[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]
[Notices]
[Pages 20973-20981]
[FR Doc No: 2013-08098]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69278; File No. SR-NYSE-2013-25]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Establish Non-Display Usage Fees for NYSE OpenBook, NYSE Trades, and
NYSE BBO and a Redistribution Fee for NYSE OpenBook

April 2, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 21, 2013, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to establish non-display usage fees for NYSE
OpenBook, NYSE Trades, and NYSE BBO and a redistribution fee for NYSE
OpenBook, all of which will be operative on April 1, 2013. The text of
the proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to establish non-display usage fees for NYSE
OpenBook, NYSE Trades, and NYSE BBO and a redistribution fee for NYSE
OpenBook, all of which will be operative on April 1, 2013. The
subsections below describe (1) the background on the current fees for
these real-time products; (2) the rationale for creating a new non-
display usage fee structure; (3) the proposed fees for non-display use,
which will include internal non-display use and managed non-display
use; (4) the proposed redistribution fee for NYSE OpenBook; (5)
examples comparing the current and proposed fees; and (6) a correction
to the Market Data Fee schedule.
Background on Current Fees
    The current monthly fees for NYSE OpenBook,\4\ NYSE BBO,\5\ and
NYSE Trades \6\ are as follows:
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    \4\ See Securities Exchange Act Release Nos. 59544 (Mar. 9,
2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131) and 62038 (May
5, 2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22).
    \5\ See Securities Exchange Act Release No. 62181 (May 26,
2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-2010-30).
    \6\ See SR-NYSE-2013-24.

----------------------------------------------------------------------------------------------------------------
                                                                           Digital Media
             Product                 Access Fee      Subscriber Fees       Enterprise Fee     Redistribution Fee
----------------------------------------------------------------------------------------------------------------
NYSE OpenBook \7\................          $5,000  Professional: $60    N/A................  N/A.
                                                    Non-professional:
                                                    $15 Non-
                                                    professional Fee
                                                    Cap: $25,000.
NYSE BBO.........................           1,500  Professional: $15    N/A................  N/A.
                                                    Non-professional:
                                                    $5.
NYSE Trades......................       \8\ 1,500  Professional: $15..  $40,000............  $1,000 (operative
                                                                                May 1, 2013).
----------------------------------------------------------------------------------------------------------------

    While the majority of subscribers pay the subscriber fee for each
display or non-display device that has access to the market data
products as set forth above, a small number of vendors and subscribers
are eligible for, and have elected, the NYSE Unit-of-Count Policy that
was first introduced as an NYSE OpenBook pilot in 2009 and is now also
available for NYSE BBO and NYSE Trades.\9\ Under this fee structure,
these vendors and subscribers are subject to a fee structure that
utilizes the following basic principles:
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    \7\ The NYSE OpenBook Bundle pricing package includes: (i) NYSE
OpenBook Realtime, by which the Exchange makes NYSE OpenBook
Realtime available on a snapshot basis, with updates distributed in
real-time at intervals of one second; and (ii) NYSE OpenBook Ultra,
by which the Exchange updates NYSE OpenBook information upon receipt
of each displayed limit order, or upon an event that removes limit
orders from NYSE OpenBook (i.e., cancellation or execution). For no
additional charge, the Exchange makes available to recipients of
NYSE OpenBook additional data feeds containing NYSE BBO and Order
Imbalance Information. See Securities Exchange Act Release No. 59544
(Mar. 9, 2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131).
    \8\ One $1,500 monthly access fee entitles a vendor to receive
both the NYSE BBO data feed as well as the Exchange's NYSE Trades
data feed. See supra n.5.
    \9\ See Securities Exchange Act Release Nos. 62038 (May 5,
2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22); 62181 (May 26,
2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-2010-30); and 59290 (Jan.
23, 2009), 74 FR 5707 (Jan. 30, 2009) (SR-NYSE-2009-05).

    i. Vendors.
     ``Vendors'' are market data vendors, broker-dealers,
private network providers, and other entities that control
Subscribers' access to a market data product through Subscriber
Entitlement Controls (as described below).
    ii. Subscribers.
     ``Subscribers'' are unique individual persons or
devices (which include both display and non-display devices) to
which a Vendor provides a market data product. Any individual or
device that receives the market data product from a Vendor is a
Subscriber, whether the individual or device works for or belongs to
the Vendor, or works for or belongs to an entity other than the
Vendor.
     Only a Vendor may control Subscriber access to the
market data product.
     Subscribers may not redistribute the market data
product in any manner.
    iii. Subscriber Entitlements.
     A Subscriber Entitlement is a Vendor's permitting a
Subscriber to receive access to the market data product through an
Exchange-approved Subscriber Entitlement Control.
     A Vendor may not provide access to a market data
product to a Subscriber except through a unique Subscriber
Entitlement.
     The Exchange will require each Vendor to provide a
unique Subscriber Entitlement to each unique Subscriber.
     At prescribed intervals (normally monthly), the
Exchange will require each Vendor to report each unique Subscriber
Entitlement.
    iv. Subscriber Entitlement Controls.
     A Subscriber Entitlement Control is the Vendor's
process of permitting Subscribers' access to a market data product.
     Prior to using any Subscriber Entitlement Control or
changing a previously approved Subscriber Entitlement Control, a
Vendor must provide the Exchange with a demonstration and a detailed
written description of the control or change and the Exchange must
have approved it in writing.
     The Exchange will approve a Subscriber Entitlement
Control if it allows only authorized, unique end-users or devices to
access the market data product or monitors access to the market data
product by each unique end-user or device.
     Vendors must design Subscriber Entitlement Controls to
produce an audit report and make each audit report available to the
Exchange upon request. The audit report must identify:
     Each entitlement update to the Subscriber Entitlement
Control;

     The status of the Subscriber Entitlement Control; and
     Any other changes to the Subscriber Entitlement Control
over a given period.
     Only the Vendor may have access to Subscriber
Entitlement Controls.

    Vendors must count every Subscriber Entitlement, whether it be an
individual person or a device. Thus, the Vendor's count would include
every person and device that accesses the data regardless of the
purpose for which the individual or device uses the data.
    Vendors must report all Subscriber Entitlements in accordance with
the following:
    i. In connection with a Vendor's external distribution of the
market data product, the Vendor should count as one Subscriber
Entitlement each unique Subscriber that the Vendor has entitled to have
access to the market data product. However, where a device is dedicated
specifically to a single individual, the Vendor should count only the
individual and need not count the device.
    ii. In connection with a Vendor's internal distribution of a market
data product, the Vendor should count as one Subscriber Entitlement
each unique individual (but not devices) that the Vendor has entitled
to have access to such market data.
    iii. The Vendor should identify and report each unique Subscriber.
If a Subscriber uses the same unique Subscriber Entitlement to gain
access to multiple market data services, the Vendor should count that
as one Subscriber Entitlement. However, if a unique Subscriber uses
multiple Subscriber Entitlements to gain access to one or more market
data services (e.g., a single Subscriber has multiple passwords and
user identifications), the Vendor should report all of those Subscriber
Entitlements.
    iv. Vendors should report each unique individual person who
receives access through multiple devices as one Subscriber Entitlement
so long as each device is dedicated specifically to that individual.
    v. The Vendor should include in the count as one Subscriber
Entitlement devices serving no entitled individuals. However, if the
Vendor entitles one or more individuals to use the same device, the
Vendor should include only the entitled individuals, and not the
device, in the count.
Rationale for New Non-Display Usage Fee Structure
    As noted in the original NYSE Unit-of-Count Policy proposal,
``technology has made it increasingly difficult to define `device' and
to control who has access to devices, [and] the markets have struggled
to make device counts uniform among their customers.'' \10\ Significant
change has characterized the industry in recent years, stemming in
large measure from changes in regulation and technological advances,
which has led to the rise in automated and algorithmic trading.
Additionally, market data feeds have become faster and contain a vastly
larger number of quotes and trades. Today, a majority of trading is
done by leveraging non-display devices consuming massive amounts of
data. Some firms base their business models largely on incorporating
non-display data into applications and do not require widespread data
access by the firm's employees. Changes in market data consumption
patterns have increased the use and importance of non-display data.
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    \10\ See Securities Exchange Act Release No. 59544 (Mar. 9,
2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131). At least one
other Exchange also has noted such administrative challenges. In
establishing a non-display usage fee for internal distributors of
TotalView and OpenView, NASDAQ Stock Market LLC (``NASDAQ'') noted
that as ``the number of devices increase, so does the administrative
burden on the end customer of counting these devices.'' See
Securities Exchange Act Release No. 61700 (Mar. 12, 2010), 75 FR
13172 (Mar. 18, 2010) (SR-NASDAQ-2010-034).
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    Applications that can be used in non-display devices provide added
value in their capability to manipulate and spread the data they
consume. Such applications have the ability to perform calculations on
the live data stream and manufacture new data out of it. Data can be
processed much faster by a non-display device than it can be by a human
being processing information that he or she views on a data terminal.
Non-display devices also can dispense data to multiple computer
applications as compared with the restriction of data to one display
terminal.
    While the non-display data has become increasingly valuable to data
recipients who can use it to generate substantial profits, it has
become increasing difficult for them and the Exchange to accurately
count non-display devices. The number and type of non-display devices,
as well as their complexity and interconnectedness, have grown in
recent years, creating administrative challenges for vendors, data
recipients, and the Exchange to accurately count such devices and audit
such counts. Unlike a display device, such as a Bloomberg terminal, it
is not possible to simply walk through a trading floor or areas of a
data recipient's premises to identify non-display devices. During an
audit, an auditor must review a firm's entitlement report to determine
usage. While display use is generally associated with an individual end
user and/or unique user ID, a non-display use is more difficult to
account for because the entitlement report may show a server name or
Internet protocol (``IP'') address or it may not. The auditor must
review each IP or server and further inquire about downstream use and
quantity of servers with access to data; this type of counting is very
labor-intensive and prone to inaccuracies.
    For these reasons, the Exchange determined that its current fee
structure, which is based on counting non-display devices, is no longer
appropriate in light of market and technology developments and does not
reflect the value of the non-display data and its many profit-
generating uses for subscribers. As such, the Exchange, in conjunction
with its domestic and foreign affiliate exchanges, undertook a review
of its market data policies with a goal of bringing greater consistency
and clarity to its fee structure; easing administration for itself,
vendors, and subscribers; and setting fees at a level that better
reflects the current value of the data provided. As a result of this
review, the Exchange has determined to offer a new fee structure for
display and non-display use of certain market data products. Initially,
the Exchange will implement the new non-display use fee structure for
NYSE OpenBook, NYSE BBO, and NYSE Trades, operative on April 1, 2013.
The Exchange anticipates implementing a new display use fee structure
later this year; until such time, existing fees for display use will
apply.
Proposed Non-Display Usage Fees
    The Exchange proposes to establish new monthly fees for non-display
usage, which for purposes of the proposed fee structure will mean
accessing, processing or consuming an NYSE data product delivered via
direct and/or Redistributor \11\ data feeds, for a purpose other than
in support of its display or further internal or external
redistribution. The proposed non-display fees will apply to the non-
display use of the data product as part of automated calculations or
algorithms to support trading decision-making processes or the
operation of trading platforms (``Non-Display Trading Activities'').
They include, but are not limited to, high frequency trading, automated
order or quote generation and/or order pegging, or price

referencing for the purposes of algorithmic trading and/or smart order
routing. Applications and devices that solely facilitate display,
internal distribution, or redistribution of the data product with no
other uses and applications that use the data product for other non-
trading activities, such as the creation of derived data, quantitative
analysis, fund administration, portfolio management, and compliance,
are not covered by the proposed non-display fee structure and are
subject to the current standard per-device fee structure. The Exchange
reserves the right to audit data recipients' use of NYSE market data
products in Non-Display Trading Activities in accordance with NYSE's
vendor and subscriber agreements.
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    \11\ ``Redistributor'' means a vendor or any other person that
provides an NYSE data product to a data recipient or to any system
that a data recipient uses, irrespective of the means of
transmission or access.
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    There will be two types of fees, which are described below. The
first type of fee is for internal non-display use. The second type of
fee is for managed non-display services. The current NYSE Unit-of-Count
Policy will no longer apply to any non-display usage.\12\
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    \12\ Existing customers that are approved for the NYSE Unit-of-
Count Policy for display usage may continue to follow that Policy
until the new display fees are implemented.
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Proposed Fees for Internal Non-Display Use
    The proposed internal non-display use fees will apply to NYSE
OpenBook, NYSE BBO, and NYSE Trades. Internal non-display use occurs
when a data recipient either manages its own non-display infrastructure
and controls the access to and permissioning of the market data product
on its non-display applications or when the data recipient's non-
display applications are hosted by a third party that has not been
approved to provide the managed non-display services as described
below.
    The fee structure will have three categories, which recognize the
different uses for the market data. Category 1 Fees apply where a data
recipient's non-display use of real time market data is for the purpose
of principal trading. Category 2 Fees apply where a data recipient's
non-display use of market data is for the purpose of broker/agency
trading, i.e., trading-based activities to facilitate the recipient's
customers' business. If a data recipient trades both on a principal and
agency basis, then the data recipient must pay both categories of fees.
Category 3 Fees apply where a data recipient's non-display use of
market data is, in whole or in part, for the purpose of providing
reference prices in the operation of one or more trading platforms,
including but not limited to multilateral trading facilities,
alternative trading systems, broker crossing networks, dark pools, and
systematic internalization systems. A data recipient will not be liable
for Category 3 Fees for those market data products for which it is also
paying Category 1 and/or Category 2 Fees.
    The fees for internal non-display use per data recipient
organization for each category will be as follows:

----------------------------------------------------------------------------------------------------------------
                                                                    Category 1      Category 2      Category 3
                                                                    trading as      trading as        trading
                             Product                                 principal     broker/agency  platform  (per
                                                                    (per month)     (per month)       month)
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NYSE OpenBook...................................................          $5,000          $5,000          $5,000
NYSE BBO........................................................           1,500           1,500           1,500
NYSE Trades.....................................................           2,000           2,000           2,000
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    Subscribers to NYSE OpenBook, which includes access to NYSE BBO and
NYSE Order Imbalances, are not required to subscribe to these two
individual services as part of the non-display activity for these
products.\13\ Subscribers who are not currently subscribing to NYSE
OpenBook Bundle pricing package \14\ will be responsible for the
individual product licenses for the non-display activity.
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    \13\ There is currently a $500/month access fee for the NYSE
Order Imbalances data feed.
    \14\ See supra n.7
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    For internal non-display use, there will be no reporting
requirements regarding non-display device counts, thus doing away with
the administrative burdens described above. Data recipients will be
required to declare the market data products used within their non-
display trading applications by executing an NYSE Euronext Non-Display
Usage Declaration.
Proposed Fees for Managed Non-Display Services
    The Exchange also proposes to establish fees for managed non-
display services for NYSE OpenBook and NYSE Trades. Under the managed
non-display service, a data recipient's non-display applications must
be hosted by a Redistributor approved by the Exchange, and this
Redistributor must manage and control the access to NYSE OpenBook and/
or NYSE Trades for these applications and may not allow for further
internal distribution or external redistribution of these market data
products. The Redistributor of the managed non-display services and the
data recipient must be approved under the current NYSE Unit-of-Count
policy described above,\15\ which will no longer be available for non-
display use after the proposed fees are implemented. If a data
recipient is receiving NYSE OpenBook and/or NYSE Trades for Non-Display
Trading Activities from a Redistributor that is not approved under the
NYSE Unit-of-Count policy, then the internal non-display fees described
above will apply.
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    \15\ See supra n.9.
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    The fees for managed non-display services per data recipient
organization will be as follows:

------------------------------------------------------------------------
                                                           Managed non-
                                                            display use
                         Product                             fee (per
                                                              month)
------------------------------------------------------------------------
NYSE OpenBook...........................................          $2,000
NYSE Trades.............................................             700
------------------------------------------------------------------------

    Data recipients will not be liable for managed non-display fees for
those market data products for which they pay the internal non-display
fee.
    Upon request, a Redistributor offering managed non-display services
must provide the Exchange with a list of data recipients that are
receiving NYSE OpenBook or NYSE Trades through the Redistributor's
managed non-display service. Data recipients of the managed non-display
service have no additional reporting requirements, thus easing the
administrative burdens described above.
NYSE OpenBook Redistribution Fee
    The Exchange proposes to establish a monthly redistribution fee of
$3,000 for NYSE OpenBook. The Exchange believes that it is reasonable
to charge this redistribution fee because vendors receive value from
redistributing the

data in their business products for their customers.
Examples
    Broker-Dealer A obtains NYSE OpenBook directly from the Exchange
for internal use and does not fall under the NYSE Unit-of-Count Policy.
Broker-Dealer A trades both on a principal and agency basis and has (i)
80 individual persons who use 100 display devices and (ii) 50 non-
display devices.
     Under the current fee schedule, Broker-Dealer A pays the
Exchange the $5,000 access fee plus $60 for each of the 100 display
devices (although 80 individual persons use them, the number of devices
is counted), or $6,000, and $60 for each of the 50 non-display devices,
or $3,000, for a total of $14,000 per month.
     Under the proposed fee schedule, Broker-Dealer A would pay
the Exchange the $5,000 access fee plus $60 for each of the 100 display
devices, or $6,000, and Category 1 and Category 2 fees for internal
non-display use, or $10,000, for a total of $21,000 per month. No
redistribution fee would be charged.
    Broker-Dealer B, which only trades as principal, obtains NYSE
OpenBook from Vendor X. Broker-Dealer B and Vendor X are both approved
for the NYSE Unit-of-Count Policy. Broker-Dealer B has (i) 10
individual persons who use 12 display devices and (ii) 5 non-display
devices.
     Under the current fee schedule, Vendor X pays the $5,000
access fee and Broker-Dealer B pays $900 ($60 for the 10 individual
persons (under the NYSE Unit-of-Count Policy, the larger number of
display devices is not counted), or $600, plus $60 for each of the 5
non-display devices, or $300).
     Under the proposed fee schedule, Broker-Dealer B would pay
$600 as it does today for its individual persons using display devices,
and $2,000 for managed non-display use, for a total of $2,600 per month
in fees. Vendor X would pay the $5,000 access fee and the $3,000
redistribution fee, for a total of $8,000 per month.
Correction to Market Data Fee Schedule
    The Exchange recently created a Market Data Fee Schedule. The
Exchange proposes to correct the subscriber fee line for NYSE Trades to
reflect that there is only a professional subscriber fee and no non-
professional subscriber fee.\16\
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    \16\ See Securities Exchange Act Release No. 59309 (Jan. 28,
2009) 74 FR 6073 (Feb. 4, 2009) (SR-NYSE-2009-04).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\17\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ in particular, in that it
provides an equitable allocation of reasonable fees among users and
recipients of the data and is not designed to permit unfair
discrimination among customers, issuers, and brokers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    As described in detail in the section ``Rationale for New Non-
Display Usage Fee Structure'' above, which is incorporated by reference
herein, technology has made it increasingly difficult to define
``device'' and to control who has access to devices. Significant change
has characterized the industry in recent years, stemming in large
measure from changes in regulation and technological advances, which
has led to the rise in automated and algorithmic trading, which have
the potential to generate substantial profits. Indeed, data used in a
single non-display device running a single trading algorithm can
generate large profits. Market data technology and usage has evolved to
the point where it is no longer practical, nor fair and equitable, to
simply count non-display devices. The administrative costs and
difficulties of establishing reliable counts and conducting an
effective audit of non-display devices have become too burdensome,
impractical, and non-economic for the Exchange, vendors, and data
recipients. Rather, the Exchange believes that its proposed flat fee
structure for non-display use is reasonable, equitable, and not
unfairly discriminatory in light of these developments.
    Other exchanges also have established differentiated fees based on
non-display usage, including a flat or enterprise fee. For example,
NASDAQ professional subscribers pay monthly fees for non-display usage
based upon direct access to NASDAQ Level 2, NASDAQ TotalView, or NASDAQ
OpenView, which range from $300 per month for customers with one to 10
subscribers to $75,000 for customers with 250 or more subscribers.\19\
In addition, NASDAQ OMX PHLX, Inc. (``Phlx'') offers an alternative
$10,000 per month ``Non-Display Enterprise License'' fee that permits
distribution to an unlimited number of internal non-display subscribers
without incurring additional fees for each internal subscriber.\20\ The
Non-Display Enterprise License covers non-display subscriber fees for
all Phlx proprietary direct data feed products and is in addition to
any other associated distributor fees for Phlx proprietary direct data
feed products. NASDAQ OMX BX, Inc. (``BX'') also offers an alternative
non-display usage fee of $16,000 for its BX TotalView data feed.\21\
NASDAQ and Phlx also both offer managed non-display data solutions at
higher overall fees than the Exchange proposes to charge.\22\
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    \19\ See NASDAQ Rule 7023(b)(4).
    \20\ See Securities Exchange Act Release No. 68576 (Jan. 3,
2013), 78 FR 1886 (Jan. 9, 2013) (SR-Phlx-2012-145). Alternatively,
Phlx charges each professional subscriber $40 per month.
    \21\ See NASDAQ OMX BX Rule 7023(a)(2). Alternatively, BX
charges each professional subscriber $40 per month.
    \22\ NASDAQ established fees for a Managed Data Solution to
Distributors, which includes a monthly Managed Data Solution
Administration fee of $1,500 and monthly Subscriber fees ranging
from $60 to $300. See NASDAQ Rule 7026(b). Phlx also established a
Managed Data Solution, which includes a monthly Managed Data
Solution Administration fee of $1,500 and a monthly Subscriber fee
of $250. The monthly License fee is in addition to Phlx's monthly
Distributor fee of $2,500 (for external usage), and the $250 monthly
Subscriber fee is assessed for each Subscriber of a Managed Data
Solution. See Securities Exchange Act Release No. 67466 (July 19,
2012), 77 FR 43629 (July 25, 2012) (SR-Phlx-2012-93).
---------------------------------------------------------------------------

    The Exchange also believes that it is reasonable, equitable, and
not unfairly discriminatory to charge relatively lower fees for managed
non-display services because the Exchange expects that they will
generally be used by a small number of Redistributors and data
recipients that are currently eligible for the NYSE Unit-of-Count
Policy. These data recipients are constrained by whatever applications
are available via Redistributors operating in the Exchange's co-
location center and other hosted facilities. In comparison, a data
recipient that elects internal non-display use is free to use the data
in any manner it chooses and create new uses in an unlimited number of
non-display devices. The lack of constraint in this regard will make
the non-display usage of the data more valuable to such an internal use
data recipient.
    The proposed redistribution fee for NYSE OpenBook also is
reasonable because it is comparable to other redistribution fees that
are currently charged by other exchanges.\23\ As noted

above, the Exchange believes that it is reasonable to charge
redistribution fees because vendors receive value from redistributing
the data in their business products for their customers. The
redistribution fees also are equitable and not unfairly discriminatory
because they will be charged on an equal basis to those vendors that
choose to redistribute the data.
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    \23\ NYSE Arca, Inc. (``NYSE Arca'') charges a $3,000 per month
redistribution fee for the NYSE Arca Integrated Feed, which includes
depth-of-book data. See Securities Exchange Act Release No. 66128
(Jan. 10, 2012), 77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96).
In addition, NYSE Arca and NYSE MKT LLC (``NYSE MKT'') charge
redistribution fees of $2,000 per month for certain proprietary
options market data products. See Securities Exchange Act Release
Nos. 68005 (Oct. 9, 2012), 77 FR 63362 (Oct. 16, 2012) (SR-NYSEArca-
2012-106), and 68004 (Oct. 9, 2012), 77 FR 62582 (Oct. 15, 2012)
(SR-NYSEMKT-2012-49). All distributors of a NASDAQ Last Sale Data
Feed also pay a monthly fee of $1,500. See NASDAQ Rule 7039(d).
---------------------------------------------------------------------------

    The Exchange has not recently raised the market data fees for these
three proprietary products. The Exchange set the NYSE OpenBook
professional subscriber fee at $60 per device in 2006, the NYSE Trades
subscriber fee at $15 per device in 2009, and the NYSE BBO professional
subscriber fee at $15 per device in 2010.\24\ The Exchange believes
that the new fee schedule, which may result in certain vendors and data
recipients paying more than they have in the last several years, is
fair and reasonable in light of market and technology developments. The
current per-device fee structure no longer reflects the significant
overall value that non-display data can provide in trading algorithms
and other uses that provide professional users with the potential to
generate substantial profits. The Exchange believes that it is
equitable and not unfairly discriminatory to establish an overall
monthly fee that better reflects the value of the data to the data
recipients in their profit-generating activities and does away with the
burden of counting non-display devices.
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release Nos. 53585 (March 31,
2006), 71 FR 17934 (April 7, 2006) (SR-NYSE-2004-43 and SR-NYSE-
2005-32); 59606 (Mar. 19, 2009), 74 FR 13293 (Mar. 26, 2009) (SR-
NYSE-2009-04); and 62181 (May 26, 2010), 75 FR 31488 (June 3, 2010)
(SR-NYSE-2010-30).
---------------------------------------------------------------------------

    The Exchange also notes that products described herein are entirely
optional. Firms are not required to purchase NYSE OpenBook, NYSE BBO,
or NYSE Trades. Firms have a wide variety of alternative market data
products from which to choose.\25\ Moreover, the Exchange is not
required to make these proprietary data products available or to offer
any specific pricing alternatives to any customers.
---------------------------------------------------------------------------

    \25\ See supra nn.19-22.
---------------------------------------------------------------------------

    The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010), upheld reliance by the Securities and Exchange Commission
(``Commission'') upon the existence of competitive market mechanisms to
set reasonable and equitably allocated fees for proprietary market
data:
    In fact, the legislative history indicates that the Congress
intended that the market system `evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are removed'
and that the SEC wield its regulatory power `in those situations where
competition may not be sufficient,' such as in the creation of a
`consolidated transactional reporting system.'
    Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's
conclusion that ``Congress intended that `competitive forces should
dictate the services and practices that constitute the U.S. national
market system for trading equity securities.' '' \26\
---------------------------------------------------------------------------

    \26\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------

    As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for data and that the Commission can
rely upon such evidence in concluding that the fees established in this
filing are the product of competition and therefore satisfy the
relevant statutory standards.\27\ In addition, the existence of
alternatives to these data products, such as proprietary last sale data
from other sources, as described below, further ensures that the
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect such
alternatives.
---------------------------------------------------------------------------

    \27\ Section 916 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3),
to make clear that all exchange fees for market data may be filed by
exchanges on an immediately effective basis.
---------------------------------------------------------------------------

    As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach, and the Exchange
incorporates by reference into this proposed rule change its
affiliate's analysis of this topic in another rule filing.\28\
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
---------------------------------------------------------------------------

    For these reasons, the Exchange believes that the proposed fees are
reasonable, equitable, and not unfairly discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. An exchange's ability to
price its proprietary data feed products is constrained by actual
competition for the sale of proprietary market data products, the joint
product nature of exchange platforms, and the existence of alternatives
to the Exchange's proprietary last sale data.
    The Existence of Actual Competition. The market for proprietary
data products is currently competitive and inherently contestable
because there is fierce competition for the inputs necessary for the
creation of proprietary data and strict pricing discipline for the
proprietary products themselves. Numerous exchanges compete with each
other for listings and order flow and sales of market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to compete in any or all of those areas, including producing and
distributing their own market data. Proprietary data products are
produced and distributed by each individual exchange, as well as other
entities, in a vigorously competitive market.
    Competitive markets for listings, order flow, executions, and
transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. The U.S. Department of Justice
also has acknowledged the aggressive competition among exchanges,
including for the sale of proprietary market data itself. In announcing
that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and
IntercontinentalExchange Inc. had been abandoned, Assistant Attorney
General Christine Varney stated that exchanges ``compete head to head
to offer real-time equity data products. These data products include
the best bid and offer of every exchange and information on each equity
trade, including the last sale.'' \29\
---------------------------------------------------------------------------

    \29\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
---------------------------------------------------------------------------

    It is common for broker-dealers to further exploit this recognized
competitive constraint by sending their order flow and transaction
reports to multiple markets, rather than providing them all to a single
market. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex''

with ``trading volume * * * dispersed among many highly automated
trading centers that compete for order flow in the same stocks'' and
``trading centers offer[ing] a wide range of services that are designed
to attract different types of market participants with varying trading
needs.'' \30\
---------------------------------------------------------------------------

    \30\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598.
---------------------------------------------------------------------------

    In addition, in the case of products that are distributed through
market data vendors, the market data vendors themselves provide
additional price discipline for proprietary data products because they
control the primary means of access to certain end users. These vendors
impose price discipline based upon their business models. For example,
vendors that assess a surcharge on data they sell are able to refuse to
offer proprietary products that their end users do not or will not
purchase in sufficient numbers. Internet portals, such as Google,
impose price discipline by providing only data that they believe will
enable them to attract ``eyeballs'' that contribute to their
advertising revenue. Similarly, vendors will not elect to make
available the NYSE products described herein unless their customers
request them, and customers will not elect to purchase them unless they
can be used for profit-generating purposes. All of these operate as
constraints on pricing proprietary data products.
    Joint Product Nature of Exchange Platform. Transaction execution
and proprietary data products are complementary in that market data is
both an input and a byproduct of the execution service. In fact, market
data and trade executions are a paradigmatic example of joint products
with joint costs. The decision whether and on which platform to post an
order will depend on the attributes of the platforms where the order
can be posted, including the execution fees, data quality, and price
and distribution of their data products. The more trade executions a
platform does, the more valuable its market data products become.
    The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's broker-
dealer customers view the costs of transaction executions and market
data as a unified cost of doing business with the exchange.
    Other market participants have noted that the liquidity provided by
the order book, trade execution, core market data, and non-core market
data are joint products of a joint platform and have common costs.\31\
The Exchange agrees with and adopts those discussions and the arguments
therein. The Exchange also notes that the economics literature confirms
that there is no way to allocate common costs between joint products
that would shed any light on competitive or efficient pricing.\32\
---------------------------------------------------------------------------

    \31\ See Securities Exchange Act Release No. 62887 (Sept. 10,
2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR-Phlx-2010-121);
Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110); and Securities
Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 57321, 57324
(Sept. 20, 2010) (SR-NASDAQ-2010-111) (``all of the exchange's costs
are incurred for the unified purposes of attracting order flow,
executing and/or routing orders, and generating and selling data
about market activity. The total return that an exchange earns
reflects the revenues it receives from the joint products and the
total costs of the joint products.''); see also August 1, 2008
Comment Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc., Statement of Janusz Ordover
and Gustavo Bamberger (``because market data is both an input to and
a byproduct of executing trades on a particular platform, market
data and trade execution services are an example of `joint products'
with `joint costs.' ''), attachment at pg. 4, available at
www.sec.gov/comments/34-57917/3457917-12.pdf.
    \32\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis. * * * Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
---------------------------------------------------------------------------

    Analyzing the cost of market data product production and
distribution in isolation from the cost of all of the inputs supporting
the creation of market data and market data products will inevitably
underestimate the cost of the data and data products. Thus, because it
is impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, system costs and regulatory costs affect the price of both
obtaining the market data itself and creating and distributing market
data products. It would be equally misleading, however, to attribute
all of an exchange's costs to the market data portion of an exchange's
joint products. Rather, all of an exchange's costs are incurred for the
unified purposes of attracting order flow, executing and/or routing
orders, and generating and selling data about market activity. The
total return that an exchange earns reflects the revenues it receives
from the joint products and the total costs of the joint products.
    The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 12 equities self-regulatory organization (``SRO'') markets,
as well as internalizing broker-dealers (``BDs'') and various forms of
alternative trading systems (``ATSs''), including dark pools and
electronic communication networks (``ECNs''). Competition among trading
platforms can be expected to constrain the aggregate return that each
platform earns from the sale of its joint products, but different
platforms may choose from a range of possible, and equally reasonable,
pricing strategies as the means of recovering total costs. For example,
some platforms may choose to pay rebates to attract orders, charge
relatively low prices for market data products (or provide market data
products free of charge), and charge relatively high prices for
accessing posted liquidity. Other platforms may choose a strategy of
paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market data products, and setting relatively
low prices for accessing posted liquidity. In this environment, there
is no economic basis for regulating maximum prices for one of the joint
products in an industry in which suppliers face competitive constraints
with regard to the joint offering.
    Existence of Alternatives. The large number of SROs, BDs, and ATSs
that currently produce proprietary data or are currently capable of
producing it provides further pricing discipline for proprietary data
products. Each SRO, ATS, and BD is currently permitted to produce
proprietary data products, and many currently do or have announced
plans to do so, including but not limited to the Exchange, NYSE MKT,
NYSE Arca, NASDAQ OMX, BATS, and Direct Edge.

    The fact that proprietary data from ATSs, BDs, and vendors can
bypass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. Because market data users can thus find
suitable substitutes for most proprietary market data products,\33\ a
market that overprices its market data products stands a high risk that
users may substitute another source of market data information for its
own.
---------------------------------------------------------------------------

    \33\ See supra nn.19-22.
---------------------------------------------------------------------------

    Those competitive pressures imposed by available alternatives are
evident in the Exchange's proposed pricing. As noted above, the
proposed non-display fees for NYSE OpenBook, NYSE Trades, and NYSE BBO
are generally lower than the maximum non-display fees charged by other
exchanges such as NASDAQ, Phlx, and BX for comparable products.\34\ The
proposed redistribution fee for NYSE OpenBook also is comparable to the
other exchanges' similar fees.\35\
---------------------------------------------------------------------------

    \34\ Id.
    \35\ See supra n.23.
---------------------------------------------------------------------------

    In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid and inexpensive. The history
of electronic trading is replete with examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. Today, BATS
and Direct Edge provide certain market data at no charge on their Web
sites in order to attract more order flow, and use revenue rebates from
resulting additional executions to maintain low execution charges for
their users.\36\
---------------------------------------------------------------------------

    \36\ This is simply a securities market-specific example of the
well-established principle that in certain circumstances more sales
at lower margins can be more profitable than fewer sales at higher
margins; this example is additional evidence that market data is an
inherent part of a market's joint platform.
---------------------------------------------------------------------------

    Further, data products are valuable to certain end users only
insofar as they provide information that end users expect will assist
them or their customers. The Exchange believes the proposed non-display
fees will benefit customers by providing them with a clearer way to
determine their fee liability for non-display devices, and with respect
to internal use, to obviate the need to count such devices. The
Exchange further believes that only vendors that expect to derive a
reasonable benefit from redistributing the market data products
described herein will choose to become Redistributors and pay the
attendant monthly fees.
    In establishing the proposed fees, the Exchange considered the
competitiveness of the market for proprietary data and all of the
implications of that competition. The Exchange believes that it has
considered all relevant factors and has not considered irrelevant
factors in order to establish fair, reasonable, and not unreasonably
discriminatory fees and an equitable allocation of fees among all
users. The existence of numerous alternatives to the Exchange's
products, including proprietary data from other sources, ensures that
the Exchange cannot set unreasonable fees, or fees that are
unreasonably discriminatory, when vendors and subscribers can elect
these alternatives or choose not to purchase a specific proprietary
data product if its cost to purchase is not justified by the returns
any particular vendor or subscriber would achieve through the purchase.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange published draft Data Policies on its Web site on
November 20, 2012. Among other things, the Data Policies addressed non-
display use for certain market data products. The Exchange solicited
comments on the Data Policies in the form of a survey. The Exchange
received 14 comments relating to non-display use. Exhibit 2 contains a
copy of the notice soliciting comment, the Data Policies, the 14
comments received in alphabetical order, and an alphabetical listing of
such comments.
    Nine commenters \37\ requested greater clarity with respect to the
definition and examples of non-display use. Specifically, the
commenters requested that the Exchange provide a consistent definition
of non-display use. As described above, the definition of non-display
use will be accessing, processing or consuming an NYSE data product
delivered via direct and/or Redistributor data feeds, for a purpose
other than in support of its display or further internal or external
redistribution. The Exchange believes that this definition addresses
the comments and will clearly describe the types of activities that
will qualify for the proposed fee. The Exchange also provided examples
for illustrative purposes, which are not exclusive.
---------------------------------------------------------------------------

    \37\ Barclays, Brown Brothers Harriman, CMC Markets, Deutsche
Bank, Flowtraders, Nomura, Threadneedle, Transtrend BV, and UBS.
---------------------------------------------------------------------------

    Four commenters \38\ also questioned whether price referencing,
compliance, accounting or auditing activities, and derived data should
be considered non-display use. The Data Policies listed price
referencing, compliance, accounting or auditing activities, and derived
data as examples of non-display usage; however, as discussed above, the
Exchange has determined that price referencing for the purposes of
algorithmic trading and/or smart order routing would be considered Non-
Display Trading Activities, and applications that use the data product
for non-trading activities, such as compliance, accounting or auditing
activities, and derived data are not covered by the non-display fees
and are subject to the current standard per-device fee structure.
---------------------------------------------------------------------------

    \38\ Barclays, CMC Markets, Transtrend BV, and UBS.
---------------------------------------------------------------------------

    Three commenters \39\ requested clarity on the NYSE Unit-of-Count
Policy for non-display use. As discussed above, the NYSE Unit-of-Count
Policy will continue to apply to Redistributors and customers that have
been approved under the NYSE Unit-of Count Policy. Under the proposed
rule change, the pricing structure for display usage will remain the
same. However, for non-display usage, customers approved under the NYSE
Unit-of-Count Policy will be eligible for the managed non-display
services at the managed non-display fee, which is offered either
directly from the Exchange or through a Redistributor.
---------------------------------------------------------------------------

    \39\ Barclays, Essex Radez LLC, and UBS.
---------------------------------------------------------------------------

    Two commenters \40\ asked for more detail on the managed non-
display service, which the Exchange has provided above.
---------------------------------------------------------------------------

    \40\ FXCM and RTS Group.
---------------------------------------------------------------------------

    Three commenters \41\ asked for examples of how the Exchange would
charge for customers that use both display and non-display devices. The
Exchange believes that the pricing examples provided above are
responsive to this request. One commenter \42\ stated that the proposed
fees are excessive. The Exchange believes that the proposed fees are
reasonable, equitable,

and not unfairly discriminatory for the reasons discussed in Section
3(b) above.
---------------------------------------------------------------------------

    \41\ Essex Radez LLC, Fidelity Market Data, and Lloyds TSB Bank
plc.
    \42\ Essex Radez LLC.
---------------------------------------------------------------------------

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \43\ of the Act and subparagraph (f)(2) of Rule
19b-4 \44\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78s(b)(3)(A).
    \44\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \45\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSE-2013-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2013-25. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2013-25 and should be
submitted on or before April 29, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08098 Filed 4-5-13; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 223 (Thursday, November 19, 2015)]
[Proposed Rules]
[Pages 72395-72398]
[FR Doc No: 2015-29443]

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

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2015-4817; Directorate Identifier 2014-NM-115-AD]
RIN 2120-AA64

Airworthiness Directives; Airbus Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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

SUMMARY: We propose to supersede Airworthiness Directive (AD) 95-18-08,
for all Airbus Model A300-600 series airplanes. AD 95-18-08 currently
requires repetitive inspections to detect cracks in the bottom skin of
the wing in the area of the cut out for the pylon rear attachment
fitting, and repair if necessary. Since we issued AD 95-18-08, we
received a report that updated fatigue and damage tolerance analyses
and a fleet survey found that certain inspection thresholds and
intervals must be reduced to allow more timely findings of cracking.
This proposed AD would, for certain airplanes, reduce the compliance
times for the inspections. We are proposing this AD to detect and
correct such fatigue-related cracking, which could result in reduced
structural integrity of the wing.

DATES: We must receive comments on this proposed AD by January 4, 2016.

ADDRESSES: You may send comments by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments.

     Fax:<PHONE_NUMBER>.
     Mail: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC 20590.
     Hand Delivery: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC, between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
    For service information identified in this proposed AD, contact
Airbus SAS, Airworthiness Office--EAW, 1 Rond Point Maurice Bellonte,
31707 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5 61
93 44 51; email<EMAIL_ADDRESS>Internet http://www.airbus.com. You may view this referenced service information at the
FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA.
For information on the availability of this material at the FAA, call
425-227-1221.

Examining the AD Docket

    You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2015-
4817; or in person at the Docket Management Facility between 9 a.m. and
5 p.m., Monday through Friday, except Federal holidays. The AD docket
contains this proposed AD, the regulatory evaluation, any comments
received, and other information. The street address for the Docket
Operations office (telephone<PHONE_NUMBER>) is in the ADDRESSES section.
Comments will be available in the AD docket shortly after receipt.

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

SUPPLEMENTARY INFORMATION:

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-2015-4817;
Directorate Identifier 2014-NM-115-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 we
receive about this proposed AD.

Discussion

    On August 29, 1995, we issued AD 95-18-08, Amendment 39-9355 (60 FR
47677, September 14, 1995). AD 95-18-08 requires actions intended to
address an unsafe condition on all Airbus Model A300-600 series
airplanes (which includes Airbus Model A300 C4-605R Variant F
airplanes, Model A300 B4-622 airplanes, and Model A300 F4-622R
airplanes that were added to the U.S. Type Certificate Data Sheet since
issuance of AD 95-18-08).
    Since we issued AD 95-18-08, Amendment 39-9355 (60 FR 47677,
September 14, 1995), we received a report that updated fatigue and
damage tolerance analyses and a fleet survey done to support a second
extended service goal for Model A300-600 series airplanes found that
certain inspection thresholds and intervals must be reduced to allow
more timely findings of cracking.
    The European Aviation Safety Agency (EASA), which is the Technical
Agent for the Member States of the European Union, has issued EASA
Airworthiness Directive 2014-0119, dated May 13, 2014 (referred to
after this as the Mandatory Continuing Airworthiness Information, or
``the MCAI''), to correct an unsafe condition on all Airbus Model A300
B4-600, B4-600R, and F4-600R series airplanes, and Model A300 C4-605R
Variant F airplanes (collectively called Model A300-600 series
airplanes). The MCAI states:

    Full-scale fatigue tests carried out on the A300-600 test
specimen by Airbus revealed crack initiation in the bottom skin
adjacent to the aft pylon attachment fitting.
    This condition, if not detected and corrected, could affect the
structural integrity of the aeroplane.
    To address this unsafe condition, DGAC [Direction
G[eacute]n[eacute]rale de l'Aviation Civile] France issued AD 94-
069-158(B) (http://ad.easa.europa.eu/blob/1994069158tb_superseded.pdf/AD_F-1994-069-158_2) [which corresponds
to FAA AD 95-18-08, Amendment 39-9355 (60 FR 47677, September 14,
1995)] to require repetitive detailed visual inspections (DVI) of
the wing bottom skin in the area of the cut-out for the pylon rear
attachment fitting on Left Hand (LH) and Right Hand (RH) wings [to
detect cracks, and repair if necessary].
    Since that [DGAC] AD was issued, a fleet survey and updated
Fatigue and Damage Tolerance analyses have been performed in order
to substantiate the second A300-600 Extended Service Goal (ESG2)
exercise. As a result, it was revealed that the inspection threshold
and interval must be reduced to allow timely detection of cracks and
the accomplishment of an applicable corrective action. Prompted by
these findings, Airbus issued Revision 07 of Service Bulletin (SB)
A300-57-6028.
    For the reasons described above, this [EASA] AD retains the
requirements of DGAC France AD 94-069-158(B), which is superseded,
but reduces the inspection thresholds and intervals [e.g.,
compliance times].

    You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2015-
4817.

Related Service Information Under 1 CFR Part 51

    We reviewed Airbus Service Bulletin A300-57-6028, Revision 07,
dated June 6, 2011. The service information describes procedures for
inspections to detect cracks in the bottom skin of the wing in the area
of the cut out for the pylon rear attachment fitting, and repair. This
service information is reasonably available because the interested
parties have access to it through their normal course of business or by
the means identified in the ADDRESSES section of this NPRM.

FAA's Determination and Requirements of This Proposed AD

    This product has been approved by the aviation authority of another
country, and is approved for operation in the United States. Pursuant
to our bilateral agreement with the State of Design Authority, we have
been notified of the unsafe condition described in the MCAI and service
information referenced above. We are proposing this AD because we
evaluated all pertinent information and determined an unsafe condition
exists and is likely to exist or develop on other products of the same
type design.

Costs of Compliance

    We estimate that this proposed AD affects 124 airplanes of U.S.
registry.
    The actions that are required by AD 95-18-08, Amendment 39-9355 (60
FR 47677, September 14, 1995), and retained in this proposed AD take
about 6 work-hours per product, at an average labor rate of $85 per
work-hour. Based on these figures, the estimated cost of the actions
that are required by AD 95-18-08 is $510 per product.
    In addition, we estimate that any necessary follow-on actions would
take about 15 work-hours and require parts costing $10,000, for a cost
of $11,275 per product. We have no way of

determining the number of aircraft that might need these actions.
    The new requirements of this proposed AD add no additional economic
burden.

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);
    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.

List of Subjects in 14 CFR Part 39

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

The Proposed Amendment

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

PART 39--AIRWORTHINESS DIRECTIVES

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

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

Sec.  39.13  [Amended]

0
2. The FAA amends Sec.  39.13 by removing Airworthiness Directive (AD)
95-18-08, Amendment 39-9355 (60 FR 47677, September 14, 1995), and
adding the following new AD:

Airbus: Docket No. FAA-2015-4817; Directorate Identifier 2014-NM-
115-AD.

(a) Comments Due Date

    We must receive comments by January 4, 2016.

(b) Affected ADs

    This AD replaces AD 95-18-08, Amendment 39-9355 (60 FR 47677,
September 14, 1995).

(c) Applicability

    This AD applies to the airplanes identified in paragraphs (c)(1)
through (c)(4) of this AD, certificated in any category, all
manufacturer serial numbers.
    (1) Airbus Model A300 B4-601, B4-603, B4-620, and B4-622
airplanes.
    (2) Airbus Model A300 B4-605R and B4-622R airplanes.
    (3) Airbus Model A300 F4-605R and F4-622R airplanes.
    (4) Airbus Model A300 C4-605R Variant F airplanes.

(d) Subject

    Air Transport Association (ATA) of America Code 57, Wings.

(e) Reason

    This AD was prompted by a report that updated fatigue and damage
tolerance analyses and a fleet survey found that certain inspection
thresholds and intervals must be reduced to allow more timely
findings of cracking. We are issuing this AD to detect and correct
such fatigue-related cracking, which could result in reduced
structural integrity of the wing.

(f) Compliance

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

(g) Retained Inspection and Corrective Action With Additional Repair
Information

    This paragraph restates the requirements of paragraph (a) of AD
95-18-08, Amendment 39-9355 (60 FR 47677, September 14, 1995), with
additional repair contact information. Prior to the accumulation of
24,000 total flight cycles since date of manufacture of the
airplane, or within 750 flight cycles after October 16, 1995 (the
effective date of AD 95-18-08), whichever occurs later, perform a
detailed visual inspection to detect cracks in the bottom skin of
the wing in the area of the cut out for the pylon rear attachment
fitting, in accordance with Airbus Service Bulletin A300-57-6028,
Revision 3, dated September 13, 1994. Repeat the inspection
thereafter at intervals not to exceed 9,000 flight cycles. If any
crack is detected, prior to further flight, repair the wing bottom
skin in accordance with a method approved by the Manager,
Standardization Branch, ANM-113, FAA, Transport Airplane
Directorate, or the Manager, International Branch, ANM-116,
Transport Airplane Directorate, FAA; or the European Aviation Safety
Agency (EASA); or Airbus's EASA Design Organization Approval (DOA).
Accomplishing any inspection required by paragraph (h) of this AD
terminates the inspections required by this paragraph.

(h) New Requirement of This AD: Revised Inspection Thresholds and
Intervals

    Within the applicable compliance times required in paragraphs
(h)(1) and (h)(2) of this AD, do a detailed visual inspection of the
wing bottom skin in the area of the cut-out for the pylon rear
attachment fitting on left-hand and right-hand wings, in accordance
with the Accomplishment Instructions of Airbus Service Bulletin
A300-57-6028, Revision 07, dated June 6, 2011. Repeat the
inspections thereafter at the applicable intervals required in
paragraphs (h)(3) and (h)(4) of this AD. Accomplishing any
inspection required by this paragraph terminates the inspections
required by paragraph (g) of this AD.
    (1) For ``normal range operations'' airplanes having an average
flight time of 1.5 flight hours or more: Do the inspection at the
applicable time required in paragraphs (h)(1)(i) and (h)(1)(ii) of
this AD.
    (i) For Model A300 F4-605R and F4-622R airplanes: Do the
inspection at the later of the times specified in paragraphs
(h)(1)(i)(A) and (h)(1)(i)(B) of this AD.
    (A) Within 24,000 flight cycles or 51,800 flight hours after
first flight of the airplane, whichever occurs first.
    (B) Within 2,000 flight cycles or 4,300 flight hours after the
effective date of this AD, whichever occurs first.
    (ii) For Model A300 B4-600, B4-600R, and Model A300 C4-605R
Variant F airplanes: Do the inspection at the later of the times
specified in paragraphs (h)(1)(ii)(A) and (h)(1)(ii)(B) of this AD.
    (A) Within 19,100 flight cycles or 41,200 flight hours after
first flight of the airplane, whichever occurs first.
    (B) Within 1,500 flight cycles or 3,200 flight hours after the
effective date of this AD, whichever occurs first.
    (2) For ``short range operations'' airplanes having an average
flight time of less than 1.5 flight hours: Do the inspection at the
applicable time required in paragraphs (h)(2)(i) and (h)(2)(ii) of
this AD.
    (i) For Model A300 F4-605R and F4-622R airplanes: Do the
inspection at the later of the times specified in paragraphs
(h)(2)(i)(A) and (h)(2)(i)(B) of this AD.
    (A) Within 25,900 flight cycles or 38,800 flight hours after
first flight of the airplane, whichever occurs first.
    (B) Within 2,100 flight cycles or 3,200 flight hours after the
effective date of this AD, whichever occurs first.
    (ii) For Model A300 B4-600, B4-600R, and Model A300 C4-605R
Variant F airplanes: Do

the inspection at the later of the times specified in paragraphs
(h)(2)(ii)(A) and (h)(2)(ii)(B) of this AD.
    (A) Within 20,600 flight cycles or 30,900 flight hours after
first flight of the airplane, whichever occurs first.
    (B) Within 1,600 flight cycles or 2,400 flight hours after the
effective date of this AD, whichever occurs first.
    (3) For ``normal range operations'' airplanes having an average
flight time of 1.5 flight hours or more: Repeat the inspection at
the applicable time required in paragraphs (h)(3)(i) and (h)(3)(ii)
of this AD.
    (i) For Model A300 F4-605R and F4-622R airplanes: Repeat the
inspection thereafter at intervals not to exceed 9,000 flight cycles
or 19,400 flight hours, whichever occurs first.
    (ii) For Model A300 B4-600, B4-600R, and Model A300 C4-605R
Variant F airplanes: Repeat the inspection thereafter at intervals
not to exceed 7,100 flight cycles or 15,300 flight hours, whichever
occurs first.
    (4) For ``short range operations'' airplanes having an average
flight time of less than 1.5 flight hours: Repeat the inspection at
the applicable time required in paragraphs (h)(4)(i) and (h)(4)(ii)
of this AD.
    (i) For Model A300 F4-605R and F4-622R airplanes: Repeat the
inspection thereafter at intervals not to exceed 9,700 flight cycles
or 14,500 flight hours, whichever occurs first.
    (ii) For Model A300 B4-600, B4-600R, and Model A300 C4-605R
Variant F airplanes: Repeat the inspection thereafter at intervals
not to exceed 7,600 flight cycles or 11,500 flight hours, whichever
occurs first.

(i) Definition of Average Flight Time for Paragraph (h) of This AD

    For the purpose of paragraph (h) of this AD, the Average Flight
Time must be established as follows:
    (1) For the initial inspection, the average flight time is the
total accumulated flight hours, counted from take-off to touch-down,
divided by the total accumulated flight cycles at the effective date
of this AD.
    (2) For the first repeated inspection interval, the average
flight time is the total accumulated flight hours divided by the
total accumulated flight cycles at the time of the inspection
threshold.
    (3) For all inspection intervals onwards, the average flight
time is the flight hours divided by the flight cycles accumulated
between the last two inspections.

(j) New Requirement of This AD: Corrective Action for Any Cracking
Found

    If any crack is found during any inspection required by
paragraph (h) of this AD: Before further flight, repair using a
method approved by the Manager, International Branch, ANM-116,
Transport Airplane Directorate, FAA; or EASA; or Airbus's EASA DOA.
Accomplishing a repair does not constitute terminating action for
the repetitive inspections required by paragraph (h) of this AD.

(k) Credit for Previous Actions

    This paragraph provides credit for inspections required by
paragraph (h) of this AD, if those actions were performed before the
effective date of this AD using any of the service information
identified in paragraphs (k)(1), (k)(2), and (k)(3) of this AD,
which are not incorporated by reference in this AD.
    (1) Airbus Service Bulletin A300-57-6028, Revision 04, dated
October 25, 1999.
    (2) Airbus Service Bulletin A300-57-6028, Revision 05, dated
January 11, 2002.
    (3) Airbus Service Bulletin A300-57-6028, Revision 06, dated May
17, 2006.

(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: Dan Rodina,
Aerospace Engineer, International Branch, ANM-116, Transport
Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-
3356; telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>. Information may be
emailed to<EMAIL_ADDRESS>    (i) 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.
    (ii) AMOCs approved previously for AD 95-18-08, Amendment 39-
9355 (60 FR 47677, September 14, 1995), are approved as AMOCs for
the corresponding provisions of paragraph (g) of this AD.
    (2) Contacting the Manufacturer: For any requirement in this AD
to obtain corrective actions from a manufacturer, the action must be
accomplished using a method approved by the Manager, International
Branch, ANM-116, Transport Airplane Directorate, FAA; or the EASA;
or Airbus's EASA DOA. If approved by the DOA, the approval must
include the DOA-authorized signature.

(m) Related Information

    (1) Refer to Mandatory Continuing Airworthiness Information
(MCAI) European Aviation Safety Agency Airworthiness Directive 2014-
0119, dated May 13, 2014, for related information. This MCAI may be
found in the AD docket on the Internet at http://www.regulations.gov
by searching for and locating Docket No. FAA-2015-4817.
    (2) For service information identified in this AD, contact
Airbus SAS, Airworthiness Office--EAW, 1 Rond Point Maurice
Bellonte, 31707 Blagnac Cedex, France; telephone +33 5 61 93 36 96;
fax +33 5 61 93 44 51; email<EMAIL_ADDRESS>
Internet http://www.airbus.com. You may view this service
information at the FAA, Transport Airplane Directorate, 1601 Lind
Avenue SW., Renton, WA. For information on the availability of this
material at the FAA, call<PHONE_NUMBER>.

    Issued in Renton, Washington, on November 11, 2015.
Michael Kaszycki,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2015-29443 Filed 11-18-15; 8:45 am]
BILLING CODE 4910-13-P