[Federal Register Volume 87, Number 128 (Wednesday, July 6, 2022)]
[Proposed Rules]
[Pages 40164-40167]
[FR Doc No: 2022-14325]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2022-0808; Project Identifier MCAI-2022-00100-R]
RIN 2120-AA64

Airworthiness Directives; Airbus Helicopters

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: The FAA proposes to adopt a new airworthiness directive (AD)
for certain Airbus Helicopters Model AS332C, AS332C1, AS332L, AS332L1
and AS332L2 helicopters. This proposed AD was prompted by reports of a
crack in the front upper hoist attachment fitting. This proposed AD
would require inspecting each affected hoist attachment fitting
(fitting) and depending on the results, removing any cracked fitting
from service and reporting information. This proposed AD also prohibits
installing an affected fitting unless the required actions are
accomplished, as specified in a European Union Aviation Safety Agency
(EASA) AD, which is proposed for incorporation by reference (IBR). The
FAA is proposing this AD to address the unsafe condition on these
products.

DATES: The FAA must receive comments on this proposed AD by August 22,
2022.

ADDRESSES: You may send comments, using the procedures found in 14 CFR
11.43 and 11.45, by any of the following methods:
     Federal eRulemaking Portal: Go to https://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: Deliver to Mail address above between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays.
    For EASA material that is proposed for IBR in this NPRM, contact
EASA, Konrad-Adenauer-Ufer 3, 50668 Cologne, Germany; telephone +49 221
8999 000; email [email protected]; internet www.easa.europa.eu. You
may find the EASA material on the EASA website at https://ad.easa.europa.eu. For Airbus Helicopters service information
identified in this NPRM, contact Airbus Helicopters, 2701 North Forum
Drive, Grand Prairie, TX 75052; telephone<PHONE_NUMBER> or (800) 232-
0323; fax<PHONE_NUMBER>; or at https://www.airbus.com/helicopters/services/technical-support.html. You may view this material at the FAA,
Office of the Regional Counsel, Southwest Region, 10101 Hillwood Pkwy.,
Room 6N-321, Fort Worth, TX 76177. For information on the availability
of this material at the FAA, call<PHONE_NUMBER>. The EASA material is
also available at https://www.regulations.gov by searching for and
locating Docket No. FAA-2022-0808.

Examining the AD Docket

    You may examine the AD docket at https://www.regulations.gov by
searching for and locating Docket No. FAA-2022-0808; or in person at
Docket Operations between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket contains this NPRM, the EASA AD,
any comments received, and other information. The street address for
Docket Operations is listed above.

FOR FURTHER INFORMATION CONTACT: Kristin Bradley, COS Program Manager,
COS Program Management Section, Operational Safety Branch, FAA, 10101
Hillwood Pkwy., Fort Worth, TX 76177; telephone<PHONE_NUMBER>; email
[email protected].

SUPPLEMENTARY INFORMATION:

Comments Invited

    The FAA invites you to send any written relevant data, views, or
arguments about this proposal. Send your comments to an address listed
under ADDRESSES. Include ``Docket No. FAA-2022-0808; Project Identifier
MCAI-2022-00100-R'' at the beginning of your comments. The most helpful
comments reference a specific portion of the proposal, explain the
reason for any recommended change, and include supporting data. The FAA
will consider all comments received by the closing date and may amend
this proposal because of those comments.
    Except for Confidential Business Information (CBI) as described in
the following paragraph, and other information as described in 14 CFR
11.35, the FAA will post all comments received, without change, to
https://www.regulations.gov, including any personal information you
provide. The agency will also post a report summarizing each
substantive verbal contact received about this NPRM.

Confidential Business Information

    CBI is commercial or financial information that is both customarily
and

actually treated as private by its owner. Under the Freedom of
Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public
disclosure. If your comments responsive to this NPRM contain commercial
or financial information that is customarily treated as private, that
you actually treat as private, and that is relevant or responsive to
this NPRM, it is important that you clearly designate the submitted
comments as CBI. Please mark each page of your submission containing
CBI as ``PROPIN.'' The FAA will treat such marked submissions as
confidential under the FOIA, and they will not be placed in the public
docket of this NPRM. Submissions containing CBI should be sent to
Kristin Bradley, COS Program Manager, COS Program Management Section,
Operational Safety Branch, FAA, 10101 Hillwood Pkwy., Fort Worth, TX
76177; telephone<PHONE_NUMBER>; email [email protected]. Any
commentary that the FAA receives that is not specifically designated as
CBI will be placed in the public docket for this rulemaking.

Background

    EASA, which is the Technical Agent for the Member States of the
European Union, has issued EASA Emergency AD 2022-0016-E, dated January
26, 2022 (EASA AD 2022-0016-E), to correct an unsafe condition for
Airbus Helicopters (AH), formerly Eurocopter, Eurocopter France,
Aerospatiale, Model AS 332 C, AS 332 C1, AS 332 L, AS 332 L1, and AS
332 L2 helicopters, equipped with front upper fitting manufacturer part
number (MP/N) 332A87-1116-21, rear upper fitting MP/N 332A87-1117-20,
or lower fitting MP/N 332A87-1176-20.
    This proposed AD was prompted by an occurrence of a front upper
fitting crack reported on a helicopter equipped with a double hoist
design, installed per a supplemental type certificate (STC). The STC
has not been validated by the FAA; however, the FAA is proposing this
AD because other hoists may have design similarities with the affected
fitting installed. The FAA is proposing this AD to detect and address
this unsafe condition, which if not corrected, could affect the
structural integrity of a fitting, possibly leading to an in-flight
detachment of the hoist support, and consequent damage to the
helicopter or injury to a person being lifted. EASA considers its AD to
be an interim action and further AD action may follow. See EASA AD
2022-0016-E for additional background information.

Related Service Information Under 1 CFR Part 51

    EASA AD 2022-0016-E requires a one-time inspection of the front
upper fitting MP/N 332A87-1116-21, rear upper fitting MP/N 332A87-1117-
20, and lower fitting MP/N 332A87-1176-20 for a crack. If there is a
crack, EASA AD 2022-0016-E requires replacing the affected fitting.
EASA AD 2022-0016-E also prohibits installing an affected fitting on
any helicopter unless it passes the required inspection.
    This material 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.

Other Related Service Information

    The FAA reviewed Airbus Helicopters Emergency Alert Service
Bulletin 25.03.95, Revision 0, dated January 25, 2022. This service
information specifies procedures for inspecting and replacing an
affected fitting. This service information also specifies reporting
certain information to Airbus Helicopters, and for a cracked fitting,
returning the fitting to Airbus Helicopters.

FAA's Determination

    These helicopters have been approved by EASA and are approved for
operation in the United States. Pursuant to the FAA's bilateral
agreement with the European Union, EASA has notified the FAA about the
unsafe condition described in its AD. The FAA is proposing this AD
after evaluating all known relevant information and determining that
the unsafe condition described previously is likely to exist or develop
on other helicopters of these same type designs.

Proposed AD Requirements in This NPRM

    This proposed AD would require accomplishing the actions specified
in EASA AD 2022-0016-E, described previously, as incorporated by
reference, except for any differences identified as exceptions in the
regulatory text of this proposed AD and except as discussed under
``Differences Between this Proposed AD and EASA AD 2022-0016-E.''

Explanation of Required Compliance Information

    In the FAA's ongoing efforts to improve the efficiency of the AD
process, the FAA developed a process to use some civil aviation
authority (CAA) ADs as the primary source of information for compliance
with requirements for corresponding FAA ADs. The FAA has been
coordinating this process with manufacturers and CAAs. As a result, the
FAA proposes to incorporate EASA AD 2022-0016-E by reference in the FAA
final rule. This proposed AD would, therefore, require compliance with
EASA AD 2022-0016-E in its entirety through that incorporation, except
for any differences identified as exceptions in the regulatory text of
this proposed AD. Using common terms that are the same as the heading
of a particular section in EASA AD 2022-0016-E does not mean that
operators need comply only with that section. For example, where the AD
requirement refers to ``all required actions and compliance times,''
compliance with this AD requirement is not limited to the section
titled ``Required Action(s) and Compliance Time(s)'' in EASA AD 2022-
0016-E. Service information referenced in EASA AD 2022-0016-E for
compliance will be available at https://www.regulations.gov by
searching for and locating Docket No. FAA-2022-0808 after the FAA final
rule is published.

Differences Between This Proposed AD and EASA AD 2022-0016-E

    The EASA AD requires a compliance time of before next hoist
operation or within 30 days, whichever occurs first after the effective
date of EASA AD 2022-0016-E, whereas this proposed AD would require a
compliance time of within 30 hours time in service or within 30 days,
whichever occurs first after the effective date of this proposed AD.
Where the service information referenced in the EASA AD specifies to
perform dye penetrant inspection ``if you are not sure,'' this proposed
AD would not require that action. Where EASA AD 2022-0016-E requires
returning a fitting that was required to be removed as a result of the
inspection, this proposed AD would not.

Interim Action

    The FAA considers this proposed AD would be an interim action. If
final action is later identified, the FAA might consider further
rulemaking then.

Costs of Compliance

    The FAA estimates that this AD, if adopted as proposed, would
affect 7 helicopters of U.S. Registry. Labor rates are estimated at $85
per work-hour. Based on these numbers, the FAA estimates the following
costs to comply with this proposed AD.
    Inspecting all hoist attachment fittings would take about 0.5 work-
hour for an estimated cost of $42.50 per helicopter and $298 for the
U.S. fleet.

    Replacing the front upper fitting would take about 4 hours and
parts would cost $834 for an estimated cost of $1,174 per front upper
fitting.
    Replacing the rear upper fitting would take about 4 hours and parts
would cost $1,040 for an estimated cost of $1,380 per rear upper
fitting.
    Replacing the lower fitting would take about 4 hours and parts
would cost $1,874 for an estimated cost of $2,214 per lower fitting.
    The FAA estimates that it would take about 1 hour per product to
comply with the proposed reporting requirement in this proposed AD. The
average labor rate is $85 per hour. Based on these figures, the FAA
estimates the cost of reporting the inspection results on U.S.
operators to be $595 or $85 per product.

Paperwork Reduction Act

    A federal agency may not conduct or sponsor, and a person is not
required to respond to, nor shall a person be subject to a penalty for
failure to comply with a collection of information subject to the
requirements of the Paperwork Reduction Act unless that collection of
information displays a current valid OMB Control Number. The OMB
Control Number for this information collection is 2120-0056. Public
reporting for this collection of information is estimated to take
approximately 1 hour per response, including the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. All responses to this collection of
information are mandatory. Send comments regarding this burden estimate
or any other aspect of this collection of information, including
suggestions for reducing this burden, to: Information Collection
Clearance Officer, Federal Aviation Administration, 10101 Hillwood
Parkway, Fort Worth, TX 76177-1524.

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.
    The FAA is 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

    The FAA 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) Would not affect intrastate aviation in Alaska, and
    (3) Would 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 adding the following new airworthiness
directive:

Airbus Helicopters: Docket No. FAA-2022-0808; Project Identifier
MCAI-2022-00100-R.

(a) Comments Due Date

    The FAA must receive comments on this airworthiness directive
(AD) by August 22, 2022.

(b) Affected ADs

    None.

(c) Applicability

    This AD applies to Airbus Helicopters Model AS332C, AS332C1,
AS332L, AS332L1, and AS332L2 helicopters, certificated in any
category, with a front upper hoist attachment fitting manufacturer
part number (MP/N) 332A87-1116-21, rear upper hoist attachment
fitting MP/N 332A87-1117-20, or lower hoist attachment fitting MP/N
332A87-1176-20, installed.

(d) Subject

    Joint Aircraft Service Component (JASC) Code: 2500, Cabin
Equipment/Furnishings.

(e) Unsafe Condition

    This AD was prompted by reports of a crack on the front upper
hoist attachment fitting. The FAA is issuing this AD to detect and
address this unsafe condition, which could affect the structural
integrity of a hoist attachment fitting, possibly leading to an in-
flight detachment of the hoist support, and consequent damage to the
helicopter or injury to a person being lifted.

(f) Compliance

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

(g) Requirements

    Except as specified in paragraph (h) of this AD: Comply with all
required actions and compliance times specified in, and in
accordance with, European Union Aviation Safety Agency (EASA)
Emergency AD 2022-0016-E, dated January 26, 2022 (EASA AD 2022-0016-
E).

(h) Exceptions to EASA AD 2022-0016-E

    (1) Where EASA AD 2022-0016-E refers to its effective date, this
AD requires using the effective date of this AD.
    (2) Where EASA AD 2022-0016-E requires a compliance time of
before next hoist operation or within 30 days, whichever occurs
first after the effective date of EASA AD 2022-0016-E, this AD
requires a compliance time of within 30 hours time in service or
within 30 days, whichever occurs first after the effective date of
this AD.
    (3) Where the service information referenced in EASA AD 2022-
0016-E specifies discarding parts, this AD requires removing those
parts from service.
    (4) Where EASA AD 2022-0016-E specifies replacing parts and the
service information referenced in EASA AD 2022-0016-E specifies
returning parts to the manufacturer, this AD requires removing those
parts from service.
    (5) Where the service information referenced in EASA AD 2022-
0016-E specifies reporting inspection results to Airbus Helicopters
immediately after each inspection, this AD requires reporting
inspection results at the following compliance times:
    (i) If there is not a crack, within 30 days after the
inspection.
    (ii) If there is a crack, before the next hoist operation.
    (6) Where the service information referenced in EASA AD 2022-
0016-E specifies to perform dye penetrant inspection ``if you are
not sure,'' this AD does not require a dye penetrant inspection.
    (7) This AD does not mandate compliance with the ``Remarks''
section of EASA AD 2022-0016-E.

(i) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, International Validation Branch, 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 manager of the International Validation Branch, send
it to the attention of the person identified in paragraph (j)(2) of
this AD. Information may be emailed to: [email protected].
    (2) 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.

(j) Related Information

    (1) For EASA AD 2022-0016-E, contact EASA, Konrad-Adenauer-Ufer
3, 50668 Cologne, Germany; telephone +49 221 8999 000; email
[email protected]; internet www.easa.europa.eu. You may find the
EASA material on the EASA website at https://ad.easa.europa.eu. You
may view this material at the FAA, Office of the Regional Counsel,
Southwest Region, 10101 Hillwood Pkwy., Room 6N-321, Fort Worth, TX
76177. For information on the availability of this material at the
FAA, call<PHONE_NUMBER>. This material may be found in the AD
docket at https://www.regulations.gov by searching for and locating
Docket No. FAA-2022-0808.
    (2) For more information about this AD, contact Kristin Bradley,
COS Program Manager, COS Program Management Section, Operational
Safety Branch, FAA, 10101 Hillwood Pkwy., Fort Worth, TX 76177;
telephone<PHONE_NUMBER>; email [email protected]

    Issued on June 29, 2022.
Christina Underwood,
Acting Director, Compliance & Airworthiness Division, Aircraft
Certification Service.
[FR Doc. 2022-14325 Filed 7-5-22; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 85, Number 110 (Monday, June 8, 2020)]
[Notices]
[Pages 34774-34778]
[FR Doc No: 2020-12271]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88987; File No. SR-NASDAQ-2020-028]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend IM-5101-1 (Use of
Discretionary Authority) To Deny Listing or Continued Listing or To
Apply Additional and More Stringent Criteria to an Applicant or Listed
Company Based on Considerations Related to the Company's Auditor or
When a Company's Business Is Principally Administered in a Jurisdiction
That Is a Restrictive Market

June 2, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 19, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
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\ 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 apply additional and more stringent
criteria to an applicant or listed company based on the qualifications
of the company's auditor.
    The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.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 Exchange 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 these 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 aspects of such
statements.

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

1. Purpose
    Nasdaq's listing requirements include transparent criteria and
corporate governance requirements. These requirements are designed to
protect investors and the public interest; to ensure that a company
seeking to list on Nasdaq is prepared for the rigors of operating as a
public company; to provide transparent disclosure to investors in
accordance with the SEC's and Nasdaq's reporting requirements; and to
ensure sufficient investor interest to support liquid trading. Those
criteria are set forth in the Nasdaq Rule 5000 Series.
    In addition to the criteria set forth in the Rule 5000 Series, Rule
5101 describes Nasdaq's broad discretionary authority over the initial
and continued listing of securities on Nasdaq in order to maintain the
quality of and public confidence in its market, to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and to protect investors and the public interest.
Nasdaq may use such discretion to deny initial listing, apply
additional or more stringent criteria for the initial or continued
listing of particular securities, or suspend or delist particular
securities based on any event, condition, or circumstance that exists
or occurs that makes initial or continued listing of the securities on
Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though
the securities meet all enumerated criteria for initial or continued
listing on Nasdaq.\3\
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    \3\ See Rule 5101.
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    Nasdaq rules \4\ and federal securities laws \5\ require a
company's financial statements included in its initial registration
statement or annual report to be audited by an independent public
accountant that is registered with the Public Company Accounting
Oversight Board (``PCAOB''). Company management is responsible for
preparing the company's financial statements and for establishing and
maintaining disclosure controls and procedures and internal control
over financial reporting. The company's auditor, based on its
independent audit of the evidence supporting the amounts and
disclosures in the financial statements, expresses an opinion on
whether the financial statements present fairly, in all material
respects, the company's financial position, results of operations and
cash flows. ``To form an appropriate basis for expressing an opinion on
the financial statements, the auditor must plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement due to error or fraud.'' \6\
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    \4\ See Rule 5210(b) (``Each Company applying for initial
listing must be audited by an independent public accountant that is
registered as a public accounting firm with the Public Company
Accounting Oversight Board, as provided for in Section 102 of the
Sarbanes-Oxley Act of 2002 [15 U.S.C. 7212].'') and Rule 5250(c)(3)
(``Each listed Company shall be audited by an independent public
accountant that is registered as a public accounting firm with the
Public Company Accounting Oversight Board, as provided for in
Section 102 of the Sarbanes-Oxley Act of 2002 [15 U.S.C. 7212].'').
    \5\ See Section 4100--Qualifications of Accountants, SEC
Financial Reporting Manual (June 30, 2009), available at https://www.sec.gov/corpfin/cf-manual/topic-4/.
    \6\ See PCAOB Auditing Standard 1101.03--Audit Risk, available
at https://pcaobus.org/Standards/Auditing/Pages/AS1101.aspx.
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    The auditor, in turn, is normally subject to inspection by the
PCAOB, which assesses compliance with PCAOB and SEC rules and
professional standards in connection with the auditor's performance of
audits. According to the PCAOB,

    PCAOB inspections may result in the identification of
deficiencies in one or more of an audit firm's audits of issuers
and/or in its quality control procedures which, in turn, can result
in an audit firm carrying out additional procedures that should have
been performed already at the time of the audit. Those procedures
have sometimes led to the audited public company having to revise
and refile its financial statements or its assessment of the
effectiveness of its internal control over financial reporting. In
addition, through the quality control remediation portion of the
inspection process, inspected

firms identify and implement practices and procedures to improve
future audit quality.\7\
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    \7\ See Public Company Accounting Oversight Board, Public
Companies that are Audit Clients of PCAOB-Registered Firms from Non-
U.S. Jurisdictions where the PCAOB is Denied Access to Conduct
Inspections (April 1, 2020), available at https://pcaobus.org/International/Inspections/Pages/IssuerClientsWithoutAccess.aspx.

    Nasdaq and investors rely on the work of auditors to provide
reasonable assurances that the financial statements provided by a
company are free of material misstatements. Nasdaq and investors
further rely on the PCAOB's critical role in overseeing the quality of
the auditor's work. The Chairman and the Chief Accountant of the
Commission, along with the Chairman of the PCAOB, have raised concerns
that national barriers on access to information can impede effective
regulatory oversight of U.S.-listed companies with operations in
certain countries, including the PCAOB's inability to inspect the audit
work and practices of auditors in those countries.\8\ In particular,
the PCAOB is currently prevented from inspecting the audit work and
practices of PCAOB-registered auditors in Belgium, France, China and
Hong Kong (to the extent their audit clients have operations in
mainland China).\9\
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    \8\ See SEC Chairman Jay Clayton, SEC Chief Accountant Wes
Bricker and PCAOB Chairman William D. Duhnke III, Statement on the
Vital Role of Audit Quality and Regulatory Access to Audit and Other
Information Internationally--Discussion of Current Information
Access Challenges with Respect to U.S.-listed Companies with
Significant Operations in China (December 7, 2018), available at
https://www.sec.gov/news/public-statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other (``Some of these
laws, for example, act to prohibit foreign-domiciled registrants in
certain jurisdictions from responding directly to SEC requests for
information and documents or doing so, in whole or in part, only
after protracted delays in obtaining authorization. Other laws can
prevent the SEC from being able to conduct any type of examination,
either onsite or by correspondence . . . Positions taken by some
foreign authorities currently prevent or significantly impair the
PCAOB's ability to inspect non-U.S. audit firms in certain
countries, even though these firms are registered with the
PCAOB.''). On April 21, 2020, these concerns were reiterated by the
Chairman and the Chief Accountant of the Commission, along with the
Chairman of the PCAOB and the Directors of the SEC Divisions of
Corporation Finance and Investment Management. See SEC Chairman Jay
Clayton, PCAOB Chairman William D. Duhnke III, SEC Chief Accountant
Sagar Teotia, SEC Division of Corporation Finance Director William
Hinman, SEC Division of Investment Management Director Dalia Blass,
Emerging Market Investments Entail Significant Disclosure, Financial
Reporting and Other Risks; Remedies are Limited (April 21, 2020),
available at https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting.
    \9\ See supra \\ad.sec.gov\users\mr\SchandlerS\NASDAQ 2020-028
(auditors)\supra note 7. The PCAOB notes that ``[t]he position taken
by authorities in mainland China may in some circumstances cause a
registered firm located in another jurisdiction to attempt to resist
PCAOB inspection of public company audit work that the firm has
performed relating to the company's operations in mainland China.
Only in mainland China and Hong Kong, however, is the position of
the Chinese authorities effectively an obstacle to inspection of
all, or nearly all, registered firms in the jurisdiction.'' In
addition, the PCAOB's cooperative arrangement with the French audit
authority expired in December 2019, preventing inspections of
registered firms in France until a new arrangement is concluded.
According to the PCAOB, it expects to enter into bilateral
cooperative arrangements soon that will permit the PCAOB to commence
inspections in Belgium and resume inspections in France.
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    Nasdaq shares these concerns and believes that accurate financial
statement disclosure is critical for investors to make informed
investment decisions. Nasdaq is concerned that constraints on the
PCAOB's ability to inspect auditor work in countries with national
barriers on access to information weaken assurances that the
disclosures and financial information of companies with operations in
such countries are not misleading.
    Currently, Nasdaq may rely upon its broad authority provided under
Rule 5101 to deny initial or continued listing or to apply additional
and more stringent criteria when the auditor of an applicant or a
Nasdaq-listed company: (1) Has not been subject to an inspection by the
PCAOB (either historically or because it is newly formed and as
therefore not yet undergone a PCAOB inspection), (2) is an auditor that
the PCAOB cannot inspect, or (3) otherwise does not demonstrate
sufficient resources, geographic reach or experience as it relates to
the company's audit, including in circumstances where a PCAOB
inspection has uncovered significant deficiencies in the auditors'
conduct in other audits or in its system of quality controls.
    Nasdaq believes that codifying the nature and scope of its existing
discretion when assessing the qualifications of a company's auditor
will increase transparency to investors, companies and market
participants. Accordingly, in order to preserve and strengthen the
quality of and public confidence in the Nasdaq market, and in order to
enhance investor confidence, Nasdaq proposes to amend IM-5101-1 to add
a new subparagraph (b) that sets forth factors Nasdaq may consider in
applying additional and more stringent criteria to an applicant or
listed company based on the qualifications of the company's auditor.
Such factors include:
    (1) Whether the auditor has been subject to a PCAOB inspection,
such as where the auditor is newly formed and has therefore not yet
undergone a PCAOB inspection or where the auditor, or an accounting
firm engaged to assist with the audit, is located in a jurisdiction
that limits the PCAOB's ability to inspect the auditor;
    (2) if the company's auditor has been inspected by the PCAOB,
whether the results of that inspection indicate that the auditor has
failed to respond to any requests by the PCAOB or that the inspection
has uncovered significant deficiencies in the auditors' conduct in
other audits or in its system of quality controls;
    (3) whether the auditor can demonstrate that it has adequate
personnel in the offices participating in the audit with expertise in
applying U.S. GAAP, GAAS or IFRS, as applicable, in the company's
industry;
    (4) whether the auditor's training program for personnel
participating in the company's audit is adequate;
    (5) for non-U.S. auditors, whether the auditor is part of a global
network or other affiliation of individual auditors where the auditors
draw on globally common technologies, tools, methodologies, training
and quality assurance monitoring; and
    (6) whether the auditor can demonstrate to Nasdaq sufficient
resources, geographic reach or experience as it relates to the
company's audit.
    Nasdaq will consider these factors holistically and may be
satisfied with an auditor's qualifications notwithstanding the fact
that the auditor raises concerns with respect to some of the factors
set forth above. For example, Nasdaq may be satisfied that an auditor
that is not subject to PCAOB inspection has mitigated the risk that it
may have significant undetected deficiencies in its system of quality
controls by being a part of a global network where the auditors draw on
globally common technologies, tools, methodologies, training and
quality assurance monitoring.
    The proposed rule will include examples of additional and more
stringent criteria that Nasdaq may apply to an applicant or a Nasdaq-
listed company to obtain comfort that the company satisfies the
financial listing requirements and is suitable for listing. These could
include, as explained in greater detail below, requiring: (i) Higher
equity, assets, earnings or liquidity measures than otherwise required
under the Rule 5000 Series; (ii) that any offering be underwritten on a
firm commitment basis, which typically involves more due diligence by
the broker-dealer than would be done in connection with a best-efforts
offering; or (iii) companies to impose lock-up restrictions on officers
and directors to

allow market mechanisms to determine an appropriate price for the
company before such insiders can sell shares.
    Nasdaq and investors rely on the company's auditors to provide
reasonable assurances that the financial statements provided by a
company are free of material misstatements and do not, for example,
overstate the company's equity, assets or revenues. Where Nasdaq is
concerned that the company's auditor does not satisfy the criteria
proposed in IM-5101-1(b), Nasdaq may still obtain comfort that the
company truly satisfies the financial listing criteria by imposing a
higher standard. Nasdaq may also have concerns that a company listing
on Nasdaq through an initial public offering, business combination,
direct listing or issuing securities previously trading over the
counter (``OTC'') may not develop sufficient public float, investor
base, and trading interest to provide the depth and liquidity necessary
to promote fair and orderly trading, resulting in a security that is
illiquid. In such cases, Nasdaq may impose additional liquidity
measures on the company, such as requiring a higher public float
percentage, market value of unrestricted publicly held shares or
average OTC trading volume. Nasdaq may also obtain additional comfort
regarding the quality of the company's financial statements by
requiring the offering to be underwritten, which helps to ensure that
third parties other than the auditor are conducting significant due
diligence on the company, its registration statement and its financial
statements.
    In certain instances, Nasdaq believes it may be appropriate to
prevent the company's insiders from selling their shares if material
misstatements are detected by the company's auditors and have not been
disclosed to investors. Therefore, Nasdaq may also impose lock-up
restrictions on officers and directors to allow market mechanisms to
determine an appropriate price for the company before such insiders can
sell shares. Nasdaq may impose each of these requirements separately or
in combination. In some cases, Nasdaq may determine that listing is not
appropriate and deny initial or continued listing to a company.
    The risks to U.S. investors are heightened when a company's
business is principally administered in a jurisdiction that has secrecy
laws, blocking statutes, national security laws or other laws or
regulations restricting access to information by regulators of U.S.-
listed companies in such jurisdiction, which raise concerns about the
accuracy of disclosures, accountability, and access to information.\10\
Nasdaq also proposes to amend IM-5101-1 to add a new subparagraph (c)
to clarify that Nasdaq may also use its discretionary authority to
impose additional or more stringent criteria, including the criteria
set forth in IM-5101-1(b), in other circumstances, including when a
company's business is principally administered in a jurisdiction that
Nasdaq determines to have secrecy laws, blocking statutes, national
security laws or other laws or regulations restricting access to
information by regulators of U.S.-listed companies in such jurisdiction
(a ``Restrictive Market''). In determining whether a company's business
is principally administered in a Restrictive Market, Nasdaq may
consider the geographic locations of the company's: (a) Principal
business segments, operations or assets; (b) board and shareholders'
meetings; (c) headquarters or principal executive offices; (d) senior
management and employees; and (e) books and records.\11\ Nasdaq will
consider these factors holistically, recognizing that a company's
headquarters may not be the office from which it conducts its principal
business activities. For example, a company's headquarters could be
located in Country A, while the majority of its senior management,
employees, assets, operations and books and records are located in
Country B, which is a Restrictive Market. In this case, Nasdaq would
consider the company's business to be principally administered in
Country B, which is a Restrictive Market, and Nasdaq would use its
discretionary authority to apply additional or more stringent criteria
to the company.
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    \10\ See supra note 3.
    \11\ This threshold would capture both foreign private issuers
based in Restrictive Markets and companies based in the U.S. or
another jurisdiction that principally administer their businesses in
Restrictive Markets. The factors that Nasdaq would consider when
determining whether a business is principally administered in a
Restrictive Market is supported by SEC guidance regarding foreign
private issuer status, which suggests that a foreign company may
consider certain factors including the locations of: the company's
principal business segments or operations; its board and
shareholders' meetings; its headquarters; and its most influential
key executives (potentially a subset of all executives). See
Division of Corporation Finance of the SEC, Accessing the U.S.
Capital Markets--A Brief Overview for Foreign Private Issuers
(February 13, 2013), available at https://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml#IIA2c.
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    Lastly, Nasdaq proposes to identify certain paragraphs within IM-
5101-1 as subparagraphs (a), (d) and (e), add headings to the
subparagraphs, and to relocate text describing Nasdaq's review process
to paragraph (e), in order to enhance readability of the rule. Nasdaq
also proposes to revise ``listing qualifications panel'' to ``Hearings
Panel (as defined in Rule 5805(d))'' for consistency within Nasdaq's
rulebook.
    In the event that Nasdaq relies on such discretionary authority and
determines to deny the initial or continued listing of a company, it
would issue a denial or delisting letter to the company that will
inform the company of the factual basis for the Nasdaq's determination
and its right for review of the decision pursuant to the Rule 5800
Series.\12\
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    \12\ See Rule 5815, which sets forth the review of staff
determinations by a Hearings Panel, including the procedures for
requesting and preparing for a hearing and the scope of the Hearing
Panel's discretion.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change will enhance
transparency regarding how Nasdaq may exercise its existing discretion
when considering the qualifications of the company's auditor and the
jurisdiction where the company principally administers its business in
determining whether to grant initial or continued listing of a company.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\14\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general to protect investors and the public interest. Further,
the Exchange believes that this proposal is not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Nasdaq and investors rely on the work of auditors to provide
reasonable assurances that the financial statements provided by a
company are free of material misstatements. The PCAOB states that
``[r]easonable assurance is obtained by reducing audit risk to an
appropriately low level through applying due professional care,
including obtaining sufficient appropriate audit evidence.'' \15\
Nasdaq believes that the PCAOB's inability to inspect the audit work
and practices of auditors in certain countries weakens the assurance
that the auditor obtained sufficient appropriate audit evidence to
express its opinion on a company's

financial statements, and decreases confidence that the auditor
complied with PCAOB and SEC rules and professional standards in
connection with the auditor's performance of audits. The proposed rule
would provide transparency to cases where Nasdaq may impose additional
and more stringent criteria on a company based on the qualifications of
its auditor in order to help provide greater assurances that the
company's financial statements are free of material misstatements due
to fraud or error, thereby preventing fraudulent and manipulative acts
and protecting investors and the public interest.
---------------------------------------------------------------------------

    \15\ See supra note 6.
---------------------------------------------------------------------------

    The proposed rule change would also protect investors and the
public interest by providing Nasdaq and investors with greater
assurances that the company indeed satisfies Nasdaq's financial listing
requirements set forth in the Rule 5000 Series. Nasdaq believes that
without reasonable assurances that a company's financial statements and
related disclosures are free from material misstatements, there is a
risk that a company that would otherwise not have qualified to list on
Nasdaq may satisfy Nasdaq's listing standards by presenting financial
statements that contain undetected material misstatements. In the
Matter of the Tassaway, Inc., the Commission observed that

    Though exclusion from the system may hurt existing investors,
primary emphasis must be placed on the interests of prospective
future investors. The latter group is entitled to assume that the
securities in the system meet the system's standards. Hence the
presence in NASDAQ of non-complying securities could have a serious
deceptive effect.\16\
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    \16\ See In the Matter of Tassaway, Inc., Securities Exchange
Act Release No. 11291, 1975 WL 160383; 45 SEC. 706 (March 13, 1975).

    The proposed rule change would provide greater assurances to
investors that a company truly meets Nasdaq's financial listing
requirement by clarifying that Nasdaq may use its existing discretion
to apply additional and more stringent criteria, such as requiring: (i)
Higher equity, assets, earnings or liquidity measures than otherwise
required under the Rule 5000 Series; (ii) that any offering be
underwritten on a firm commitment basis, which typically involves more
due diligence by the broker-dealer than would be done in connection
with a best-efforts offering; or (iii) companies to impose lock-up
restrictions on officers and directors to allow market mechanisms to
determine an appropriate price for the company before such insiders can
sell shares. In some cases, Nasdaq may determine that listing is not
appropriate and deny initial or continued listing to a company. Nasdaq
believes that providing specific examples of such additional and more
stringent criteria will alert companies seeking to list on Nasdaq, as
well as currently listed companies, that the company may be subject to
additional criteria as a condition for initial and continued listing on
Nasdaq and will provide transparency to investors, companies and market
participants, thereby protecting investors and the public interest.
    Nasdaq believes that its proposal to add a new subparagraph (c) to
clarify that Nasdaq may also use its discretionary authority to impose
additional or more stringent criteria, including the criteria set forth
in IM-5101-1(b), in other circumstances, including when a company's
business is principally administered in a Restrictive Market, will help
ensure that Nasdaq has access to the information needed to carry out
its regulatory duties, thereby preventing fraudulent and manipulative
acts and protecting investors and the public interest.
    The Exchange believes that the proposed rules clarify Nasdaq's
discretionary authority under Rule 5101 ``to apply additional or more
stringent criteria for the initial or continued listing of particular
securities, or suspend or delist particular securities based on any
event, condition, or circumstance that exists or occurs that makes
initial or continued listing of the securities on Nasdaq inadvisable or
unwarranted in the opinion of Nasdaq, even though the securities meet
all enumerated criteria for initial or continued listing on Nasdaq.''
\17\ Nasdaq has maintained its broad discretionary authority for 26
years. On June 3, 1994, the Commission approved a proposal from
National Association of Securities Dealers, Inc. (``NASD'') to amend
Schedule D to the NASD By-Laws to clarify the NASD's discretionary
authority to exclude an issuer from Nasdaq or require additional or
more stringent criteria for inclusion in Nasdaq for issuers that are
managed, controlled or influenced by persons with a history of
significant securities or commodities violations.\18\ In approving the
proposal, the Commission stated that ``[a]lthough the Commission is of
the view that the NASD's current rules authorize it to exclude an
issuer, the proposal would clarify that authority. The Commission
believes that this rule change provides greater protection to both
existing and prospective investors. This rule change provides investors
greater assurance that the risk associated with investing in Nasdaq is
market risk rather than the risk that the promoter or other persons
exercising substantial influence over the issuer is acting in an
illegal manner.'' \19\ Similarly, the Exchange believes that the
current proposal would clarify Nasdaq's existing authority and would
help reduce the risk for existing and prospective investors that the
financial statements of a Nasdaq-listed company may contain material
misstatements that were not discovered due to a lack of robust
oversight of the company's auditor.
---------------------------------------------------------------------------

    \17\ See supra note 3.
    \18\ Securities Exchange Act Release No. 34151 (June 3, 1994),
59 FR 29843 (June 9, 1994) (SR-NASD-94-19) (available at https://www.govinfo.gov/content/pkg/FR-1994-06-09/html/94-14031.htm). This
was the predecessor to current Nasdaq Rule 5101.
    \19\ Id.
---------------------------------------------------------------------------

    The proposed rule changes would apply to all companies listed and
seeking to list on Nasdaq. However, Nasdaq may only apply additional
and more stringent criteria when an applicant or a Nasdaq-listed
company is unable to demonstrate to Nasdaq, through the enumerated
factors, that its auditor has sufficient PCAOB inspection history,
quality controls, resources, geographic reach and experience to
adequately perform the company's audit. Nasdaq may also only apply its
discretionary authority when a company's business is principally
administered in a Restrictive Market.
    Notwithstanding the forgoing, the Exchange believes that the
proposal does not unfairly discriminate among companies because Nasdaq
and the SEC have identified additional concerns around companies with
auditors that do not have sufficient PCAOB inspection history, quality
controls, resources, geographic reach and experience to adequately
perform the company's audit and companies whose business is principally
administered in a Restrictive Market. In light of these concerns, the
proposed rule change will increase assurances that companies listed on
Nasdaq satisfy Nasdaq's financial listing requirements and are suitable
for listing on a U.S. securities exchange, and that Nasdaq has access
to the information required to perform its regulatory duties, which
will prevent fraudulent and manipulative acts and practices, promote
just and equitable principles of trade and protect investors and the
public interest.
    Under the proposed changes, the Exchange will use its discretion in
determining to apply additional and

more stringent criteria. The Exchange believes that this is not unfair
discrimination among companies because applying additional and more
stringent criteria may not be appropriate in all circumstances, for
example if the company's auditor is able to demonstrate that it has
sufficient PCAOB inspection history, quality controls, resources,
geographic reach and experience to adequately perform the company's
audit. Similarly, it may not be appropriate for Nasdaq to apply its
discretionary authority in all cases where a company's business is
principally administered in a Restrictive Market. For example, a
company may be headquartered in Country A, which is a Restrictive
Market, but have the majority of its employees, operations, senior
management, assets and books and records in Country B, which is not a
Restrictive Market. In such cases, Nasdaq would consider the company's
business to be principally administered in Country B and Nasdaq would
not use its discretionary authority to apply additional or more
stringent criteria.
    Nasdaq believes that the proposed changes recognize that one size
does not fit all companies and clarify the scope of the Exchange's
existing discretion to apply additional and more stringent criteria,
including potentially prohibiting a company's listing, based on the
qualifications of its auditor or the jurisdiction where the company
principally administers its business, thereby protecting investors and
the public interest.
    Lastly, Nasdaq believes its proposal to identify certain paragraphs
within IM-5101-1 as subparagraphs (a), (d) and (e), add headings to the
subparagraphs, and to relocate text describing Nasdaq's review process
to paragraph (e), will enhance readability of the rule. Similarly,
Nasdaq believes its proposal to and revise ``listing qualifications
panel'' to ``Hearings Panel (as defined in Rule 5805(d))'' will enhance
consistency within Nasdaq's rulebook. Nasdaq believes both proposals
will promote investor protection and the public interest.

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 not necessary or appropriate in
furtherance of the purposes of the Act. Nasdaq is adopting this
proposed rule change to enhance investor protection, which is a central
purpose of the Act. Any impact on competition, either among listed
companies or between exchanges, is incidental to that purpose.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.

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-NASDAQ-2020-028 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2020-028. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2020-028 and should be submitted
on or before June 29, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12271 Filed 6-5-20; 8:45 am]
 BILLING CODE 8011-01-P