[Federal Register Volume 81, Number 227 (Friday, November 25, 2016)]
[Rules and Regulations]
[Pages 85124-85126]
[FR Doc No: 2016-27771]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2016-9281; Directorate Identifier 2016-SW-033-AD;
Amendment 39-18717; AD 2016-23-10]
RIN 2120-AA64

Airworthiness Directives; Sikorsky Aircraft Corporation
Helicopters

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule; request for comments.

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SUMMARY: We are adopting a new airworthiness directive (AD) for
Sikorsky Aircraft Corporation Model S-76D helicopters. This AD requires
revising the rotorcraft flight manual (RFM) to prohibit Barometric
Altitude Hold (ALT) mode beyond a certain rate of climb or descent.
This AD is prompted by a report of the autopilot being unable to
maintain level flight during certain flight conditions. The actions
specified by this AD are intended to prevent a significant pilot
workload increase, pilot disorientation, and subsequent loss of control
of the helicopter.

DATES: This AD becomes effective December 12, 2016.
    The Director of the Federal Register approved the incorporation by
reference of a certain document listed in this AD as of December 12,
2016.
    We must receive comments on this AD by January 24, 2017.

ADDRESSES: You may send comments by any of the following methods:
     Federal eRulemaking Docket: Go to http://www.regulations.gov. Follow the online instructions for sending your
comments electronically.
     Fax:<PHONE_NUMBER>.
     Mail: Send comments to the U.S. Department of
Transportation, Docket Operations, M-30, West Building Ground Floor,
Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590-0001.
     Hand Delivery: Deliver to the ``Mail'' address between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays.

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-2016-
9281; or in person at the Docket Operations Office between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The AD docket
contains this AD, any incorporated-by-reference service information,
the economic evaluation, any comments received, and other information.
The street address for the Docket Operations Office (telephone 800-647-
5527) is in the ADDRESSES section. Comments will be available in the AD
docket shortly after receipt.
    For service information identified in this final rule, contact
Sikorsky Aircraft Corporation, Customer Service Engineering, 124 Quarry
Road, Trumbull, CT 06611; telephone 1-800-Winged-S or<PHONE_NUMBER>;
email<EMAIL_ADDRESS>You may review the
referenced service information at the FAA, Office of the Regional
Counsel, Southwest Region, 10101 Hillwood Pkwy., Room 6N-321, Fort
Worth, TX 76177. It is also available on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-
9281.

FOR FURTHER INFORMATION CONTACT: John Coffey, Flight Test Engineer,
Boston Aircraft Certification Office, Engine & Propeller Directorate,
FAA, 1200 District Avenue, Burlington, Massachusetts 01803; telephone
(781) 238-7173; email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Comments Invited

    This AD is a final rule that involves requirements affecting flight
safety, and we did not provide you with notice and an opportunity to
provide your comments prior to it becoming effective. However, we
invite you to participate in this rulemaking by submitting written
comments, data, or views. We also invite comments relating to the
economic, environmental, energy, or federalism impacts that resulted
from adopting this AD. The most helpful comments reference a specific
portion of the AD, explain the reason for any recommended change, and
include supporting data. To ensure the docket does not contain
duplicate comments, commenters should send only one copy of written
comments, or if comments are filed electronically, commenters should
submit them only one time. We will file in the docket all comments that
we receive, as well as a report summarizing each substantive public
contact with FAA personnel concerning this rulemaking during the
comment period. We will consider all the comments we receive and may
conduct additional rulemaking based on those comments.

Discussion

    We are adopting a new AD for Sikorsky Aircraft Corporation Model S-
76D helicopters. This AD requires revising the ``Automatic Flight
Control System'' section of the RFM Limitations by inserting a
limitation prohibiting the use of the ALT mode during a rate of climb
or descent greater than 1,000 feet/minute (fpm). This AD is prompted by
a report of the autopilot being unable to maintain level flight in
certain flight conditions. To explore the report further, the FAA
conducted additional flight tests, which revealed that when the
helicopter is at density altitudes greater than 13,000 feet and the
autopilot is commanding either a climb or descent at rates greater than
1,000 fpm, and the ALT HOLD mode is then engaged, the autopilot is
unable to maintain level flight when large collective inputs are
applied. These conditions saturate the stability augmentation system
(SAS) actuators, subsequently providing insufficient control response
during the collective input. As a result, the helicopter may experience
a dynamic response with roll excursions greater than 50 degrees of bank
angle and yaw excursions greater than 70 degrees of heading. This
condition could result in a significant increase in pilot workload,
pilot disorientation, and loss of control of the helicopter.

FAA's Determination

    We are issuing this AD because we evaluated all the relevant
information and determined the unsafe condition described previously is
likely to exist or develop in other helicopters of this same type
design.

Related Service Information Under 1 CFR Part 51

    Sikorsky issued S-76D RFM SA S76D-RFM-000, Temporary Revision No.
7, approved May 19, 2016, which revises the Limitations section by
prohibiting ALT mode during a rate of climb or descent greater than
1,000 fpm.
    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.

AD Requirements

    This AD requires, within 10 hours time-in-service (TIS), revising
the Limitations section of the RFM by inserting a limitation stating
that ALT mode shall not be engaged with a rate of climb or descent
greater than 1,000 fpm.

Interim Action

    We consider this AD to be an interim action. The design approval
holder is planning to develop a modification that will address the
unsafe condition identified in this AD. Once this modification is
developed, approved, and available, we might consider additional
rulemaking.

Costs of Compliance

    We estimate that this AD will affect 12 helicopters of U.S.
Registry. We estimate that operators may incur the following costs in
order to comply with this AD. At an average labor rate of $85 per work-
hour, revising the RFM will require 0.5 work-hour, for cost of about
$43 per helicopter and $516 for the U.S. fleet.

FAA's Justification and Determination of the Effective Date

    Providing an opportunity for public comments prior to adopting
these AD requirements would delay implementing the safety actions
needed to correct this known unsafe condition. Therefore, we find that
the risk to the flying public justifies waiving notice and comment
prior to the adoption of this rule because the unsafe condition can
adversely affect control of the helicopter, and the required corrective
actions must be accomplished within 10 hours TIS.
    Since an unsafe condition exists that requires the immediate
adoption of this AD, we determined that notice and opportunity for
public comment before issuing this AD are impracticable and contrary to
the public interest and that good cause exists for making this
amendment effective in less than 30 days.

Authority for This Rulemaking

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

Regulatory Findings

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

List of Subjects in 14 CFR Part 39

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

Adoption of the Amendment

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

PART 39--AIRWORTHINESS DIRECTIVES

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

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

Sec.  39.13  [Amended]

0
2. The FAA amends Sec.  39.13 by adding the following new airworthiness
directive (AD):

2016-23-10 Sikorsky Aircraft Corporation: Amendment 39-18717; Docket
No. FAA-2016-9281; Directorate Identifier 2016-SW-033-AD.

(a) Applicability

    This AD applies to Model S-76D helicopters, certificated in any
category.

 (b) Unsafe Condition

    This AD defines the unsafe condition as an inability of the
autopilot to maintain level flight. This condition could result in a
significant increase in pilot workload, pilot disorientation, and
subsequent loss of control of the helicopter.

 (c) Effective Date

    This AD becomes effective December 12, 2016.

 (d) Compliance

    You are responsible for performing each action required by this
AD within the specified compliance time unless it has already been
accomplished prior to that time.

 (e) Required Actions

    Within 10 hours time-in-service, revise Section 1 Limitations,
``Automatic Flight Control System'' section, of the Rotorcraft
Flight Manual by one of the following methods:
    (1) Insert Sikorsky S-76D SA S76D-RFM-000, Temporary Revision
No. 7, approved May 19, 2016; or
    (2) Insert a copy of this AD; or
    (3) Make pen-and-ink changes to add the information in Figure 1
to paragraph (e) of this AD.
[GRAPHIC] [TIFF OMITTED] TR25NO16.000

 (f) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, Boston Aircraft Certification Office, FAA, may
approve AMOCs for this AD. Send your proposal to: John Coffey,
Flight Test Engineer, Boston Aircraft Certification Office, Engine &
Propeller Directorate, FAA, 1200 District Avenue, Burlington,
Massachusetts 01803; telephone<PHONE_NUMBER>; email
<EMAIL_ADDRESS>    (2) For operations conducted under a 14 CFR part 119 operating
certificate or under 14 CFR part 91, subpart K, we suggest that you
notify your principal inspector, or lacking a principal inspector,
the manager of the local flight standards district office or
certificate holding district office before operating any aircraft
complying with this AD through an AMOC.

 (g) Subject

    Joint Aircraft Service Component (JASC) Code: 2210, Autopilot
System.

 (h) Material Incorporated by Reference

    (1) The Director of the Federal Register approved the
incorporation by reference of the service information listed in this
paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
    (2) You must use this service information as applicable to do
the actions required by this AD, unless the AD specifies otherwise.
    (i) Sikorsky S-76D SA S76D-RFM-000, Temporary Revision No. 7,
approved May 19, 2016.
    (ii) Reserved.
    (3) For Sikorsky service information identified in this AD,
contact Sikorsky Aircraft Corporation, Customer Service Engineering,
124 Quarry Road, Trumbull, CT 06611; telephone 1-800-Winged-S or
203-416-4299; email<EMAIL_ADDRESS>    (4) You may view this service information at 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>.
    (5) You may view this service information that is incorporated
by reference at the National Archives and Records Administration
(NARA). For information on the availability of this material at
NARA, call<PHONE_NUMBER>, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued in Fort Worth, Texas, on November 4, 2016.
Lance T. Gant,
Manager, Rotorcraft Directorate, Aircraft Certification Service.
[FR Doc. 2016-27771 Filed 11-23-16; 8:45 am]
 BILLING CODE 4910-13-P


[Federal Register Volume 87, Number 163 (Wednesday, August 24, 2022)]
[Rules and Regulations]
[Pages 51868-51870]
[FR Doc No: 2022-18106]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA-2021-0243; Airspace Docket No. 20-AWP-10]
RIN 2120-AA66

Modification of Class D Airspace, Removal and Establishment of
Class E Airspace; Oxnard Airport, CA

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

ACTION: Final rule.

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SUMMARY: This action removes the Class E airspace, designated as an
extension to a Class D or Class E surface area. Additionally, this
action establishes Class E airspace extending upward from 700 feet
above the surface. Lastly, this action makes administrative changes to
the Class D airspace legal description. These actions will ensure the
safety and management of visual flight rules (VFR) and instrument
flight rules (IFR) at the airport.

DATES: Effective 0901 UTC, November 3, 2022. The Director of the
Federal Register approves this incorporation by reference under Title 1
CFR part 51, subject to the annual revision of FAA Order JO 7400.11,
Airspace Designations and Reporting Points, and publication of
conforming amendments.

ADDRESSES: FAA Order JO 7400.11F, and subsequent amendments can be
viewed online at www.faa.gov/air_traffic/publications/. For further
information, you can contact the Airspace Policy Group, Federal
Aviation Administration, 800 Independence Avenue SW, Washington, DC
20591; telephone:<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Nathan A. Chaffman, Federal Aviation

Administration, Western Service Center, Operations Support Group, 2200
S. 216th Street, Des Moines, WA 98198; telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. 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. This rulemaking is promulgated under the authority described
in Subtitle VII, Part A, Subpart I, Section 40103. Under that section,
the FAA is charged with prescribing regulations to assign the use of
airspace necessary to ensure the safety of aircraft and the efficient
use of airspace. This regulation is within the scope of that authority,
as it would modify the Class D and Class E airspace at Oxnard Airport,
Oxnard, CA, to support VFR and IFR operations at the airport.

History

    The FAA published a notice of proposed rulemaking (NPRM) in the
Federal Register for FAA-2021-0243 (87 FR 21056; April 11, 2022) to
remove the Class E airspace designated as an extension to a Class D or
Class E surface area, establish Class E airspace beginning at 700 feet
above the surface, and make administrative changes to the Class D legal
description. Interested parties were invited to participate in this
rulemaking effort by submitting written comments on the proposal to the
FAA. No comments were received.
    Class D, Class E4, and Class E5 airspace designations are published
in paragraphs 5000, 6004, and 6005, respectively, of FAA Order JO
7400.11F, dated August 10, 2021, and effective September 15, 2021,
which is incorporated by reference in 14 CFR 71.1. The Class D and
Class E airspace designations listed in this document will be published
subsequently in FAA Order JO 7400.11.

Availability and Summary of Documents for Incorporation by Reference

    This document amends FAA Order JO 7400.11F, Airspace Designations
and Reporting Points, dated August 10, 2021, and effective September
15, 2021. FAA Order JO 7400.11F is publicly available as listed in the
ADDRESSES section of this document. FAA Order JO 7400.11F lists Class
A, B, C, D, and E airspace areas, air traffic service routes, and
reporting points.

The Rule

    The FAA is amending 14 CFR part 71 by removing the Class E
airspace, designated as an extension to a Class D or Class E surface
area. This airspace is west of the airport and is no longer required to
contain IFR arrivals descending below 1,000 feet above the surface.
    This action also establishes Class E airspace extending upward from
700 feet above the surface to contain arriving IFR aircraft descending
below 1,500 feet above the surface, and departing IFR aircraft until
they reach 1,200 feet above the surface.
    Finally, the FAA is making several administrative modifications to
the Class D legal description. The current description requires
modification to replace the use of the phrases ``Notice to Airmen'' and
``Airport/Facility Directive.'' These phrases should read ``Notice to
Air Missions'' and ``Chart Supplement'' respectively, in the Oxnard
Class D airspace legal description. Additionally, the Oxnard Airport's
Class D airspace abuts the Class D areas of Point Mugu Naval Air
Station Airport and Camarillo Airport. The geographic coordinates in
the Oxnard Airport Class D legal description are updated to more
accurately define the common borders of the three Class D surface
areas, which does not represent a change to the current boundaries.
    Class D, E4, and E5 airspace designations are published in
paragraphs 5000, 6004, and 6005, respectively, of FAA Order JO
7400.11F, dated August 10, 2021, and effective September 15, 2021,
which is incorporated by reference in 14 CFR 71.1. The Class D and
Class E airspace designations listed in this document will be published
subsequently in FAA Order JO 7400.11.
    FAA Order JO 7400.11 is published annually and becomes effective on
September 15.

Regulatory Notices and Analyses

    The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current, is
non-controversial, and unlikely to result in adverse or negative
comments. It therefore: (1) is not a ``significant regulatory action''
under Executive Order 12866; (2) is not a ``significant rule'' under
DOT regulatory policies and procedures (44 FR 11034; February 26,
1979); and (3) does not warrant preparation of a regulatory evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule, when promulgated, would not have a
significant economic impact on a substantial number of small entities
under the criteria of the Regulatory Flexibility Act.

Environmental Review

    The FAA has determined that this action qualifies for categorical
exclusion under the National Environmental Policy Act in accordance
with FAA Order 1050.1F, Environmental Impacts: Policies and Procedures,
paragraph 5-6.5a. This airspace action is not expected to cause any
potentially significant environmental impacts, and no extraordinary
circumstances exist that warrant the preparation of an environmental
assessment.

List of Subjects in 14 CFR Part 71

    Airspace, incorporation by reference, navigation (air).

Adoption of the Amendment

    In consideration of the foregoing, the FAA amends 14 CFR part 71 as
follows:

PART 71--DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND REPORTING POINTS

0
1. The authority citation for 14 CFR part 71 continues to read as
follows:

    Authority:  49 U.S.C. 106(f), 106(g), 40103, 40113, 40120; E.O.
10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

Sec.  71.1   [Amended]

0
2. The incorporation by reference in 14 CFR 71.1 of FAA Order JO
7400.11F, Airspace Designations and Reporting Points, dated August 10,
2021, and effective September 15, 2021, is amended as follows:

Paragraph 5000. Class D Airspace.

* * * * *

AWP CA D Oxnard, CA [Amended]

Oxnard Airport, CA
    (Lat. 34[deg]12'03'' N, long. 119[deg]12'26'' W)

    That airspace extending upward from the surface to and including
2,000 feet MSL within a 4.3-mile radius of the airport, excluding
that portion east and southeast of a line beginning at lat.
34[deg]15'38.75'' N, long. 119[deg]09'34.88'' W, to lat.
34[deg]10'22'' N, long. 119[deg]09'27'' W, to lat. 34[deg]07'44.53''
N, long. 119[deg]12'18.39'' W. This Class D airspace area is
effective during the specific dates and times established in advance
by a Notice to Air Missions. The effective date and time will
thereafter be continuously published in the Chart Supplement.

Paragraph 6004. Class E Airspace Areas Designated as an Extension
to a Class D or Class E Surface Area.

* * * * *

AWP CA E4 Oxnard, CA [Removed]

Oxnard Airport, CA
    (Lat. 34[deg]12'03'' N, long. 119[deg]12'26'' W)
Camarillo VOR/DME
    (Lat. 34[deg]12'45'' N, long. 119[deg]05'39'' W)

Paragraph 6005. Class E Airspace Areas Extending Upward From 700
Feet or More Above the Surface of the Earth.

* * * * *

AWP CA E5 Oxnard, CA [New]

Oxnard Airport, CA
    (Lat. 34[deg]12'03'' N, long. 119[deg]12'26'' W)

    That airspace extending upward from 700 feet above the surface
within a 4.8-mile radius of the airport, and within 2 miles each
side of the 091[deg] bearing from the airport, extending from the
4.8-mile radius to 12.4 miles east of the airport, and within 1.8
miles each side of the 265[deg] bearing from the airport, extending
from the 4.8-mile radius to 6.5 miles west of Oxnard Airport.

    Issued in Des Moines, Washington, on August 17, 2022.
B.G. Chew,
Group Manager, Operations Support Group, Western Service Center.
[FR Doc. 2022-18106 Filed 8-23-22; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register: December 1, 2009 (Volume 229, Number 74)]
[Notices]
[Page 62857-62859]
[DOCID:fr01de09-145]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61061; File No. SR-NYSEArca-2009-44]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Partial Approval of a Proposed Rule Change, as Modified by Amendment
No. 4 Thereto, Expanding the Penny Pilot Program

November 24, 2009.

I. Introduction

    On May 15, 2009, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend its options trading rule to extend through December 31, 2010

and expand a program to quote certain options in smaller increments
(``Pilot Program'' or ``Pilot''). The proposed rule change was
published for comment in the Federal Register on May 27, 2009.\3\ The
Commission received nine comments letters in response to the initial
notice of this proposal.\4\ On August 19, 2009 and September 22, 2009,
the Exchange filed Amendment Nos. 1 and 3, respectively.\5\ Among other
things, in Amendment No. 3, the Exchange consented to a bifurcation of
the filing such that the portion of the proposed rule change proposing
to quote all series of IWM (iShares Russell 2000 Index Fund) and SPY
(SPDR S&P 500 ETF) in pennies would be subject to further notice and
comment prior to Commission action. On September 23, 2009, the
Commission solicited further comment on the proposed rule change, as
modified by Amendment Nos. 1 and 3, and simultaneously granted partial
approval to the proposed rule change, as modified by Amendment Nos. 1
and 3, on an accelerated basis.\6\ The Commission specifically
requested comment on NYSE Arca's proposal to quote all option series of
IWM and SPY in pennies. The Commission received two additional comment
letters in response to this further request for comments.\7\ On October
30, 2009, the Exchange filed Amendment No. 4 to the proposed rule
change.\8\ This Order approves the balance of the proposed rule change,
as modified by Amendment No. 4.\9\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59944 (May 20,
2009), 74 FR 25294 (May 27, 2009) (``Notice'').
    \4\ See letter from Stephen Schuler and Daniel Tierney, Managing
Members, Global Electronic Trading Company, dated June 10, 2009
(``GETCO Letter 1''); letter from Edward J. Joyce, President and
COO, Chicago Board Options Exchange, dated June 12, 2009 (``CBOE
Letter 1''); letter from Thomas Wittman, Vice President, The NASDAQ
OMX Group, Inc., dated June 12, 2009 (``Nasdaq Letter''); letter
from Christopher Nagy, Managing Director Order Routing Strategy, TD
Ameritrade, Inc., dated June 17, 2009 (``Ameritrade Letter'');
letter from Thomas F. Price, Managing Director, Securities Industry
and Financial Markets Association, dated June 17, 2009 (``SIFMA
Letter''); letter from Anthony J. Saliba, CEO, LiquidPoint LLC,
dated June 17, 2009 (``LiquidPoint Letter''); letter from Michael J.
Simon, Secretary, International Securities Exchange, LLC, dated June
23, 2009 (``ISE Letter''); letter from John Ingrill, Gerard Satur,
Karen Wendell, Managing Directors, UBS Securities LLC, dated June
30, 2009 (``UBS Letter''); and letter from Jerome Johnson, Vice
President, Market Development, BATS Exchange, Inc., dated August 28,
2009 (``BATS Letter''). See Notice, supra note 3.
    \5\ On September 22, 2009, the Exchange filed Amendment No. 2 to
the proposed rule change, which it withdrew on September 22, 2009.
    \6\ See Securities Exchange Act Release No. 60711 (September 23,
2009), 74 FR 49419 (September 28, 2009) (order granting partial
approval of SR-NYSEArca-2009-44, (``Order'')).
    \7\ See letter from John A. McCarthy, General Counsel, Global
Electronic Trading Company, to Elizabeth M. Murphy, Secretary,
Commission, dated October 19, 2009 (``GETCO Letter 2'') and letter
from Edward J. Joyce, President and Chief Operating Officer, Chicago
Board Options Exchange, Incorporated, to Elizabeth M. Murphy,
Secretary, Commission, dated October 15, 2009 (``CBOE Letter 2'').
    \8\ In Amendment No. 4, the Exchange proposes to move the start
date for quoting all options on IWM and SPY in one-cent increments
to February 1, 2010, to correspond with the second phase-in date for
additional classes in the Pilot. The Commission believes that
Amendment No. 4 is technical in nature and therefore not subject to
separate notice and comment.
    \9\ The Exchange has granted the Commission an extension of time
to act, until November 30, 2009.
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II. Description of the Proposal

    Currently, all seven options exchanges participate in the Pilot
Program, which is scheduled to expire on December 31, 2010. The minimum
variation for all classes included in the Pilot, except for QQQQ,\10\
is $0.01 for all quotations in option series that are quoted at less
than $3.00 per contract, and $0.05 for all quotations in option series
that are quoted at $3.00 or greater. Thus, the current minimum
increment for bids and offers in SPY and IWM is $0.01 for all options
series below $3.00 and $0.05 for all options series $3.00 and above.
The Exchange proposes to designate all options series of SPY and IWM as
eligible to quote and trade in $0.01 increments, regardless of premium
value, similar to QQQQ.
---------------------------------------------------------------------------

    \10\ Options on QQQQ are quoted in $0.01 increments for all
series.
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III. Discussion and Findings

    After careful review of the proposed rule change, Amendment Nos. 1,
3, and 4, the comment letters,\11\ and the NYSE Arca Response,\12\ the
Commission finds that the portion of the proposal to quote IWM and SPY
entirely in one-cent increments is consistent with the requirements of
the Act, and the rules and regulations thereunder that are applicable
to a national securities exchange. Specifically, the Commission finds
that the proposal is consistent with Section 6(b)(5) of the Act,\13\
which requires, among other things, that the rules of a national
securities exchange be designed 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.\14\
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    \11\ See supra notes 4 and 7.
    \12\ See letter from Janet M. Kissane, Senior Vice President--
Legal & Corporate Secretary, NYSE Arca, to Elizabeth M. Murphy,
Secretary, Commission, dated August 18, 2009.
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    In response to the initial notice of this proposal,\15\ the
Commission received several comment letters with respect to the portion
of the proposal that would allow quoting of all series of options on
IWM and SPY in one-cent increments.\16\ In response to the additional
request for comment, the Commission received two comment letters.\17\
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3.
    \16\ See CBOE Letter 1, GETCO Letter 1, and SIFMA Letter, supra
note 4.
    \17\ See GETCO Letter 2 and CBOE Letter 2, supra note 7.
---------------------------------------------------------------------------

    Two commenters do not support this aspect of NYSE Arca's proposal
and question NYSE Arca's basis for the proposal.\18\ In particular, one
commenter does not find persuasive NYSE Arca's rationale that because
IWM and SPY have more series trading at premiums between $3.00 and
$10.00, the $3.00 breakpoint should be eliminated, noting that only 11%
of IWM's national average daily volume and 18% of SPY's national
average daily volume is in series with premiums greater than $3.00.\19\
In its second comment letter, this commenter stated its belief that the
potential benefit to retail investors of eliminating the $3.00
breakpoint in these classes is small and does not outweigh the costs of
the proposed change.\20\ Specifically, the commenter estimates that
eliminating the $3.00 breakpoint in IWM and SPY would result in a 128%
increase in quote message traffic. In addition, the commenter believes
that investors are already receiving the benefits of penny quoting in
these two classes because the majority of volume and trades in these
two classes occurs in series that are already quoting in $0.01
increment.\21\ Finally, this commenter notes that they have not
observed pressure on the minimum increment in SPY and IWM in series
priced at $3.00 and above.\22\
---------------------------------------------------------------------------

    \18\ See CBOE Letter 1, supra note 4, at 2-3, and SIFMA Letter,
supra note 4, at 5.
    \19\ See CBOE Letter 1, supra note 4, at 3. This commenter
further noted that the average spread width in series with a premium
$3.00 or greater is $0.27 for SPY and $0.25 for IWM. Id.
    \20\ See CBOE Letter 2, supra note 7, at 1.
    \21\ See id. at 2.
    \22\ See id. at 2.
---------------------------------------------------------------------------

    One commenter supports NYSE Arca's proposal to eliminate a
breakpoint for options on these two exchange-traded funds, as a way to
expand the benefits of penny quoting to more options.\23\ In its second
comment letter, this commenter reiterates its

strong support of NYSE Arca's proposal.\24\ This commenter believes
that all option series of SPY and IWM are well suited to quoting in
penny increments and provides data supporting the elimination of
breakpoints with respect to SPY and IWM. Specifically, the commenter
compared effective spreads in options on IWM, SPY, and QQQQ and found
that the size of the effective spreads for options on IWM and SPY
increased markedly at the $3.00 breakpoint, as compared to options on
QQQQ. This commenter also compared effective spreads for options on
IWM, SPY, and QQQQ when quoted in one-cent increments with effective
spreads for SPY and IWM when quoted in five-cent increments. The
results show that the size of the quoting increment appears to be a
significant determinant of the width of the effective spreads.\25\
---------------------------------------------------------------------------

    \23\ See GETCO Letter 1, supra note 4, at 2-3.
    \24\ See GETCO Letter 2, supra note 7, at 1-2.
    \25\ Id. at 3-4.
---------------------------------------------------------------------------

    The Commission believes that NYSE Arca's proposal is consistent
with the Act because allowing market participants to quote in smaller
increments has been shown to reduce spreads, thereby lowering costs to
investors. The reduction in the minimum quoting increment has resulted
in narrowing the average quoted spreads in options included in the
Pilot.\26\ Permitting all series in options on IWM and SPY to be quoted
in smaller increments will provide the opportunity for reduced spreads
for a significant amount of trading volume.\27\ The Commission believes
that the proposed rule change, which will allow quoting in one-cent
increments for all series in options on IWM and SPY, is designed to
allow the continuing narrowing of spreads.\28\
---------------------------------------------------------------------------

    \26\ See Memorandum from J. Daniel Aromi, Office of Economic
Analysis (``OEA''), to Heather Seidel, Assistant Director, Division
of Trading and Markets, Commission, dated July 24, 2009.
    \27\ OEA staff estimated that for a four month period earlier
this year, approximately 40.9 million contracts for SPY and
approximately 4.5 million contracts for IWM traded at premia of
$3.00 or greater, as compared to approximately 2.7 million contracts
for QQQQ that traded at premia of $3.00 or greater. See Memorandum
from J. Daniel Aromi, OEA, to Heather Seidel, Assistant Director,
Division of Trading and Markets, Commission, dated August 14, 2009
(measuring from February 2, 2009 to May 27, 2009). These numbers
represent approximately 29% of contract volume for SPY and 18% of
contract volume for IWM. The Commission specifically requested
comment on these findings. See Order, supra note 6.
    \28\ One commenter stated that ``full access to penny increments
provides investors with more flexibility to compete and determine
the natural spread for each security independently.'' This commenter
further stated that ``penny pricing gives market participants the
flexibility to trade with spreads at six or eleven cents wide, as
much as it facilitates trading in one or two cent spreads.'' This
commenter explained that even if spreads in a Pilot class increase,
quoting in pennies mitigates the increase. For example, the
commenter noted that CBOE's March Report showed that for the period
August 1, 2008 through January 31, 2009, the average spread in OIH
options increased from $0.13 to $0.19. The commenter pointed out
that if this class were not quoting in pennies, the $0.06 increase
in the spread could have been a $0.10 increase. See BATS Letter,
supra note 4, at 1-2.
---------------------------------------------------------------------------

    Further, although the Pilot has contributed to the increase in
quote message traffic, it has been manageable by the exchanges and the
Options Price Reporting Authority, and the Commission has not received
any reports of disruptions in the dissemination of pricing information.
As noted in the Order, although the Commission anticipates that NYSE
Arca's proposal, including that portion proposing to quote and trade
all series of options on SPY and IWM, will contribute to further
increases in quotation message traffic, the Commission believes that
NYSE Arca's proposal is sufficiently limited such that it is unlikely
to increase quotation message traffic beyond the capacity of market
participants' systems and disrupt the timely receipt of information.
    The Commission believes that eliminating the $3.00 breakpoint in
options on IWM and SPY will result in additional meaningful data from
which to analyze the impact of quoting and trading entirely in one-cent
increments. Currently, only one class, the QQQQ, quotes and trades all
series in one-cent increments. The Commission believes that allowing
two additional classes to quote and trade all series in pennies may
provide valuable information, useful to future analysis of the Penny
Pilot.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 4, including whether Amendment No. 4
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 e-mail to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2009-44 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-NYSEArca-2009-44. This
file number should be included on the subject line if e-mail 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 inspection
and copying in the Commission's Public Reference Room, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of such 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 No. SR-NYSEArca-2009-44 and should be
submitted on or before December 22, 2009.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\29\ that the proposed rule change (SR-NYSEArca-2009-44) as
modified by Amendment No. 4, be, and hereby is, partially approved, as
discussed above.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(2).
    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-28680 Filed 11-30-09; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 83, Number 203 (Friday, October 19, 2018)]
[Notices]
[Pages 53124-53127]
[FR Doc No: 2018-22775]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84425; File No. SR-NASDAQ-2018-050]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
No. 1, Relating to the First Trust Senior Loan Fund of First Trust
Exchange-Traded Fund IV

October 15, 2018.

I. Introduction

    On June 27, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change relating to the First Trust Senior Loan Fund
(``Fund'') of First Trust Exchange-Traded Fund IV, the shares
(``Shares'') of which have been approved by the Commission for listing
and trading under Nasdaq Rule 5735 (``Managed Fund Shares''). The
proposed rule change was published for comment in the Federal Register
on July 17, 2018.\3\ On August 30, 2018, pursuant to Section 19(b)(2)
of the Act,\4\ the Commission designated a longer period within which
to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On October 11, 2018, the Exchange filed
Amendment No. 1 to the proposed rule change, which replaced and
superseded the original filing in its entirety.\6\ The Commission has
received no comments on the proposed rule change. This order grants
approval of the proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83618 (July 11,
2018), 83 FR 33277.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 84003, 83 FR 45289
(September 6, 2018). The Commission designated October 15, 2018 as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
    \6\ In Amendment No. 1, the Exchange: (i) Represented that the
Adviser will not implement the proposed changes until a post-
effective amendment to the Registration Statement that, to the
extent necessary, reflects such changes is effective; (ii) clarified
the descriptions of the Primary Index and the Secondary Index; (iii)
clarified that the Fund may not meet the criteria in Nasdaq Rules
5705(b)(4)(A)(i), 5705(b)(4)(A)(iii), and 5705(b)(4)(A)(vi); (iv)
clarified the description of secondary loan trading volume; (v)
clarified that Received Instruments will be equity, warrants,
corporate bonds, and other such equity and fixed income securities;
(vi) represented that the Exchange would communicate as needed
regarding trading in the Shares and the exchange-listed instruments
held by the Fund with other markets and other entities that are
members of the Intermarket Surveillance Group (``ISG''), and that
the Exchange may obtain information regarding trading in the Shares
and the exchange-listed instruments held by the Fund from markets
and other entities with which it has in place a comprehensive
surveillance sharing agreement; and (vii) made technical and
conforming changes. Because Amendment No. 1 does not materially
alter the substance of the proposed rule change or raise unique or
novel regulatory issues, it is not subject to notice and comment.
Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2018-050/srnasdaq2018050-4509572-175991.pdf.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1 \7\
---------------------------------------------------------------------------

    \7\ For more information regarding the Fund and the Shares, see
Amendment No. 1, supra note 6.
---------------------------------------------------------------------------

    The Commission previously approved the listing and trading of the
Shares of the Fund.\8\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release Nos. 69072 (March 7,
2013), 78 FR 16006 (March 13, 2013) (``Prior Notice'') and 69464
(April 26, 2013), 78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036)
(``Prior Order'' and, together with the Prior Notice, the ``Prior
Release''). First Trust Advisors L.P. (``Adviser'') represents that
it will not implement the proposed changes until (i) the proposed
rule change is operative and (ii) a post-effective amendment to the
Registration Statement that, to the extent necessary, reflects such
changes is effective.
---------------------------------------------------------------------------

    The Exchange is proposing to: (i) Amend the definition of the term
``under normal market conditions;'' (ii) permit the Fund to invest a
limited amount of its net assets in Senior Loans \9\ and other floating
rate loans that are in default (``Defaulted Loans''); and (iii) modify
the Fund's ability to retain various instruments that, although not
specifically selected by the Adviser, may be received by the Fund under
certain circumstances. Except as provided in the Exchange's current
proposal, all other representations made in the Prior Notice remain
unchanged.
---------------------------------------------------------------------------

    \9\ As stated in the Prior Notice, the Adviser considers Senior
Loans to be first lien senior secured floating rate bank loans. The
Prior Notice included certain descriptions of Senior Loans and the
Senior Loan market, and the Exchange provides updated descriptions
in the current proposal.
---------------------------------------------------------------------------

A. Definition of ``Under Normal Market Conditions''

    The Prior Notice stated that the Fund, under normal market
conditions, would seek to outperform the S&P/LSTA U.S. Leveraged Loan
100 Index (``Primary Index'') and the Markit iBoxx USD Liquid Leveraged
Loan Index (``Secondary Index'') by investing at least 80% of its net
assets (plus any borrowings for investment purposes) in Senior Loans.
The Prior Notice defined ``under normal market conditions'' as follows:

    The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the fixed income markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. In periods of
extreme market disturbance, the Fund may take temporary defensive
positions, by overweighting its portfolio in cash/cash-like
instruments; however, to the extent possible, the Adviser would
continue to seek to achieve the Fund's investment objective.
Specifically, the Fund would continue to invest in Senior Loans (as
defined herein). In response to prolonged periods of constrained or
difficult market conditions the Adviser will likely focus on
investing in the largest and most liquid loans available in the
market.

The Exchange proposes to amend the definition of ``under normal market
conditions'' as follows:

    The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the fixed income markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. The Fund may
adopt a defensive strategy (and depart from its principal investment
strategies) when the Adviser believes securities in which the Fund
normally invests have elevated risks due to political or economic
factors and in other extraordinary circumstances. In addition, on a
temporary basis, including for defensive purposes,

during periods of extreme market disturbance and during periods of
high cash inflows or outflows (i.e., rolling periods of seven
calendar days during which inflows or outflows of cash, in the
aggregate, exceed 10% of the Fund's net assets as of the opening of
business on the first day of such periods), the Fund may depart from
its principal investment strategies; for example, it may hold a
higher than normal proportion of its assets in cash. Under the
circumstances described in the prior two sentences, the Fund may not
be able to achieve its investment objectives; however, to the extent
possible, the Adviser would continue to seek to achieve the Fund's
investment objectives by continuing to invest in Senior Loans (as
defined herein). In response to prolonged periods of constrained or
difficult market conditions the Adviser will likely focus on
investing in the largest and most liquid loans available in the
market.

B. Investments in Defaulted Loans

    In the Prior Notice, the Exchange represented that the Adviser does
not intend to purchase Senior Loans that are in default, but the Fund
may hold a Senior Loan that has defaulted subsequent to its purchase by
the Fund. In discussing the Fund's other investments, the Exchange also
represented that the Fund will not invest in floating rate loans of
companies whose financial condition is troubled or uncertain and that
have defaulted on current debt obligations, as measured at the time of
investment.
    The Exchange proposes to permit the Fund to invest a limited
portion of its net assets in Senior Loans and other floating rate loans
that are in default. As proposed, Defaulted Loans would comprise no
more than 15% of the Fund's net assets, as determined at the time of
purchase (``15% Limitation''). If, subsequent to being purchased or
otherwise obtained by the Fund, a Senior Loan or other floating rate
loan defaults, the Fund may continue to hold such Senior Loan or other
floating rate loan without regard to the 15% Limitation; however, such
Senior Loan or other floating rate loan would be considered a Defaulted
Loan for purposes of determining whether the Fund's purchase of
additional Defaulted Loans would comply with the 15% Limitation.\10\
---------------------------------------------------------------------------

    \10\ The Exchange also proposes to make conforming changes to
the descriptions in the Prior Notice regarding the characteristics
of borrowers that will be included in the Fund. In particular, the
Exchange proposes the following revised ``Credit Metrics
Representation'': ``As a general matter, the Fund will include
borrowers that the Adviser believes have strong credit metrics,
based on its evaluation of cash flows, collateral coverage and
management teams.'' The Exchange also proposes the following revised
``Senior Loan/Other Debt Representations'': ``As a general matter,
the Adviser intends to invest in Senior Loans or other debt of
companies that it believes have developed strong positions within
their respective markets and exhibit the potential to maintain
sufficient cash flows and profitability to service their obligations
in a range of economic environments. The Adviser will generally seek
to invest in Senior Loans or other debt of companies that it
believes possess advantages in scale, scope, customer loyalty,
product pricing, or product quality versus their competitors,
thereby minimizing business risk and protecting profitability. As a
general matter, the Adviser will seek to invest in Senior Loans or
other debt of established companies it believes have demonstrated a
record of profitability and cash flows over several economic cycles.
The Adviser does not generally intend to invest in Senior Loans or
other debt of primarily start-up companies, companies in turnaround
situations or companies with speculative business plans; however, it
may invest in such companies from time to time. As a general matter,
the Adviser intends to focus on investments in which the Senior
Loans or other debt of a target company has an experienced
management team with an established track record of success. The
Adviser will generally require companies to have in place proper
incentives to align management's goals with the Fund's goals.''
---------------------------------------------------------------------------

C. Received Instruments

    As described in the Prior Notice, the Fund may receive equity,
warrants, corporate bonds and other such securities \11\ (collectively,
``Received Instruments'') as a result of the restructuring of the debt
of an issuer, or a reorganization of a senior loan or bond, or acquired
together with a high yield bond or senior loan(s) of an issuer
(collectively, ``Received Instruments Triggers''). These investments
are subject to the Fund's investment objectives, restrictions, and
strategies.
---------------------------------------------------------------------------

    \11\ The Exchange states in the current proposal that Received
Instruments will be either equity or fixed income securities.
---------------------------------------------------------------------------

a. Received Instruments Triggers
    The Exchange proposes to modify the Received Instruments Triggers
to provide that the Fund may receive Received Instruments (i) in
conjunction with the restructuring or reorganization, as applicable, of
an issuer or any debt issued by an issuer, whether accomplished within
or outside of a bankruptcy proceeding under 11 U.S.C. 101 et seq. (or
any other similar statutory restructuring or reorganization proceeding)
or (ii) together with one or more Senior Loans (or other debt
instruments) of an issuer.
b. Equity and Equity-Like Instruments and Interests
    The Prior Notice stated that except for investments in exchange-
traded funds that may hold non-U.S. issues, the Fund would not
otherwise invest in non-U.S. equity issues (``Non-U.S. Equity
Restriction''). The Prior Notice also stated that the equity securities
in which the Fund may invest would be limited to securities that trade
in markets that are members of the ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange (``ISG
Restriction'').
    The Exchange proposes to permit the Fund to retain, without regard
to the Non-U.S. Equity Restriction or the ISG Restriction, Received
Instruments that would encompass a broad range of U.S. and non-U.S.
equity and equity-like positions and interests (``Equity-Based Received
Instruments''). As proposed, Equity-Based Received Instruments means
any one or more of the following (whether received individually or as
part of a unit or package of securities and/or other instruments): (i)
Common and preferred equity interests in corporations; (ii) membership
interests (e.g., in limited liability companies), partnership
interests, and interests in other types of entities (e.g., state law
business trusts and real estate investment companies); (iii) warrants;
(iv) Tax Receivable Agreement (TRA) rights; (v) claims (generally,
rights to payment, which can come in various forms, including without
limitation claims units and claims trusts); (vi) trust certificates
representing an interest in a trust established under a confirmed plan
of reorganization; (vii) interests in liquidating, avoidance, or other
types of trusts; (viii) interests in joint ventures; and (ix) rights to
acquire any of the Equity-Based Received Instruments described in
clauses (i) through (viii).\12\ As proposed, the Fund's aggregate
holdings in (i) Received Instruments that are not Senior Loans and (ii)
Received Instruments that are Senior Loans and do not satisfy the Par
Amount Representation (as defined below) would be limited to 20% of the
Fund's net assets. The Exchange also represents that the Fund would not
hold more than 20% of its net assets in Equity-Based Received
Instruments and that the Adviser expects that, generally, over time,
significantly less than 20% of the Fund's net assets would be comprised
of Equity-Based Received Instruments.
---------------------------------------------------------------------------

    \12\ The Fund may be entitled to acquire additional Equity-Based
Received Instruments by exercising warrants (included in clause
(iii)) and/or rights (included in clause (ix)). The Fund's ability
to retain Equity-Based Received Instruments that it acquires by
exercising such warrants and/or rights will be the same as its
ability to retain Equity-Based Received Instruments that it
otherwise receives.
---------------------------------------------------------------------------

c. Convertible Securities/Debt Instruments
    In the Prior Notice, the Exchange represented that each of the
Fund's Senior Loan investments was expected to have no less than $250
million par outstanding (``Par Amount

Representation'').\13\ The Exchange also represented that the Fund
would not typically invest in convertible securities, but that should
the Fund make such investments, the Adviser would direct the Fund to
divest any converted equity security as soon as practicable
(``Convertible Securities Restriction'').
---------------------------------------------------------------------------

    \13\ The Par Amount Representation also includes the
representation from the Prior Notice that the Fund may invest in
Senior Loans borrowed by entities that would not meet the criteria
set forth in Nasdaq Rule 5705(b)(4)(A)(vi) provided the borrower has
at least $250 million outstanding in Senior Loans.
---------------------------------------------------------------------------

    The Exchange proposes to permit the Fund to retain Received
Instruments in its portfolio, without regard to the Par Amount
Representation or the Convertible Securities Restriction.\14\ Further,
the Exchange proposes to permit the Fund to continue to retain in its
portfolio Received Instruments that are convertible securities after
such securities have converted (i.e., as Equity-Based Received
Instruments) without regard to the Convertible Securities Restriction,
the Non-U.S. Equity Restriction, or the ISG Restriction. Consistent
with the Prior Release, Received Instruments that are convertible
securities, bonds, loans, or other debt instruments of any type may be
issued by U.S. and/or non-U.S. issuers. As noted above, the Fund would
not hold more than 20% of its net assets in the aggregate in (i)
Received Instruments that are not Senior Loans and (ii) Received
Instruments that are Senior Loans and do not satisfy the Par Amount
Representation.
---------------------------------------------------------------------------

    \14\ Also, neither the Credit Metrics Representation (as
modified) nor the Senior Loan/Other Debt Representations (as
modified) would preclude the Fund from retaining Received
Instruments.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\15\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with Section 6(b)(5) of the Act,\16\ which requires, among other
things, that the Exchange's rules be designed to prevent fraudulent and
manipulative acts and practices, 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.
---------------------------------------------------------------------------

    \15\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed definition of ``under
normal market conditions'' would provide flexibility under certain
conditions where the Adviser may find that it is appropriate for the
Fund to depart from its principal investment strategies, which could
potentially help the Fund to mitigate risks that may accompany these
conditions.\17\
---------------------------------------------------------------------------

    \17\ In particular, the proposal would provide flexibility to
the Adviser when the Adviser believes that the securities in which
the Fund normally invests have elevated risks due to political or
economic factors, in other extraordinary circumstances, and during
periods of high cash inflows or outflows. The Commission notes that
the proposed definition is consistent with the definitions from
other recently approved proposals. See Securities Exchange Act
Release Nos. 80745 (May 23, 2017), 82 FR 24755 (May 30, 2017) (SR-
NASDAQ-2017-033) (order approving listing and trading of First Trust
California Municipal High Income ETF) and 78913 (September 23,
2016), 81 FR 69109 (October 5, 2016) (SR-NASDAQ-2016-002) (order
approving listing and trading of First Trust Municipal High Income
ETF).
---------------------------------------------------------------------------

    With respect to the aspect of the proposal that would permit the
Fund to invest a portion of its net assets in Defaulted Loans, the
Commission believes that the proposal would provide the Adviser with
additional flexibility, but would be limited in scope. As discussed
above, Defaulted Loans would be subject to the 15% Limitation. If,
subsequent to being purchased or otherwise obtained by the Fund, a
Senior Loan or other floating rate loan defaults, the Fund may continue
to hold such Senior Loan or other floating rate loan without regard to
the 15% Limitation; however, such Senior Loan or other floating rate
loan would be considered a Defaulted Loan for purposes of determining
whether the Fund's purchase of additional Defaulted Loans would comply
with the 15% Limitation.\18\
---------------------------------------------------------------------------

    \18\ The Commission notes that, currently, the Fund may continue
to hold Senior Loans that default subsequent to being purchased by
the Fund. The Commission also notes that it has previously approved
the listing and trading of other funds that could invest a portion
of their assets in defaulted securities. See, e.g., Securities
Exchange Act Release Nos. 80946 (June 15, 2017), 82 FR 28126 (June
20, 2017) (SR-NASDAQ-2017-039) (order approving listing and trading
of Guggenheim Limited Duration ETF); 80865 (June 6, 2017), 82 FR
26970 (June 12, 2017) (SR-NYSEArca-2017-48) (order approving listing
and trading of Franklin Liberty Intermediate Municipal Opportunities
ETF); 80745 (May 23, 2017), 82 FR 24755 (May 30, 2017) (SR-NASDAQ-
2017-033) (order approving listing and trading of First Trust
California Municipal High Income ETF); 78913 (September 23, 2016),
81 FR 69109 (October 5, 2016) (SR-NASDAQ-2016-002) (order approving
listing and trading of First Trust Municipal High Income ETF); and
68972 (February 22, 2013), 78 FR 13721 (February 28, 2013) (SR-
NASDAQ-2012-147) (order approving listing and trading of First Trust
High Yield Long/Short ETF).
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    As discussed above, the Exchange also proposes to amend the
Received Instruments Triggers and to permit the Fund to retain a
limited amount of Received Instruments. The Commission notes that the
Fund's ability to retain Received Instruments would be limited in
scope. As discussed above, the Fund's aggregate holdings in (a)
Received Instruments that are not Senior Loans and (b) Received
Instruments that are Senior Loans and do not satisfy the Par Amount
Representation would be limited to 20% of the Fund's net assets.\19\
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    \19\ As a result, although it is possible that the Fund's
holdings may include certain Received Instruments that are Senior
Loans that do not satisfy the Par Amount Representation, at least
80% of the Fund's net assets will be comprised of Senior Loans that
do satisfy the Par Amount Representation. Similarly, as discussed
above, Equity-Based Received Instruments would comprise no more than
20% of the Fund's net assets and the Adviser expects that,
generally, over time, significantly less than 20% of the Fund's net
assets would be comprised of Equity-Based Received Instruments.
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    The Commission notes that the Exchange does not propose to change
the Fund's investment objectives and, except as provided in the current
proposal, all other representations made in the Prior Notice would
remain unchanged. The Commission notes that, notwithstanding the
proposed changes, the Exchange anticipates that the Fund, in accordance
with its principal investment strategy, would continue to invest
approximately 50% to 75% of its net assets in Senior Loans that are
eligible for inclusion in and meet the liquidity thresholds of the
Primary Index and/or the Secondary Index.\20\ Moreover, the aggregate
amount of the Fund's net assets permitted to be held in illiquid
securities (calculated at the time of investment), including Rule 144A
securities, junior subordinated loans, and unsecured loans deemed
illiquid by the Adviser, would continue to be limited to 15%.\21\ In
addition, except for the generic listing standards

under Nasdaq Rule 5735(b)(1) \22\ and as otherwise provided in the
current proposal, the Fund and the Shares would continue to comply with
the requirements applicable to Managed Fund Shares under Nasdaq Rule
5735.
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    \20\ The Exchange provided descriptions of the eligibility
criteria for the Primary Index and the Secondary Index in the Prior
Notice and updates certain of those descriptions in the current
proposal.
    \21\ The Exchange also represents that the proposed changes
would not conflict with the Fund's investment objectives or overall
investment strategies, or be inconsistent with the Adviser's overall
approach to managing the Fund. According to the Exchange, in
selecting securities for the Fund, the Adviser would continue to
seek to construct a portfolio of loans that it believes is less
volatile than the general loan market. In addition, when making
investments, the Adviser would continue to seek to maintain
appropriate liquidity and price transparency for the Fund, and the
key considerations of portfolio construction would continue to
include liquidity, diversification, and relative value.
    \22\ The Fund would continue to generally satisfy the generic
fixed income listing requirements in Nasdaq Rule 5705(b)(4) on a
continuous basis measured at the time of purchase, subject to
certain exceptions and modifications described in the Prior Notice
and the current proposal. In particular, the Fund may not meet the
criteria in Nasdaq Rules 5705(b)(4)(A)(i) and 5705(b)(4)(A)(iii),
and the Prior Notice permitted a modification to the criteria under
Nasdaq Rule 5705(b)(4)(A)(vi).
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    The Commission also finds that the proposal is consistent with
Section 11A(a)(1)(C)(iii) of the Act,\23\ which sets forth Congress's
finding that it is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly markets
to assure the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities. As proposed, intra-day executable price quotations for the
Senior Loans, fixed income securities, and other assets (including any
Received Instruments and Defaulted Loans) held by the Fund would be
available from major broker-dealer firms and/or market data vendors
(and/or, if applicable, on the exchange on which they are traded).
Intra-day price information for the holdings of the Fund would be
available through subscription services, such as Markit, Bloomberg, and
Thomson Reuters, which can be accessed by authorized participants and
other investors, and/or from independent pricing services.
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    \23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    On each business day, before commencement of trading in Shares in
the Regular Market Session on the Exchange, the Fund would continue to
disclose on www.ftportfolios.com the Disclosed Portfolio (as defined in
Nasdaq Rule 5735(c)(2)) that will form the basis for the Fund's
calculation of net asset value (``NAV'') at the end of the business
day. NAV per Share would continue to be calculated daily, and the NAV
and the Disclosed Portfolio would continue to be made available to all
market participants at the same time. Further, the Intraday Indicative
Value (as defined in Nasdaq Rule 5735(c)(3)) for the Fund would
continue to be widely disseminated by one or more major market data
vendors and broadly displayed at least every 15 seconds during the
Regular Market Session.
    In support of this proposal, the Exchange also represents that
trading in the Shares will be subject to the existing trading
surveillances, administered by both the Exchange and the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws,\24\ and these procedures are
adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and applicable federal securities laws. FINRA, on behalf of the
Exchange, and the Exchange would communicate as needed regarding
trading in the Shares and the exchange-listed instruments held by the
Fund (including exchange-listed Equity-Based Received Instruments (if
any) and any other exchange-listed equity securities) with other
markets and other entities that are members of ISG. FINRA and the
Exchange both may obtain trading information regarding trading in the
Shares and such exchange-listed instruments held by the Fund from
markets and other entities that are members of ISG, which include
securities exchanges. The Exchange may also obtain information
regarding trading in the Shares and such exchange-listed instruments
held by the Fund from markets and other entities with which it has in
place a comprehensive surveillance sharing agreement. Moreover, FINRA,
on behalf of the Exchange, would be able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine.
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    \24\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement, and the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
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    The Exchange represents that all statements and representations
made in the filing regarding (a) the description of the portfolio or
reference assets, (b) limitations on portfolio holdings or reference
assets, (c) dissemination and availability of the reference asset or
intraday indicative values, or (d) the applicability of Exchange
listing rules shall constitute continued listing requirements for
listing the Shares on the Exchange. In addition, the issuer has
represented to the Exchange that it will advise the Exchange of any
failure by the Fund to comply with the continued listing requirements,
and, pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor \25\ for compliance with the continued listing
requirements. If the Fund is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under the Nasdaq 5800 Series.
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    \25\ The Commission notes that certain proposals for the listing
and trading of exchange-traded products include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
77499 (April 1, 2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-
2016-04). In the context of this representation, it is the
Commission's view that ``monitor'' and ``surveil'' both mean ongoing
oversight of compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
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    This approval order is based on all of the Exchange's
representations, including those set forth above and in Amendment No.
1.
    For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act \26\ and Section 11A(a)(1)(C)(iii) of the Act \27\
and the rules and regulations thereunder applicable to a national
securities exchange.
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    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-NASDAQ-2018-050), as
modified by Amendment No. 1 be, and hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22775 Filed 10-18-18; 8:45 am]
 BILLING CODE 8011-01-P