because it is an
affiliate of ISE used for the purpose of effecting and reporting
securities transactions. Because DECN is a facility of ISE, ISE, absent
exemptive relief,

would be obligated under Section 19(b) of the Exchange Act to file with
the Commission proposed rules governing the operation of DECN's systems
and subscriber fees.
    On December 22, 2008, the Commission exercised its authority under
Section 36 of the Exchange Act to grant ISE a temporary exemption,
subject to certain conditions, from the requirements under Section
19(b) of the Exchange Act with respect to DECN's proposed rules.\4\ On
June 19, 2009, the Commission extended this temporary exemption for an
additional 180 days, subject to certain conditions.\5\
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    \4\ See Securities Exchange Act Release No. 59133 (December 22,
2008), 73 FR 79940 (December 30, 2008) (``Exemption Order'').
    \5\ See Securities Exchange Act Release No. 60152 (June 19,
2009), 74 FR 30334 (June 25, 2009) (``June Extension'').
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    On November 16, 2009, ISE filed with the Commission, pursuant to
Rule 0-12 \6\ under the Exchange Act, an application under Section
36(a)(1) of the Exchange Act \7\ to extend the relief granted in the
June Extension for an additional 180 days, subject to certain
conditions.\8\ This order grants ISE's request for a temporary
extension of the relief provided in the June Extension, subject to the
satisfaction of certain conditions, which are outlined below.
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    \6\ 17 CFR 240.0-12.
    \7\ 15 U.S.C. 78mm(a)(1).
    \8\ See letter from Michael J. Simon, General Counsel and
Secretary, ISE, to Elizabeth M. Murphy, Secretary, Commission, dated
November 16, 2009 (``Extension Request'').
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II. Application for an Extension of the Temporary Conditional Exemption
From the Section 19(b) Rule Filing Requirements

    On November 16, 2009, ISE requested that the Commission exercise
its authority under Section 36 of the Exchange Act to temporarily
extend, subject to certain conditions, the temporary conditional
exemption granted in the June Extension from the rule filing procedures
of Section 19(b) of the Exchange Act in connection with ISE Holdings'
equity ownership interest in DE Holdings and the continued operation of
DECN as a facility of ISE.\9\
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    \9\ See Extension Request at 1.
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    The Extension Request notes that on May 7, 2009, EDGA Exchange,
Inc., and EDGX Exchange, Inc. (together, the ``Exchange
Subsidiaries''), two wholly-owned subsidiaries of DE Holdings, filed
with the Commission Form 1 applications (the ``Form 1 Applications'')
to register as national securities exchanges under Section 6 of the
Exchange Act.\10\ According to the Extension Request, DECN intends to
file a ``Cessation of Operations Report'' with the Commission and to
cease operations as an ECN shortly following any Commission approval of
the Form 1 Applications and the Exchange Subsidiaries commencing
operations as national securities exchanges.\11\
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    \10\ Id. at 2. The Form 1 Applications have been published for
notice and comment. See Securities Exchange Act Release No. 60651
(September 11, 2009), 74 FR 47827 (September 17, 2009) (``Form 1
Applications Notice'').
    \11\ See Extension Request at 2.
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    Because DECN will cease operations as an ECN if the Commission
approves the Form 1 Applications, ISE expects that DECN will continue
to operate as a facility of ISE for a relatively brief period.\12\ In
addition, ISE believes that it would be unduly burdensome and
inefficient to require DECN's operating rules to be separately subject
to the Section 19(b) rule filing process because the published rules of
the Exchange Subsidiaries ``substantially align with DECN's operations
in practice and DECN is only operating temporarily as a facility of ISE
while the Commission considers the Form 1 Applications.'' \13\
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    \12\ Id.
    \13\ Id.
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    ISE has asked the Commission to exercise its authority under
Section 36 of the Exchange Act to grant ISE a 180-day extension of the
June Extension's relief, subject to certain conditions, from the
Section 19(b) rule filing requirements that otherwise would apply to
DECN as a facility of ISE.\14\ The extended temporary conditional
exemption would commence immediately and would permit the continued
operation of DECN while the Commission considers the Form 1
Applications that, if approved, would allow the Exchange Subsidiaries
to operate in place of DECN.\15\ ISE believes that the extended
temporary conditional exemption will help to ensure an orderly
transition from DECN to the proposed Exchange Subsidiaries.\16\
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    \14\ Id.
    \15\ According to ISE, it would be impracticable for DECN to
display its limit orders other than on the Facility. See Extension
Request at 2-3.
    \16\ See Extension Request at 3.
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    ISE states, in addition, that the extended exemption will not
diminish the Commission's ability to monitor ISE and DECN.\17\ In this
regard, ISE notes that to the extent that ISE makes changes to its
systems, including the Facility, during the extended temporary
exemption period, or thereafter, it remains subject to Section 19(b)
and thus obligated to file proposed rule changes with the
Commission.\18\ Further, in the Extension Request, ISE commits to
satisfying certain conditions, as outlined below, which are identical
to the conditions in the Exemption Order and the June Extension.\19\
For example, as a condition to the extended temporary exemption, ISE
will be required to submit proposed rule changes with respect to any
material changes to DECN's functions during the exemption period.\20\
ISE notes, however, that neither ISE nor DECN anticipates any material
changes to DECN's functionality during the extended temporary exemption
period.\21\
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    \17\ Id.
    \18\ Id.
    \19\ ISE also represents that it has complied with the
conditions in the Exemption Order and the June Extension and that it
will continue to comply with these conditions during any extension
of the relief granted. See Extension Request at 3.
    \20\ See Extension Request at note 6.
    \21\ See Extension Request at note 5.
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III. Order Granting Extension of Temporary Conditional Section 36
Exemption

    In 1996, Congress gave the Commission greater flexibility to
regulate trading systems, such as DECN, by granting the Commission
broad authority to exempt any person from any of the provisions of the
Exchange Act and to impose appropriate conditions on their
operation.\22\ Specifically, NSMIA added Section 36(a)(1) to the
Exchange Act, which provides that ``the Commission, by rule,
regulation, or order, may conditionally or unconditionally exempt any
person, security, or transaction, or any class or classes of persons,
securities, or transactions, from any provision or provisions of [the
Exchange Act] or of any rule or regulation thereunder, to the extent
that such exemption is necessary or appropriate in the public interest,
and is consistent with the protection of investors.'' \23\ In enacting
Section 36, Congress indicated that it expected that ``the Commission
will use this authority to promote efficiency, competition and capital
formation.'' \24\ It particularly intended to give the Commission
sufficient flexibility to respond to changing market and competitive
conditions:
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    \22\ 15 U.S.C. 78mm(a). Section 36 of the Exchange Act was
enacted as part of the National Securities Markets Improvements Act
1996, Pub. L. No. 104-290 (``NSMIA'').
    \23\ 15 U.S.C. 78mm(a)(1).
    \24\ H.R. Rep. No. 104-622, 104th Cong., 2\d\ Sess. 38 (1996).

    The Committee recognizes that the rapidly changing marketplace
dictates that effective regulation requires a certain amount of
flexibility. Accordingly, the bill grants the SEC general exemptive
authority under both the Securities Act and the Securities Exchange
Act. This exemptive authority will allow the Commission the
flexibility to

explore and adopt new approaches to registration and disclosure. It
will also enable the Commission to address issues relating to the
securities markets more generally. For example, the SEC could deal
with the regulatory concerns raised by the recent proliferation of
electronic trading systems, which do not fit neatly into the
existing regulatory framework.\25\
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    \25\ S. Rep. No. 104-293, 104th Cong., 2\d\ Sess. 15 (1996).

    As noted above, in December 2008 the Commission exercised its
Section 36 exemptive authority to grant ISE a temporary exemption,
subject to certain conditions, from the 19(b) rule filing requirements
in connection with the Transaction.\26\ On June 19, 2009, the
Commission extended ISE's temporary exemption for an additional 180
days.\27\ In addition, the Commission previously granted similar
exemptive relief in connection with Nasdaq's acquisition of Brut, LLC,
the operator of the Brut ECN.\28\
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    \26\ See Exemption Order, supra note 4.
    \27\ See June Extension, supra note 5.
    \28\ See Securities Exchange Act Release No. 50311 (September 3,
2004), 69 FR 54818 (September 10, 2004). Although granting the ISE's
Extension Request would result in a temporary exemption longer than
the exemption granted in connection with Nasdaq's acquisition of
Brut, LLC, the Commission believes that an extended exemption is
warranted, in this case, to provide adequate time to address the
regulatory issues raised by ISE's ownership structure. In this
regard, the Commission notes that, as a result of ISE's equity
ownership interest in Direct Edge, the non-U.S. owners of ISE will
have an indirect ownership interest in Direct Edge and in the
Exchange Subsidiaries, as well as in ISE. When the Commission
approved the 2007 transaction in which ISE Holdings became a wholly-
owned indirect subsidiary of Eurex Frankfurt AG, the corporate
governing documents of ISE Holdings and its parent company, U.S.
Exchange Holdings, and corporate resolutions adopted by the non-U.S.
owners, included provisions (the ``Regulatory Provisions'') designed
to maintain the independence of the regulatory function of ISE, the
sole national securities exchange then owned by ISE Holdings. See
Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR
71979 (December 19, 2007) (File No. SR-ISE-2007-101). In connection
with ISE Holdings' subsequent purchase of an ownership interest in
Direct Edge, ISE has filed proposed changes to the governing
documents of ISE Holdings and U.S. Exchange Holdings that apply the
Regulatory Provisions to any national securities exchange, or
facility thereof, controlled, directly or indirectly, by ISE
Holdings. See, e.g., Securities Exchange Act Release Nos. 59135
(December 22, 2008), 73 FR 79954 (December 30, 2008) (File No. SR-
ISE-2008-85) (approving changes to the Certificate of Incorporation
and Bylaws of ISE Holdings); and 61005 (November 16, 2009) (notice
of filing of File No. SR-ISE-2009-90) (proposing changes to Trust
Agreement and to the Certificate of Incorporation and Bylaws of U.S.
Exchange Holdings). Similarly, the Form 1 Applications included
forms of supplemental corporate resolutions, to be adopted by the
non-U.S. owners prior to any Commission approval of the Form 1
Applications. These supplemental corporate resolutions will apply
the Regulatory Provisions to the Exchange Subsidiaries. Accordingly,
the amended corporate governing documents of ISE Holdings and U.S.
Exchange Holdings, and the supplemental corporate resolutions of the
non-U.S. owners, will apply to the Exchange Subsidiaries following
any Commission approval of the Form 1 Applications. In light of the
time required to amend the corporate governing documents of ISE
Holdings and U.S. Exchange Holdings, and to supplement the corporate
resolutions of the non-U.S. owners, the Commission believes that it
is appropriate to grant the ISE's Extension Request.
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    Section 19(b)(1) of the Exchange Act requires a self-regulatory
organization (``self-regulatory organization'' or ``SRO''), including
ISE, to file with the Commission its proposed rule changes accompanied
by a concise general statement of the basis and purpose of the proposed
rule change. Once a proposed rule change has been filed with the
Commission, the Commission is required to publish notice of it and
provide an opportunity for public comment. The proposed rule change may
not take effect unless approved by the Commission by order, unless the
rule change is within the class of rule changes that are effective upon
filing pursuant to Section 19(b)(3)(A) of the Act.\29\
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    \29\ 15 U.S.C. 78s(b)(3)(A).
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    Section 19(b)(1) of the Exchange Act defines the term ``proposed
rule change'' to mean ``any proposed rule or rule change in, addition
to, or deletion from the rules of [a] self-regulatory organization.''
Pursuant to Section 3(a)(27) and 3(a)(28) of the Exchange Act, the term
``rules of a self-regulatory organization'' means (1) the constitution,
articles of incorporation, bylaws and rules, or instruments
corresponding to the foregoing, of an SRO, and (2) such stated
policies, practices and interpretations of an SRO (other than the
Municipal Securities Rulemaking Board) as the Commission, by rule, may
determine to be necessary or appropriate in the public interest or for
the protection of investors to be deemed to be rules. Rule 19b-4(b)
under the Exchange Act,\30\ defines the term ``stated policy, practice,
or interpretation'' to mean generally ``any material aspect of the
operation of the facilities of the self-regulatory organization or any
statement made available to the membership, participants, or specified
persons thereof that establishes or changes any standard, limit, or
guideline with respect to rights and obligations of specified persons
or the meaning, administration, or enforcement of an existing rule.''
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    \30\ 17 CFR 240.19b-4(b).
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    The term ``facility'' is defined in Section 3(a)(2) of the Exchange
Act, with respect to an exchange, to include ``its premises, tangible
or intangible property whether on the premises or not, any right to use
such premises or property or any service thereof for the purpose of
effecting or reporting a transaction on an exchange (including, among
other things, any system of communication to or from the exchange, by
ticker or otherwise, maintained by or with the consent of the
exchange), and any right of the exchange to the use of any property or
service.''
    In its Extension Request, ISE acknowledges that since the Closing,
Merger Sub has operated the Facility as a facility of ISE.\31\ Absent
an exemption, Section 19(b) of the Exchange Act and Rule 19b-4
thereunder would require ISE to file proposed rules with the Commission
to allow ISE to operate DECN as a facility of ISE.
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    \31\ See Extension Request at 1. As discussed above, ISE owns a
31.54% ownership interest in DE Holdings, the sole owner of Merger
Sub.
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    In its Extension Request, ISE notes that the Exchange Subsidiaries
have filed Form 1 Applications, which have been published for
comment,\32\ and that DECN intends to cease operations as an ECN
shortly after any Commission approval of the Form 1 Applications and
the Exchange Subsidiaries' commencement of operations as national
securities exchanges.\33\ Accordingly, ISE expects that DECN will
continue to operate as a facility of ISE for a relatively brief period
of time.\34\ ISE represents that it has complied with the conditions in
the Exemption Order and the June Extension and that it will continue to
comply with these conditions during an extension of the relief granted
in the June Extension.\35\
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    \32\ See Form 1 Applications Notice, supra note 10.
    \33\ See Extension Request at 2. The Commission must approve an
application for registration as a national securities exchange, or
institute proceedings to determine whether the application should be
denied, within 90 days of publication of notice of filing of the
application, or within such longer period as to which the applicant
consents. See Exchange Act Section 19(a)(1), 15 U.S.C. 78s(a)(1).
    \34\ Id. at 2.
    \35\ Id. at 3.
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    The Commission believes that it is appropriate to grant a temporary
extension of the relief provided in the June Extension, subject to the
conditions described below, to allow DECN to continue to operate as a
facility of ISE without being subject to the rule filing requirements
of Section 19(b) of the Exchange Act for a temporary period.\36\
Accordingly, the Commission has determined to grant ISE's request for
an extension of the relief provided in the June Extension, subject to
certain conditions, for a period not to exceed

180 days. The Commission finds that the temporary extended conditional
exemption from the provisions of Section 19(b) of the Exchange Act is
appropriate in the public interest and is consistent with the
protection of investors. In particular, the Commission believes that
the temporary extended exemption should help promote efficiency and
competition in the market by allowing DECN to continue to operate as an
ECN for a limited period of time while the Commission considers the
Form 1 Applications. In this regard, the Commission notes ISE's belief
that it would be unduly burdensome and inefficient to require DECN's
operating rules to be separately subjected to the Section 19(b) rule
filing and approval process because DECN will operate only temporarily
as a facility of ISE while the Commission considers the Form 1
Applications. In addition, the Commission notes that the Form 1
Applications, which include the rules of the Exchange Subsidiaries,
were published for comment on September 17, 2009.\37\ According to ISE,
the rules of the Exchange Subsidiaries ``substantially align'' with
DECN's operations in practice.\38\ Accordingly, the publication of the
Form 1 Applications should help to mitigate any concerns regarding
transparency with respect to the rules under which DECN operates
temporarily as a facility of ISE.
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    \36\ In granting this relief, the Commission makes no finding
regarding whether ISE's operation of DECN as a facility would be
consistent with the Exchange Act.
    \37\ See Securities Exchange Act Release No. 60651 (September
11, 2009), 74 FR 47827 (September 17, 2009).
    \38\ See Exemption Request at 2.
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    To provide the Commission with the opportunity to review and act
upon any proposal to change DECN's fees or to make material changes to
DECN's operations as an ECN during the period covered by the extended
temporary exemption, as well as to ensure that the Commission's ability
to monitor ISE and DECN is not diminished by the extended temporary
exemption, the Commission is imposing the following conditions while
the extended temporary exemption is in effect.\39\ The Commission
believes such conditions are necessary and appropriate in the public
interest for the protection of investors. Therefore, the Commission is
granting to ISE an extended temporary exemption, pursuant to Section 36
of the Exchange Act, from the rule filing requirements imposed by
Section 19(b) of the Exchange Act as set forth above, provided that ISE
and DECN comply with the following conditions:
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    \39\ See Extension Request at note 6.
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    (1) DECN remains a registered broker-dealer under Section 15 of the
Exchange Act \40\ and continues to operate as an ECN;
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    \40\ 15 U.S.C. 78o.
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    (2) DECN operates in compliance with the obligations set forth
under Regulation ATS;
    (3) DECN and ISE continue to operate as separate legal entities;
    (4) ISE files a proposed rule change under Section 19 of the
Exchange Act \41\ if any material changes are sought to be made to
DECN's operations. A material change would include any changes to a
stated policy, practice, or interpretation regarding the operation of
DECN or any other event or action relating to DECN that would require
the filing of a proposed rule change by an SRO or an SRO facility; \42\
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    \41\ 15 U.S.C. 78s.
    \42\ See Section 19(b) of the Exchange Act and Rule 19b-4
thereunder. The Commission notes that a material change would
include, among other things, changes to DECN's operating platform;
the types of securities traded on DECN; DECN's types of subscribers;
or the reporting venue for trading that takes place on DECN. The
Commission also notes that any rule filings must set forth the
operation of the DECN facility sufficiently so that the Commission
and the public are able to evaluate the proposed changes.
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    (5) ISE files a proposed rule change under Section 19 of the
Exchange Act if DECN's fee schedule is sought to be modified; and
    (6) ISE treats DECN the same as other ECNs that participate in the
Facility, and, in particular, ISE does not accord DECN preferential
treatment in how DECN submits orders to the Facility or in the way its
orders are displayed or executed.\43\
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    \43\ See Extension Request at note 6.
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    In addition, the Commission notes that the Financial Industry
Regulatory Authority is currently the Designated Examining Authority
for DECN.
    For the reasons discussed above, the Commission finds that the
extended temporary conditional exemptive relief requested by ISE is
appropriate in the public interest and is consistent with the
protection of investors.
    It is ordered, pursuant to Section 36 of the Exchange Act,\44\ that
the application for an extended temporary conditional exemption is
granted for a period of 180 days, effective immediately.
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    \44\ 15 U.S.C. 78mm.

    By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30426 Filed 12-22-09; 8:45 am]

BILLING CODE 8011-01-P