[Federal Register Volume 86, Number 88 (Monday, May 10, 2021)]
[Notices]
[Pages 25026-25033]
[FR Doc No: 2021-09774]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91767; File No. SR-CBOE-2021-029]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Increase Position Limits for
Options on Certain Exchange-Traded Funds and an Exchange-Traded Note

May 4, 2021.
    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 April 21, 2021, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III 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

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to increase position limits for options on certain exchange-traded
funds (``ETFs'') and exchange-traded notes (``ETNs''). The text of the
proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, 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
    Position limits are designed to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. While
position limits should address and discourage the potential for
manipulative schemes and adverse market impact, if such limits are set
too low, participation in the options market may be discouraged. The
Exchange believes that position limits must therefore be balanced
between mitigating concerns of any potential manipulation and the cost
of inhibiting potential hedging activity that could be used for
legitimate economic purposes.
    The Exchange has observed an ongoing increase in demand, for both
trading and hedging purposes, in options on the following exchange-
traded products (``ETPs''): (1) SPDR Gold Shares (``GLD''), (2) iShares
Silver Trust (``SLV''), (3) iShares iBoxx $ Investment Grade Corporate
Bond ETF (``LQD''), (4) VanEck Vectors Gold Miners ETF (``GDX''), (5)
iPath S&P 500 VIX Short-Term Futures ETN (``VXX''), and (6) ProShares
Ultra VIX Short-Term Futures ETF (``UVXY'', and collectively, with the
aforementioned ETFs, the ``Underlying ETPs''). Though the demand for
these options appears to have increased, position limits for options on
the Underlying ETPs have remained the same. The Exchange believes these
unchanged position limits may have impeded, and may continue to impede,
trading activity and strategies of investors, such as use of effective
hedging vehicles or income generating strategies (e.g., buy-write or
put-write), and the ability of Market-Makers to make liquid markets
with tighter spreads in these options resulting in the transfer of
volume to over-the-counter (``OTC'') markets. OTC transactions occur
through bilateral agreements, the terms of which are not publicly
disclosed to the marketplace. As such, OTC transactions do not
contribute to the price discovery process on a public exchange or other
lit markets. Therefore, the Exchange believes that the proposed
increases in

position limits for options on the Underlying ETPs may enable liquidity
providers to provide additional liquidity to the Exchange and other
market participants to transfer their liquidity demands from OTC
markets to the Exchange. As described in further detail below, the
Exchange believes that the continuously increasing market
capitalization of the Underlying ETPs, ETP component securities, as
well as the highly liquid markets for those securities, reduces the
concerns for potential market manipulation and/or disruption in the
underlying markets upon increasing position limits, while the rising
demand for trading options on the Underlying ETPs for legitimate
economic purposes compels an increase in position limits.
Proposed Position Limits for Options on the Underlying ETPs
    Position limits for options on ETPs are determined pursuant to Rule
8.30 and vary according to the number of outstanding shares and the
trading volumes of the underlying stocks or ETPs over the past six
months. Pursuant to Rule 8.30, the largest in capitalization and the
most frequently traded stocks and ETPs have an option position limit of
250,000 contracts (with adjustments for splits, re-capitalizations,
etc.) on the same side of the market; and smaller capitalization stocks
and ETPs have position limits of 200,000, 75,000, 50,000 or 25,000
contracts (with adjustments for splits, re-capitalizations, etc.) on
the same side of the market. Options on GLD, SLV, LQD, GDX, VXX and
UVXY are currently subject to the standard position limit of 250,000
contracts as set forth in Rule 8.30. Rule 8.30.07 sets forth separate,
higher position limits for options on specific ETPs. The Exchange
proposes to amend Rule 8.30.07 to increase the position limits and, as
a result, exercise limits, for options on each of GLD, SLV, LQD,GDX,
VXX and UVXY.\3\ The table below represents the current, and proposed,
position limits for options on the ETPs subject to this proposal:
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    \3\ By virtue of [sic] 8.42.02, which is not being amended by
this filing, the exercise limits for GLD, SLV, LQD, GDX, VXX and
UVXY options would be similarly increased.

------------------------------------------------------------------------
                                              Current        Proposed
                 Product                     position        position
                                               limit           limit
------------------------------------------------------------------------
GLD.....................................         250,000       1,000,000
SLV.....................................         250,000         500,000
LQD.....................................         250,000         500,000
GDX.....................................         250,000         500,000
VXX.....................................         250,000         500,000
UVXY....................................         250,000         500,000
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    The Exchange notes that the proposed position limit for options on
GLD is consistent with existing position limits for options on the
iShares Russell 2000 ETF (``IWM''), the iShares MSCI Emerging Markets
ETF (``EEM''), iShares China Large-Cap ETF (``FXI'') and iShares MSCI
EAFE ETF (``EFA''), while the proposed limits for options on LQD, SLV
and GDX are consistent with current position limits for options on the
iShares MSCI Brazil Capped ETF (``EWZ''), iShares 20+ Year Treasury
Bond Fund ETF (``TLT''), iShares MSCI Japan ETF (``EWJ''), iShares
iBoxx High Yield Corporate Bond Fund (``HYG'') and Financial Select
Sector SPDR Fund (``XLF''). The Exchange represents that the Underlying
ETPs qualify for either (1) the initial listing criteria set forth in
Rule 4.3.06(c) for ETFs holding non-U.S. component securities, (2)
generic listing standards for series of portfolio depository receipts
and index fund shares based on international or global indexes under
which a comprehensive surveillance agreement (``CSA'') is not required,
or (3) the initial listing criteria set forth in Rule 4.3.13(c) for
ETNs (or, Index-Linked Securities), as well as the continued listing
criteria in Rule 4.4 (for ETFs) \4\ and Rule 4.4.14 (for ETNs). In
compliance with its listing rules, the Exchange also represents that
non-U.S. component securities that are not subject to a comprehensive
surveillance agreement (``CSA'') do not, in the aggregate, represent
more than more than 50% of the weight of any of the Underlying ETPs
that are ETFs.\5\
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    \4\ The Exchange notes that the initial listing criteria for
options on ETFs that hold non-U.S. component securities are more
stringent than the maintenance listing criteria for those same ETF
options. See Rule 4.3.06(c); Rule 4.4.06.
    \5\ See Rule 4.3.06(c).
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Composition and Growth Analysis for Underlying ETPs
    As stated above, position (and exercise) limits are intended to
prevent the establishment of options positions that can be used to or
potentially create incentives to manipulate the underlying market so as
to benefit options positions. The Securities and Exchange Commission
(the ``Commission'') has recognized that these limits are designed to
minimize the potential for mini-manipulations and for corners or
squeezes of the underlying market, as well as serve to reduce the
possibility for disruption of the options market itself, especially in
illiquid classes.\6\ The Underlying ETPs, as well as the ETP
components, are highly liquid and are based on a broad set of highly
liquid securities and other reference assets, as demonstrated through
the trading statistics presented in this proposal. To support the
proposed position limit increases, the Exchange considered the
liquidity of the Underlying ETPs, the value of the underlying
securities or index components and relevant marketplace, the share and
option volume for the Underlying ETPs, and, where applicable, the
availability or comparison of economically equivalent products to
options on the Underlying ETPs.
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    \6\ See Securities Exchange Act Release No. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).

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    The Exchange has collected the following trading statistics
regarding shares of and options on the Underlying ETPs and the values
of the Underlying ETPs and their component securities or index
components, as applicable:

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                                                 ADV \7\ (ETF                             Shares        Fund  market cap
                   Product                         shares)          ADV (option        outstanding      (USD) (millions)      Share value \10\ (USD)
                                                  (millions)         contracts)       (millions) \8\          \9\
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GLD.........................................               12.3            257,700             354.30           70,195.7  161.71 (NAV).
SLV.........................................               33.1            376,700              619.3           14,228.4  22.57 (NAV).
LQD.........................................               14.1             30,300              308.1           54,113.7  130.13 (NAV).
GDX.........................................               39.4            166,000              419.8           16,170.5  33.80 (NAV).
VXX.........................................               39.3            289,800              110.8             1,023.  10.31 (Closing Indicative
                                                                                Value).
UVXY........................................               29.3            113,500              228.7            1,580.6  4.85 (NAV).
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    The Exchange has collected the same trading statistics, where
applicable, as above regarding a sample of other ETPs, as well as the
current position limits for options on such ETPs pursuant to Rule
8.30.07, to draw comparisons in support of proposed position limit
increases for options on the Underlying ETPs (see further discussion
below):
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    \7\ Average daily volume (ADV) data for ETP shares and option
contracts, as well as for ETF shares and options on the comparative
ETFs presented below, are for all of 2020. Additionally, reference
to ADV in ETP shares and ETP options, and indexes herein this
proposal are for all of calendar year 2020, unless otherwise
indicated.
    \8\ Shares Outstanding and Net Asset Values (``NAV''), as well
as for the comparative ETPs presented below, are as of April 5, 2021
for all ETPs except for VXX and UVXY, which are as of April 14,
2021.
    \9\ Fund Market Capitalization data, as well as for the
comparative ETPs presented below, are as of January 14, 2021.
    \10\ See supra note 8.

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                                             ADV (ETF                           Shares                                                        Current
                 Product                      shares)        ADV (option      outstanding   Fund  market cap       Share value (USD)         position
                                            (millions)       contracts)       (millions)    (USD) (millions)                                  limits
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EEM.....................................            55.9           284,700           581.4          30,262.2  53.79 (NAV)...............       1,000,000
FXI.....................................            24.6           128,900            91.2           4,398.9  47.60 (NAV)...............       1,000,000
EFA.....................................            29.6           130,900           719.4          53,808.1  77.02 (NAV)...............       1,000,000
EWZ.....................................            29.2           139,400           173.8           6,506.8  33.71 (NAV)...............         500,000
TLT.....................................            11.5           111,800           103.7          17,121.3  136.85 (NAV)..............         500,000
EWJ.....................................             8.2            15,500           185.3          13,860.7  69.72 (NAV)...............         500,000
HYG.....................................            30.5           261,600           254.5          24,067.5  86.86 (NAV)...............         500,000
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    The Exchange believes that, overall, the liquidity in the shares of
the Underlying ETPs and in their overlying options, the larger market
capitalizations for each of the Underlying ETPs, and the overall market
landscape relevant to each of the Underlying ETPs support the proposal
to increase the position limits for each option class. Given the robust
liquidity in and value of the Underlying ETPs and their component
securities, the Exchange does not anticipate that the proposed increase
in position limits would create significant price movements as the
relevant markets are large enough to adequately absorb potential price
movements that may be caused by larger trades.
    Specifically, the investment objective of GLD (also known as SPDR
Gold Trust, or the ``Trust'') is to track the performance of the price
of gold bullion.\11\ GLD offers investors an innovative, relatively
cost efficient and secure way to access the gold market, without the
necessity of taking physical delivery of gold, and to buy and sell that
interest through the trading of a security on a regulated stock
exchange. SPDR Gold Shares represent fractional, undivided beneficial
ownership interests in the Trust, the sole assets of which are gold
bullion. The spot price for gold is determined by market forces in the
24-hour global OTC market for gold including spot, forwards, and
options and other derivatives, together with exchange-traded futures
and options. The Net Asset Value (``NAV'') of the Trust is calculated
based on the total ounces of gold owned by the Trust valued at the
London Bullion Market Association (``LBMA'') Gold Price PM of that day
(plus any cash held by the Trust less accrued expenses).\12\ The
Exchange has observed that the ADV in GLD shares has increased from
approximately 8.7 million shares in 2019 to 12.3 million shares by the
end of 2020. Similarly, the ADV in options on GLD has increased from
approximately 153,900 option contracts in 2019 to 257,700 option
contracts by the end of 2020. The Exchange also notes that in the first
quarter of 2021, GLD options experienced an ADV of approximately
395,100 option contracts. Additionally, comparing the statistics shown
in the tables above for GLD and the sample of other ETFs with a current
position limit of 1,000,000 contracts, the Exchange notes that the ADV
for GLD options (257,700 option contracts) are more, or just as, liquid
as EEM options (284,700 option contracts), FXI options (128,900 option
contracts) and EFA options (130,900 option contracts). Also, as
indicated in the table above, GLD's market capitalization
(approximately $70.2 billion) is higher than all three of these
comparable ETFs, and, in addition to this, the Exchange notes that the
NAV of GLD is higher than that of the NAV of EEM, FXI and EFA, which is
indicative that the total value of its underlying components is
generally higher. The Exchange believes that GLD's share and option
volume, its market capitalization, and the comparatively high value of
its underlying components (as indicated by its NAV) are large enough to
absorb potential price movements caused by a large trade in GLD.
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    \11\ See SPDR Gold Shares, available at https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-gold-shares-gld (January 11, 2021).
    \12\ See State Street Global Advisors, SPDR Gold Trust GLD, FAQ
(July 2020), available at https://www.ssga.com/library-content/products/fund-docs/etfs/us/tax-documents/gld-faq.pdf.
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    Like that of GLD and spot gold, SLV seeks to reflect generally the
performance of the price of silver and represents a cost-efficient
alternative to investments in physical silver for

investors not otherwise in a position to participate directly in the
market for physical silver. The SLV's NAV is derived from its holdings
in silver valued on the basis of the daily LBMA Silver Price.\13\ SLV,
too, has experienced a significant increase in AVD [sic] in shares and
options from 2019 through 2020. It grew from approximately 13.6 million
shares in 2019 to 33.1 million shares by the end of 2020, and from
approximately 118,800 option contracts in 2019 to 376,700 option
contracts by the end of 2020. The Exchange also notes that SLV options
experienced in ADV of approximately 1.1 million option contracts in the
first quarter of 2021.\14\ Additionally, SLV generally experiences a
significantly greater ADV in shares (33.1 million share) and in options
(376,700 option contracts) than that of the ADV in shares and options
for EWZ (29.2 million shares and 139,300 option contracts), TLT (11.5
million shares and 111,800 option contracts), EWJ (8.2 million shares
and 15,500 option contracts) and HYG (30.5 million shares and 261,600
option contracts), and also has a comparable, or higher, market
capitalization (approximately $14.2 billion) than EWZ, TLT and EWJ. As
per the table above, options on each of these ETFs already have a
position limit of 500,000 contracts -- the proposed position limit for
SLV options. The Exchange believes that SLV's share and option volume
and its market capitalization are large enough to absorb potential
price movements caused by a large trade in SLV.
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    \13\ See iShares Silver Trust, Fact Sheet as of 9/20/2020,
available at https://www.ishares.com/us/literature/fact-sheet/slv-ishares-silver-trust-fund-fact-sheet-en-us.pdf.
    \14\ While volume in SLV options in the first quarter of 2021
experienced significantly high volume as a result of unusual market
conditions, the Exchange believes that the existing possibility of
such significant increases supports the proposed position limit
increase.
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    While the demand for options trading on GLD and SLV has evidently
increased, and continues to increase, the position limits have remained
the same, which the Exchange believes may be impacting the ability of
Trading Permit Holders (``TPHs'') to effectively hedge against exposure
to physical gold and silver. For example, a single TPH may manage
groups of mutual funds (i.e., a fund complex), each of which may have
different growth objectives. If one portfolio manager with a large
group of funds has a relatively small exposure to spot gold or spot
silver, they may hedge such exposure using GLD options or SLV options,
respectively. Though relatively small, this hedge (up to 250,00 [sic]
option contracts for GLD and for SLV) may utilize the TPH's entire
capacity against the position limit. As a result, the TPH's other
portfolio managers must look to use alternative vehicles to hedge gold
or silver exposure for the funds under their management. The Exchange
understands that, unlike GLD or SLV options, most of these alternatives
hedging vehicles are not a perfect hedge, which creates liquidity
issues and results in increased trading costs. As a result, the
Exchange believes that the proposed position limit increases for both
GLD and SLV options will allow TPHs to effectively hedge their total
gold or silver exposure without having to seek other, less precise
hedging vehicles.
    LQD tracks the performance of the Markit iBoxx USD Liquid
Investment Grade (``IBOXIG'') Index, which is an index designed as a
subset of the broader U.S. dollar-denominated corporate bond market
which can be used as a basis for tradable products, such as ETFs, and
is comprised of over 8,000 bonds.\15\ The Exchange notes that from 2019
through 2020, ADV has grown significantly in shares of LQD and in
options on LQD, from approximately 9.7 million shares in 2019 to 14.1
million through 2020, and from approximately 8,200 option contracts in
2019 to 30,300 through 2020. LQD also continued to experience
significant growth in ADV in the first quarter of 2021 with an ADV of
approximately 140,200 option contracts. Further, LQD generally
experiences higher ADV in shares than both TLT (11.5 million shares)
and EWJ (8.2 million shares) and almost double the ADV in option
contracts than EWJ (15,500 option contracts). Options on each EWZ, TLT
and EWJ are currently subject to a position limit of 500,000
contracts--the proposed limit for options on LQD. The NAV of LQD is
also higher than, or comparable to, that of the NAV of the ETFs
underlying the options that are currently subject to a position limit
of 500,000 option contracts (as presented in the table above), which is
indicative that the total value of its underlying components is
generally higher or comparable. Per the tables above, LQD's total
market capitalization of approximately $54.1 billion is also higher
than or comparable to the total market capitalization of the ETFs
underlying the options currently subject to a position limit of
5000,000 [sic] contracts. In addition to this, the Exchange notes that,
although there are currently no options listed for trading on the
IBOXIG Index, the components \16\ of the IBOXIG Index, which can be
used in creating a basket of securities that equate to the LQD ETF, are
made up of over 8,000 bonds for which the outstanding face value of
each must be greater than or equal to $2 billion.\17\ The Exchange
believes that the total value of the bonds in the IBOXIG Index, coupled
with LQD's share and option volume, total market capitalization, and
NAV price indicates that the market is large enough to absorb potential
price movements caused by a large trade in LQD. Also, as evidenced
above, trading volume in LQD shares has increased over the past few
years and the Exchange understands that market participants' need for
options have continued to grow alongside the ETF. Particularly, the
Exchange notes that in the last year, market participants have sought
more cost-effective hedging strategies through the use of LQD options
as a result of the borrow on other fixed income ETFs, such as HYG.
Therefore, the Exchange believes that because LQD options are being
increasingly utilized as an alternative to similar products, such as
HYG options, then it is appropriate that options on LQD be subject to
the same 500,000 contract position limit that currently exists for
options on HYG.
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    \15\ See Markit iBoxx USD Liquid Investment Grade Index,
available at https://cdn.ihsmarkit.com/www/pdf/MKT-iBoxx-USD-Liquid-Investment-Grade-Index-factsheet.pdf (January 14, 2021).
    \16\ Investment grade corporate bonds.
    \17\ See supra note 14.
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    GDX seeks to replicate as closely as possible the price and yield
performance of the NYSE Arca Gold Miners (``GDMNTR'') Index, which is
intended to track the overall performance of companies involved in the
gold mining industry.\18\ ADV in GDX options has increased from 2019
through 2020, with an ADV of approximately 117,400 option contracts in
2019 to an ADV of approximately 166,000 option contracts in 2020. The
Exchange notes that ADV in GDX shares did not increase from 2019 to
2020. GDX options also experienced an ADV of approximately 287,800
option contracts in the first quarter of 2021. The Exchange notes that
the ADV in GDX shares (39.4 million) and options on GDX (166,000 option
contracts) are greater than the ADV in EWZ (29.2 million shares and
139,300 option contracts), TLT (11.5 million shares and 111,800 option
contracts), EWJ (8.2 million shares and 15,500 option contracts) and
HYG (30.5 million shares

and 261,600 option contracts), each of which is currently subject to a
position limit of 500,000 option contracts--the proposed limit for
options on GDX. GDX also experiences a comparable, or higher, market
capitalization (approximately $16.2 billion) than EWZ, TLT and EWZ.
Additionally, like that of LDQ above, there is currently no index
option analogue for the GDX ETF on the GDMNTR Index approved for
options trading, however, the components of the GDMNTR Index, which can
be used to create the GDX ETF, currently must each have a market
capitalization greater than $750 million, an ADV of at least 50,000
shares, and an average daily value traded of at least $1 million in
order to be eligible for inclusion in the GDMNTR Index. The Exchange
believes that the GDMNTR Index component inclusion requirements, as
well as GDX's share and option volume and total market capitalization,
indicate that the GDX market is sufficiently large and liquid enough to
absorb price movements as a result of potentially oversized trades.
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    \18\ See VanEck Vectors Gold Miners ETF, available at https://www.vaneck.com/library/vaneck-vectors-etfs/gdx-fact-sheet-pdf/
(January 14, 2021).
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    VXX ETNs (which are unsecured debt obligations of the issuer) \19\
are designed to provide exposure to the S&P 500 VIX Short-Term Futures
Index Total Return (``SPVXSTR''). The SPVXSTR Index is designed to
provide access to equity market volatility through Cboe Volatility
(``VIX'') Index futures by offering exposure to a daily rolling long
position in the first and second month VIX futures contracts. The
SPVXSTR Index generally reflects market participants' views of the
future direction of the VIX Index at the time of expiration of the VIX
futures contracts comprising the index.\20\ VXX volume has increased
over the last years, growing from an ADV of approximately 28.6 million
shares and 179,200 option contracts in 2019 to an ADV of approximately
39.3 million shares and 289,800 option contracts in 2020.
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    \19\ Barclays Bank PLC.
    \20\ See iPath Series B S&P 500 VIX Short-Term Futures ETN,
Product Summary (April 13, 2021), available at: https://www.ipathetn.com/US/16/en/details.app?instrumentId=341408.
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    Similarly, the UVXY ETF provides leveraged exposure to the S&P 500
VIX Short-Term Futures (``SPVXSPID'') Index. Like the SPVXSTR Index,
the SPVXSPID Index measures the returns of a portfolio of monthly VIX
futures contracts that rolls positions from first-month contracts into
second-month contracts on a daily basis and maintains a weighted
average of one month to expiration. UVXY volume has increased
significantly from 2019 through 2020--from an ADV of approximately 12
million shares and 73,700 option contracts in 2019 to an ADV of
approximately 29.3 million shares and 113,500 option contracts in 2020.
    Both VXX and UVXY experience an ADV in shares and option contracts
that is greater than, or comparable to, ADV in shares and/or option
contracts for EWZ (29.2 million shares and 139,400 option contracts),
TLT (11.5 million shares and 111,800 option contracts), EWJ (8.2
million shares and 15,500 option contracts), and HYG (30.5 million
shares). As stated, options on EWZ, TLT, EWJ and HYG are all currently
subject to the same position limit (500,000 option contracts) proposed
for VXX and UVXY options. The Exchange also notes that, while VIX
options share similar trading characteristics with options on VXX and
UVXY, VIX options are not currently subject to position limits.\21\
Moreover, the 2020 ADV for trading in VIX futures was approximately
192,000 contracts and VIX futures currently have a value of
approximately $7.6 billion in open interest. The Exchange believes that
the ADV in shares of and options on VXX and UXVY, along with the robust
market that exists for the underlying index components (VIX futures) in
connection with both ETPs, indicates that the market for these ETPs is
sufficiently large and liquid enough to absorb price movements and
large- sized trades. In addition to this, both the VXX and UVXY are
used as key indicators of the health of the global volatility market.
The VIX futures that comprise each product are a perfect hedge to the
underlying delta risk; however, such futures are not recognized as
hedges for options contract equivalent of the net delta (``OCEND'')
purposes. A TPH that is not delta neutral must be hedged to the extent
that the OCEND stays within the applicable position limit. The Exchange
understands that due to the OCEND limitations and current position
limits for options on VXX and UVXY, TPHs must hedge with options and
buy or create shares of the underlying ETPs despite already having a
hedge on their position via the component futures. As a result, TPHs
may be unable to provide the most concise pricing to customers
participating in these ETPs due to the increased costs associated with
transacting in additional or alternative hedging vehicles in order to
comply with the position limits currently in place. The Exchange also
believes that the approximate value of open interest in VIX futures
($7.6 billion) potentially necessitates substantial hedging capacity as
both ETPs provide exposure to volatility trading based on VIX futures.
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    \21\ See Rule 8.31.
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Creation and Redemption for ETPs
    The Exchange believes that the creation and redemption process for
the ETFs and ETN subject to this proposal (VXX) will lessen the
potential for manipulative activity with options on the Underlying
ETPs. Regarding ETFs, when an ETF provider wants to create more shares,
it looks to an Authorized Participant (generally a market maker or
other large financial institution) to acquire the securities the ETF is
to hold. For instance, when an ETF is designed to track the performance
of an index, the Authorized Participant can purchase all the
constituent securities in the exact same weight as the index, then
deliver those shares to the ETF provider. In exchange, the ETF provider
gives the Authorized Participant a block of equally valued ETF shares,
on a one-for-one fair value basis. The price is based on the NAV, not
the market value at which the ETF is trading. The creation of new ETF
units can be conducted during an entire trading day and is not subject
to position limits. This process works in reverse where the ETF
provider seeks to decrease the number of shares that are available to
trade. Regarding the process for the ETN subject to this proposal, VXX,
investors may redeem VXX shares on any redemption date,\22\ provided
that the minimum amount of VXX shares redeemed is at least 25,000
shares. Investors redeeming VXX shares receive a cash payment equal to
the applicable closing indicative value on the applicable valuation
date (less the redemption fee). While there is no direct analogue to an
ETF ``creation'' for an ETN, the ETN issuer may sell additional VXX
shares from its inventory.\23\ In order to redeem existing VXX shares
or issue new VXX shares, the issuer may transact in VIX futures
(selling VIX futures in the case of a VXX redemption, and purchasing
VIX futures in the case of issuing new VXX shares) in order to hedge
its exposure. The applicable creation and redemption processes for

the Underlying ETPs creates a direct link to the underlying components
of the ETF or ETN and serves to mitigate potential price impact of the
ETF and ETN shares that might otherwise result from increased position
limits for the options on the Underlying ETPs.
---------------------------------------------------------------------------

    \22\ A redemption date for each series of VXX is the third
business day following each valuation date (other than the final
valuation date). The final redemption date will be the third
business day following the valuation date that is immediately prior
to the final valuation date. If notice is provided prior to noon
E.T., the applicable valuation date is the date on which notice is
provided; otherwise, the applicable valuation date is the business
day following the date on which notice is provided. See VXX
Prospectus, available at https://www.ipathetn.com/US/16/en/documentation.app?instrumentId=341408&contentId=7549819.
    \23\ There is currently no minimum number of additional ETNs
that an issuer may sell.
---------------------------------------------------------------------------

    The Exchange understands that the ETF and ETN creation and
redemption processes seek to keep an ETF's or ETN's share price trading
in line with the product's underlying net asset value (ETFs) or
indicative value (ETNs). Because an ETF trades like a stock, its share
price will fluctuate during the trading day, due to simple supply and
demand. If demand to buy an ETF or ETN is high, for instance, an ETF's
share price might rise above the value of its underlying securities or
an ETN's share price above the value of the index components. When this
happens, the Authorized Participant or issuer believes the ETF or ETN
may now be overpriced, so it may buy shares of the component securities
(ETF) or buy same the index component instruments (ETN) and then sell
ETF or ETN shares in the open market. This may drive the ETF's or ETN's
share price back toward the underlying net asset value or indicative
index value. Likewise, if an ETF or ETN share price starts trading at a
discount to the securities it holds or its index components, the
Authorized Participant or issuer can buy shares of the ETF or ETN and
redeem them for the underlying securities or index component
instruments. Buying undervalued ETF or ETN shares may drive the share
price of an ETF or ETN back toward fair value. This arbitrage process
helps to keep an ETF's and ETN's share price in line with the value of
its underlying portfolio or index components.
Surveillance and Reporting Requirements
    The Exchange believes that increasing the position limits for the
options on the Underlying ETPs would lead to a more liquid and
competitive market environment for these options, which will benefit
customers interested in trading these products. The reporting
requirement for the options on the Underlying ETPs would remain
unchanged. Thus, the Exchange would still require that each TPH or TPH
organization that maintains positions in the options on the same side
of the market, for its own account or for the account of a customer,
report certain information to the Exchange. This information would
include, but would not be limited to, the options' positions, whether
such positions are hedged and, if so, a description of the hedge(s).
Market-Makers \24\ (including Designated Primary Market-Makers
(``DPMs'')) \25\ would continue to be exempt from this reporting
requirement, however, the Exchange may access Market-Maker position
information.\26\ Moreover, the Exchange's requirement that TPHs file
reports with the Exchange for any customer who held aggregate large
long or short positions on the same side of the market of 200 or more
option contracts of any single class for the previous day will remain
at this level for the options subject to this proposal and will
continue to serve as an important part of the Exchange's surveillance
efforts.\27\
---------------------------------------------------------------------------

    \24\ A Market-Maker [sic] ``Trading Permit Holder registered
with the Exchange pursuant to Rule 3.52 for the purpose of making
markets in option contracts traded on the Exchange and that has the
rights and responsibilities set forth in Chapter 5, Section D of the
Rules.'' See Rule 1.1.
    \25\ A Designated Primary Market-Maker ``is TPH organization
that is approved by the Exchange to function in allocated securities
as a Market-Maker (as defined in Rule 8.1) and is subject to the
obligations under Rule 5.54 or as otherwise provided under the rules
of the Exchange.'' See Rule 1.1.
    \26\ The Options Clearing Corporation (``OCC'') through the
Large option Position Reporting (``LOPR'') system acts as a
centralized service provider for TPH compliance with position
reporting requirements by collecting data from each TPH or TPH
organization, consolidating the information, and ultimately
providing detailed listings of each TPH's report to the Exchange, as
well as Financial Industry Regulatory Authority, Inc. (``FINRA''),
acting as its agent pursuant to a regulatory services agreement
(``RSA'').
    \27\ See Rule 8.43 for reporting requirements.
---------------------------------------------------------------------------

    The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange and other SROs are capable of
properly identifying disruptive and/or manipulative trading activity.
The Exchange also represents that it has adequate surveillances in
place to detect potential manipulation, as well as reviews in place to
identify potential changes in composition of the Underlying ETPs and
continued compliance with the Exchange's listing standards. These
procedures utilize daily monitoring of market activity via automated
surveillance techniques to identify unusual activity in both options
and the underlyings, as applicable.\28\ The Exchange also notes that
large stock holdings must be disclosed to the Commission by way of
Schedules 13D or 13G,\29\ which are used to report ownership of stock
which exceeds 5% of a company's total stock issue and may assist in
providing information in monitoring for any potential manipulative
schemes.
---------------------------------------------------------------------------

    \28\ The Exchange believes these procedures have been effective
for the surveillance of trading the options subject to this proposal
and will continue to employ them.
    \29\ 17 CFR 240.13d-1.
---------------------------------------------------------------------------

    The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in the options
on the Underlying ETPs. Current margin and risk-based haircut
methodologies serve to limit the size of positions maintained by any
one account by increasing the margin and/or capital that a TPH must
maintain for a large position held by itself or by its customer.\30\ In
addition, Rule 15c3-1 \31\ imposes a capital charge on TPHs to the
extent of any margin deficiency resulting from the higher margin
requirement.
---------------------------------------------------------------------------

    \30\ See Rule 10.3 for a description of margin requirements.
    \31\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\32\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \33\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \34\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(5).
    \34\ Id.
---------------------------------------------------------------------------

    The Exchange believes that the proposed increase in position limits
for options on the Underlying ETPs will remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest,
because it will provide market participants with the ability to more
effectively execute their trading and hedging activities. The proposed
increases will allow market participants

to more fully implement hedging strategies in related derivative
products and to further use options to achieve investment strategies
(e.g., there are other ETPs that use options on the ETFs or the ETN
subject to this proposal as part of their investment strategy, and the
applicable position limits as they stand today may inhibit these other
ETPs in achieving their investment objectives, to the detriment of
investors). Also, increasing the applicable position limits may allow
Market-Makers to provide the markets for these options with more
liquidity in amounts commensurate with increased consumer demand in
such markets. The proposed position limit increases may also encourage
other liquidity providers to shift liquidity, as well as encourage
consumers to shift demand, from over the counter markets onto the
Exchange, which will enhance the process of price discovery conducted
on the Exchange through increased order flow.
    In addition, the Exchange believes that the structure of the
Underlying ETPs, the considerable market capitalization of the funds,
underlying component securities, and/or indexed component securities,
and the liquidity of the markets for the applicable options and
underlying component securities will mitigate concerns regarding
potential manipulation of the products and/or disruption of the
underlying markets upon increasing the relevant position limits. As a
general principle, increases in market capitalizations, active trading
volume, and deep liquidity of securities do not lead to manipulation
and/or disruption. This general principle applies to the recently
observed increased levels of market capitalization and trading volume
and liquidity in shares of and options on the Underlying ETPs (as
described above), and, as a result, the Exchange does not believe that
the options markets or underlying markets would become susceptible to
manipulation and/or disruption as a result of the proposed position
limit increases. Indeed, the Commission has previously expressed the
belief that not just increasing, but removing, position and exercise
limits may bring additional depth and liquidity to the options markets
without increasing concerns regarding intermarket manipulation or
disruption of the options or the underlying securities.\35\
---------------------------------------------------------------------------

    \35\ See Securities Exchange Act Release No. 62147 [sic]
(October 28 [sic], 2005) (SR-CBOE-2005-41), at 62149.
---------------------------------------------------------------------------

    Further, the Exchange notes that the proposed rule change to
increase position limits for select actively traded options is not
novel and the Commission has approved similar proposed rule changes by
the Exchange to increase position limits for options on similar, highly
liquid and actively traded ETPs.\36\ Furthermore, the Exchange again
notes that that the proposed position limits for options on GLD, SLV,
LQD, GDX, VXX and UVXY are consistent with existing position limits for
options on comparable ETPs in Rule 8.30.07.
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release Nos. 88768 (April 29,
2020), 85 FR 26736 (May 5, 2020) (SR-CBOE-2020-015); 83415 (June 12,
2018), 83 FR 28274 (June 18, 2018) (SR-CBOE-2018-042); and 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
---------------------------------------------------------------------------

    The Exchange's surveillance and reporting safeguards continue to be
designed to deter and detect possible manipulative behavior that might
arise from increasing or eliminating position and exercise limits in
certain classes. The Exchange believes that the current financial
requirements imposed by the Exchange and by the Commission adequately
address concerns regarding potentially large, unhedged position in the
options on the Underlying ETPs, further promoting just and equitable
principles of trading, the maintenance of a fair and orderly market,
and the protection of investors.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the increased position limits (and exercise
limits) will be available to all market participants and apply to each
in the same manner. The Exchange believes that the proposed rule change
will provide additional opportunities for market participants to more
efficiently achieve their investment and trading objectives of market
participants.
    The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act. On the contrary, the Exchange
believes the proposal promotes competition because it may attract
additional order flow from the OTC market to exchanges, which would in
turn compete amongst each other for those orders.\37\ The Exchange
believes market participants would benefit from being able to trade
options with increased position limits in an exchange environment in
several ways, including but not limited to the following: (1) Enhanced
efficiency in initiating and closing out position; (2) increased market
transparency; and (3) heightened contra-party creditworthiness due to
the role of OCC as issuer and guarantor. The Exchange notes that other
options exchanges may choose to file similar proposals with the
Commission to increase position limits on options on the Underlying
ETPs.
---------------------------------------------------------------------------

    \37\ Additionally, several other options exchanges have the same
position limits as the Exchange, as they incorporate by reference to
the Exchange's position limits, and as a result the position limits
for options on the Underlying ETPs will increase at those exchanges.
For example, Nasdaq Options position limits are determined by the
position limits established by the Exchange. See Nasdaq Stock Market
LLC Rules, Options 9, Sec. 13 (Position Limits).
---------------------------------------------------------------------------

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

    The Exchange neither solicited nor received comments on the
proposed rule change.

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-CBOE-2021-029 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-CBOE-2021-029. 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-CBOE-2021-029, and should be submitted
on or before June 1, 2021.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09774 Filed 5-7-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: July 2, 2008 (Volume 73, Number 128)]
[Proposed Rules]
[Page 37898-37900]
[DOCID:fr02jy08-45]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2008-0676; Directorate Identifier 2007-NM-280-AD]
RIN 2120-AA64

Airworthiness Directives; Fokker Model F.28 Mark 0070 and 0100
Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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

SUMMARY: We propose to adopt a new airworthiness directive (AD) for the
products listed above. This proposed AD results from mandatory
continuing airworthiness information (MCAI) originated by an aviation
authority of another country to identify and correct an unsafe
condition on an aviation product. The MCAI describes the unsafe
condition as:

    Service experience has shown that heavy MLG (main landing gear)
shimmy vibration can occur due to faulty/empty dampers or due to
excessive free play in the T/L (torque link) apex joint. In several
cases this shimmy vibration resulted in a MLG main fitting failure *
* * finally resulting in a collapse of the MLG causing extensive
damage to the wingtip, aileron and flaps. * * *

The proposed AD would require actions that are intended to address the
unsafe condition described in the MCAI.

DATES: We must receive comments on this proposed AD by August 1, 2008.

ADDRESSES: You may send comments by any of the following methods:
     Federal eRulemaking Portal: Go to http://
www.regulations.gov. Follow the instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue, SE., Washington, DC 20590.
     Hand Delivery: U.S. Department of Transportation, Docket
Operations, M-

30, West Building Ground Floor, Room W12-40, 1200 New Jersey Avenue,
SE., Washington, DC, 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; or in person at the Docket Operations office
between 9 a.m. and 5 p.m., Monday through Friday, except Federal
holidays. The AD docket contains this proposed AD, the regulatory
evaluation, any comments received, and other information. The street
address for the Docket Operations office (telephone<PHONE_NUMBER>) is
in the ADDRESSES section. Comments will be available in the AD docket
shortly after receipt.

FOR FURTHER INFORMATION CONTACT: Tom Rodriguez, Aerospace Engineer,
International Branch, ANM-116, Transport Airplane Directorate, FAA,
1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone (425)
227-1137; fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Comments Invited

    We invite you to send any written relevant data, views, or
arguments about this proposed AD. Send your comments to an address
listed under the ADDRESSES section. Include ``Docket No. FAA-2008-0676;
Directorate Identifier 2007-NM-280-AD'' at the beginning of your
comments. We specifically invite comments on the overall regulatory,
economic, environmental, and energy aspects of this proposed AD. We
will consider all comments received by the closing date and may amend
this proposed AD based on those comments.
    We will post all comments we receive, without change, to http://
www.regulations.gov, including any personal information you provide. We
will also post a report summarizing each substantive verbal contact we
receive about this proposed AD.

Discussion

    The Civil Aviation Authority--The Netherlands (CAA-NL), which is
the aviation authority for the Netherlands, has issued Dutch
Airworthiness Directive NL-2007-001, dated February 26, 2007 (referred
to after this as ``the MCAI''), to correct an unsafe condition for the
specified products. The MCAI states:

    Service experience has shown that heavy MLG (main landing gear)
shimmy vibration can occur due to faulty/empty dampers or due to
excessive free play in the T/L (torque link) apex joint. In several
cases this shimmy vibration resulted in a MLG main fitting failure.
In those cases where only the upper torque link attachment lug
failed the damage to the aircraft was limited. In all other cases
the MLG main fitting cracked, finally resulting in a collapse of the
MLG causing extensive damage to the wingtip, aileron and flaps. To
prevent the collapse of the MLG, Messier-Dowty has designed an upper
torque link fuse pin with a static strength lower than the
demonstrated strength of the MLG main fitting. In case of a heavy
shimmy vibration the upper torque link fuse pin will fail before the
main fitting. Therefore the installation of an upper torque link
fuse pin will protect the LH and RH (left- and right-hand) MLG main
fitting against extreme shimmy loads and thus against a MLG main
fitting failure and a MLG collapse. Since an unsafe condition has
been identified that may exist or develop on aircraft of the same
type design this Airworthiness Directive requires the modification
of the MLG by replacing the upper torque link pin with a new fuse
pin.

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

Relevant Service Information

    Fokker Services B.V. has issued Service Bulletin SBF100-32-148,
Revision 1, dated February 26, 2007. The actions described in this
service information are intended to correct the unsafe condition
identified in the MCAI.

FAA's Determination and Requirements of This Proposed AD

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

Differences Between This AD and the MCAI or Service Information

    We have reviewed the MCAI and related service information and, in
general, agree with their substance. But we might have found it
necessary to use different words from those in the MCAI to ensure the
AD is clear for U.S. operators and is enforceable. In making these
changes, we do not intend to differ substantively from the information
provided in the MCAI and related service information.
    We might also have proposed different actions in this AD from those
in the MCAI in order to follow FAA policies. Any such differences are
highlighted in a NOTE within the proposed AD.

Costs of Compliance

    Based on the service information, we estimate that this proposed AD
would affect about 2 products of U.S. registry. We also estimate that
it would take about 15 work-hours per product to comply with the basic
requirements of this proposed AD. The average labor rate is $80 per
work-hour. Required parts would cost about $0 per product. Where the
service information lists required parts costs that are covered under
warranty, we have assumed that there will be no charge for these costs.
As we do not control warranty coverage for affected parties, some
parties may incur costs higher than estimated here. Based on these
figures, we estimate the cost of the proposed AD on U.S. operators to
be $2,400, or $1,200 per product.

Authority for This Rulemaking

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

Regulatory Findings

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

under the criteria of the Regulatory Flexibility Act.
    We prepared a regulatory evaluation of the estimated costs to
comply with this proposed AD and placed it in the AD docket.

List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Safety.

The Proposed Amendment

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

PART 39--AIRWORTHINESS DIRECTIVES

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

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

Sec.  39.13  [Amended]

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

Fokker Services B.V.: Docket No. FAA-2008-0676; Directorate
Identifier 2007-NM-280-AD.

Comments Due Date

    (a) We must receive comments by August 1, 2008.

Affected ADs

    (b) None.

Applicability

    (c) This AD applies to Fokker Model F.28 Mark 0070 and F.28 Mark
0100, serial numbers 11244 thru 11585, certificated in any category,
equipped with Messier-Dowty main landing gears.

Subject

    (d) Air Transport Association (ATA) of America Code 32: Landing
Gear.

Reason

    (e) The mandatory continuing airworthiness information (MCAI)
states:

    Service experience has shown that heavy MLG (main landing gear)
shimmy vibration can occur due to faulty/empty dampers or due to
excessive free play in the T/L (torque link) apex joint. In several
cases this shimmy vibration resulted in a MLG main fitting failure.
In those cases where only the upper torque link attachment lug
failed the damage to the aircraft was limited. In all other cases
the MLG main fitting cracked, finally resulting in a collapse of the
MLG causing extensive damage to the wingtip, aileron and flaps. To
prevent the collapse of the MLG, Messier-Dowty has designed an upper
torque link fuse pin with a static strength lower than the
demonstrated strength of the MLG main fitting. In case of a heavy
shimmy vibration the upper torque link fuse pin will fail before the
main fitting. Therefore the installation of an upper torque link
fuse pin will protect the LH and RH (left- and right-hand) MLG main
fitting against extreme shimmy loads and thus against a MLG main
fitting failure and a MLG collapse. Since an unsafe condition has
been identified that may exist or develop on aircraft of the same
type design this Airworthiness Directive requires the modification
of the MLG by replacing the upper torque link pin with a new fuse
pin.

Actions and Compliance

    (f) Within the applicable compliance time specified in
paragraphs (f)(1) and (f)(2) of this AD, unless already done, do the
following actions.
    (1) For Messier-Dowty MLG in a pre-mod Messier-Dowty Service
Bulletin F100-32-050 configuration: Within 12 months after the
effective date of this AD, replace the upper torque link pin with a
new fuse pin in accordance with the Accomplishment Instructions of
Fokker Service Bulletin SBF100-32-148, Revision 1, dated February
26, 2007.
    (2) For Messier-Dowty MLG in a post-mod Messier-Dowty Service
Bulletin F100-32-050 configuration: Within 30 months after the
effective date of this AD, replace the upper torque link pin with a
new fuse pin in accordance with the Accomplishment Instructions of
Fokker Service Bulletin SBF100-32-148, Revision 1, dated February
26, 2007.

FAA AD Differences

    Note: This AD differs from the MCAI and/or service information
as follows: The MCAI references the original version of the service
bulletin or a later approved version. The original version of the
service bulletin specifies to use an incorrect part number. This AD
refers to Revision 1 of the service bulletin.

Other FAA AD Provisions

    (g) The following provisions also apply to this AD:
    (1) Alternative Methods of Compliance (AMOCs): The Manager,
International Branch, ANM-116, Transport Airplane Directorate, FAA,
has the authority to approve AMOCs for this AD, if requested using
the procedures found in 14 CFR 39.19. Send information to ATTN: Tom
Rodriguez, Aerospace Engineer, International Branch, ANM-116,
Transport Airplane Directorate, FAA, 1601 Lind Avenue, SW., Renton,
Washington 98057-3356; telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>.
Before using any approved AMOC on any airplane to which the AMOC
applies, notify your appropriate principal inspector (PI) in the FAA
Flight Standards District Office (FSDO), or lacking a PI, your local
FSDO.
    (2) Airworthy Product: For any requirement in this AD to obtain
corrective actions from a manufacturer or other source, use these
actions if they are FAA-approved. Corrective actions are considered
FAA-approved if they are approved by the State of Design Authority
(or their delegated agent). You are required to assure the product
is airworthy before it is returned to service.
    (3) Reporting Requirements: For any reporting requirement in
this AD, under the provisions of the Paperwork Reduction Act, the
Office of Management and Budget (OMB) has approved the information
collection requirements and has assigned OMB Control Number 2120-
0056.

Related Information

    (h) Refer to MCAI Dutch Airworthiness Directive NL-2007-001,
dated February 26, 2007, and Fokker Service Bulletin SBF100-32-148,
Revision 1, dated February 26, 2007, for related information.

    Issued in Renton, Washington, on June 24, 2008.
Ali Bahrami,
Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. E8-14969 Filed 7-1-08; 8:45 am]

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