1993 shall comply with § § 63.322( c), ( d), ( i), ( j), ( k), ( l), and ( m);

63.323( d); and 63.324( a), ( b), ( d)( 1), ( d)( 2), ( d)( 3), ( d)( 4), and ( e)

beginning on December 20, 1993, and shall comply with other provisions of this subpart except § 63.322( o) by September 23, 1996; and shall comply with § 63.322( o) by [ INSERT DATE 90 DAYS AFTER DATE FINAL RULE IS PUBLISHED IN THE FEDERAL REGISTER].

( d) Each existing dry to dry machine and its ancillary equipment located in a dry cleaning facility that includes only dry to dry machines, and each existing transfer machine system and its ancillary equipment, and each new transfer machine system and its ancillary equipment installed between December 9, 1991 and September 22, 1993, as well as each existing dry to dry machine and its ancillary equipment,

located in a dry cleaning facility that includes both transfer machine system( s) and dry to dry machine( s) is exempt from § § 63.322, 63.323, and 63.324, except paragraphs 63.322( c), ( d), ( i), ( j), ( k), ( l), ( m),

( o)( 1), and ( o)( 4); 63.323( d); and 63.324 ( a), ( b), ( d)( 1), ( d)( 2),

( d)( 3), ( d)( 4), and ( e) if the total perchloroethylene consumption of the dry cleaning facility is less than 530 liters ( 140 gallons) per year. Consumption is determined according to § 63.323( d). 98 ( e) Each existing transfer machine system and its ancillary equipment, and each new transfer machine system and its ancillary equipment installed between December 9, 1991 and September 22, 1993,

located in a dry cleaning facility that includes only transfer machine system( s), is exempt from § § 63.322, 63.323, and 63.324, except paragraphs 63.322( c), ( d), ( i), ( j), ( k), ( l), ( m), ( o)( 1), and ( o)( 4),

63.323( d), and 63.324 ( a), ( b), ( d)( 1), ( d)( 2), ( d)( 3), ( d)( 4), and ( e)

if the perchloroethylene consumption of the dry cleaning facility is less than 760 liters ( 200 gallons) per year. Consumption is determined according to § 63.323( d).

* * * * *

3. Section 63.321 is amended by revising the definition of filter, and adding definitions for halogenated hydrocarbon detector,

perchloroethylene gas analyzer, residence, and vapor leak to read as follows:

§ 63.321 Definitions.

* * * * *

Filter means a porous device through which perchloroethylene is passed to remove contaminants in suspension. Examples include, but are not limited to, lint filter, button trap, cartridge filter, tubular filter, regenerative filter, prefilter, polishing filter, and spin disc filter.

Halogenated hydrocarbon detector means a portable device capable of detecting vapor concentrations of perchloroethylene of 25 parts per million by volume and indicating a concentration of 25 parts per million by volume or greater by emitting an audible or visual signal that varies as the concentration changes.

* * * * *

Perchloroethylene gas analyzer means a flame ionization detector, 99 photoionization detector, or infrared analyzer capable of detecting vapor concentrations of perchloroethylene of 25 parts per million by volume.

* * * * *

Residence means any dwelling or housing in which people reside excluding short term housing that is occupied by the same person for a period of less than 180 days ( such as a hotel room).

* * * * *

Vapor leak means a perchloroethylene vapor concentration exceeding 25 parts per million by volume ( 50 parts per million by volume as methane) as indicated by a halogenated hydrocarbon detector or perchloroethylene gas analyzer.

* * * * *

4. Section 63.322 is amended by revising paragraphs ( e)( 3), ( k),

and ( m) and adding paragraph ( o) to read as follows:

§ 63.322 Standards.

* * * * *

( e) * * *

( 3) Shall prevent air drawn into the dry cleaning machine when the door of the machine is open from passing through the refrigerated condenser.

* * * * *

( k) The owner or operator of a dry cleaning system shall inspect the system weekly for perceptible leaks while the dry cleaning system is operating. Inspection with a halogenated hydrocarbon detector or perchloroethylene gas analyzer also fulfills the requirement for inspection for perceptible leaks. The following components shall be inspected:

* * * * * 100 ( m) The owner or operator of a dry cleaning system shall repair all leaks detected under paragraph ( k) or ( o)( 1) of this section within 24 hours. If repair parts must be ordered, either a written or verbal order for those parts shall be initiated within 2 working days of detecting such a leak. Such repair parts shall be installed within 5 working days after receipt.

* * * * *

( o) Additional requirements:

( 1) The owner or operator of a dry cleaning system shall inspect the components listed in paragraph ( k) of this section for vapor leaks monthly while the component is in operation.

( i) Area sources shall conduct the inspections using a halogenated hydrocarbon detector or perchloroethylene gas analyzer that is operated according to the manufacturer's instructions. The operator shall place the probe inlet at the surface of each component interface where leakage could occur and move it slowly along the interface periphery.

( ii) Major sources shall conduct the inspections using a perchloroethylene gas analyzer operated according to EPA Method 21.

( 2) The owner or operator of a dry cleaning system at any major source shall route the air perchloroethylene gas vapor stream contained within each dry cleaning machine through a refrigerated condenser and shall pass the air perchloroethylene gas vapor stream from inside the dry cleaning machine drum through a carbon adsorber or equivalent control device immediately before or as the door of the dry cleaning machine is opened. The carbon adsorber must be desorbed in accordance with manufacturer's instructions.

( 3) The owner or operator of each dry cleaning system installed after [ INSERT THE DATE OF PUBLICATION OF THE PROPOSED RULE IN THE 101 FEDERAL REGISTER] at an area source shall route the airperchloroethylene gas vapor stream contained within each dry cleaning machine through a refrigerated condenser and pass the airperchloroethylene gas vapor stream from inside the dry cleaning machine drum through a carbon adsorber or equivalent control device immediately before the door of the dry cleaning machine is opened. The carbon adsorber must be desorbed in accordance with manufacturer's instructions.

( 4) The owner or operator of any dry cleaning system shall eliminate any emission of perchloroethylene during the transfer of articles between the washer and the dryer( s) or reclaimer( s).

( 5) The owner or operator shall eliminate any emission of perchloroethylene from any dry cleaning system that is installed after [ INSERT DATE OF PUBLICATION OF THE PROPOSED RULE IN THE FEDERAL REGISTER] and that is located in a building with a residence.

5. Section 63.323 is amended by revising paragraphs ( b)

introductory text, ( b)( 1), ( b)( 2), and ( c) to read as follows:

§ 63.323 Test methods and monitoring.

* * * * *

( b) When a carbon adsorber is used to comply with § 63.322( a)( 2)

or exhaust is passed through a carbon adsorber immediately upon machine door opening to comply with § 63.322( b)( 3) or § 63.323( o)( 2), the owner or operator shall measure the concentration of perchloroethylene in the exhaust of the carbon adsorber weekly with a colorimetric detector tube or perchloroethylene gas analyzer. The measurement shall be taken while the dry cleaning machine is venting to that carbon adsorber at the end of the last dry cleaning cycle prior to desorption of that carbon adsorber or removal of the activated carbon to determine that the perchloroethylene concentration in the exhaust is equal to or less than 102 100 parts per million by volume. The owner or operator shall:

( 1) Use a colorimetric detector tube or perchloroethylene gas analyzer designed to measure a concentration of 100 parts per million by volume of perchloroethylene in air to an accuracy of ± 25 parts per million by volume; and ( 2) Use the colorimetric detector tube or perchloroethylene gas analyzer according to the manufacturer's instructions; and * * * * *

( c) If the air perchloroethylene gas vapor stream is passed through a carbon adsorber prior to machine door opening to comply with § 63.322( b)( 3) or § 63.323( o)( 2), the owner or operator of an affected facility shall measure the concentration of perchloroethylene in the dry cleaning machine drum at the end of the dry cleaning cycle weekly with a colorimetric detector tube or perchloroethylene gas analyzer to determine that the perchloroethylene concentration is equal to or less than 300 parts per million by volume. The owner or operator shall:

( 1) Use a colorimetric detector tube or perchloroethylene gas analyzer designed to measure a concentration of 300 parts per million by volume of perchloroethylene in air to an accuracy of ± 75 parts per million by volume; and ( 2) Use the colorimetric detector tube or perchloroethylene gas analyzer according to the manufacturer's instructions; and ( 3) Conduct the weekly monitoring by inserting the colorimetric detector or perchloroethylene gas analyzer tube into the open space above the articles at the rear of the dry cleaning machine drum immediately upon opening the dry cleaning machine door.

* * * * *

6. Section 63.324 is amended by revising paragraphs ( d)( 3),

( d)( 5), and ( d)( 6) to read as follows: 103 § 63.324 Reporting and recordkeeping requirements.

* * * * *

( d) * * *

( 3) The dates when the dry cleaning system components are inspected for leaks, as specified in § 63.322( k), ( l), or ( o)( 1), and the name or location of dry cleaning system components where leaks are detected;

* * * * *

( 5) The date and temperature sensor monitoring results, as specified in § 63.323 if a refrigerated condenser is used to comply with § 63.322( a) or ( b); and ( 6) The date and monitoring results, as specified in § 63.323, if a carbon adsorber is used to comply with § 63.322( a)( 2), ( b)( 3), or ( o)( 2).

* * * * *


[Federal Register Volume 86, Number 171 (Wednesday, September 8, 2021)]
[Rules and Regulations]
[Pages 50219-50222]
[FR Doc No: 2021-19243]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2021-0463; Project Identifier 2018-SW-050-AD; Amendment
39-21698; AD 2021-17-15]
RIN 2120-AA64

Airworthiness Directives; Leonardo S.p.a. Helicopters

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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SUMMARY: The FAA is adopting a new airworthiness directive (AD) for
Leonardo S.p.a. Model AB139 and AW139 helicopters with certain main
rotor blades installed. This AD was prompted by a report of an in-
flight loss of a main rotor blade (MRB) tip cap. This AD requires
inspecting the MRB tip cap for disbonding. The FAA is issuing this AD
to address the unsafe condition on these products.

DATES: This AD is effective October 13, 2021.
    The Director of the Federal Register approved the incorporation by
reference of a certain document listed in this AD as of October 13,
2021.

ADDRESSES: For service information identified in this final rule,
contact Leonardo S.p.A. Helicopters, Emanuele Bufano, Head of
Airworthiness, Viale G.Agusta 520, 21017 C.Costa di Samarate (Va)
Italy; telephone +39-0331-225074; fax +39-0331-229046; or at https://customerportal.leonardocompany.com/en-US/. You may view the referenced
service information at the FAA, Office of the Regional Counsel,
Southwest Region, 10101 Hillwood Pkwy., Room 6N-321, Fort Worth, TX
76177. For information on the availability of this material at the FAA,
call<PHONE_NUMBER>. It is also available at https://www.regulations.gov by searching for and locating Docket No. FAA-2021-
0463.

Examining the AD Docket

    You may examine the AD docket at https://www.regulations.gov by
searching for and locating Docket No. FAA-2021-0463; or in person at
Docket Operations between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket contains this final rule, the
European Aviation Safety Agency (now European Union Aviation Safety
Agency) (EASA) AD, any comments received, and other information. The
street address for

Docket Operations is U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE, Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Bang Nguyen, Aerospace Engineer,
Certification Section, Fort Worth ACO Branch, Compliance &
Airworthiness Division, FAA, 10101 Hillwood Pkwy., Fort Worth, TX
76177; telephone<PHONE_NUMBER>; email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Background

    The FAA issued a notice of proposed rulemaking (NPRM) to amend 14
CFR part 39 by adding an AD that would apply to Leonardo S.p.a. Model
AB139 and AW139 helicopters with an MRB that has less than 1,200 total
hours time-in-service (TIS) and has part number (P/N) 3G6210A00131 with
any serial number (S/N) listed in Table 1 of Leonardo Helicopters Alert
Service Bulletin No. 139-520, dated April 26, 2018 (ASB 139-520),
installed. The NPRM published in the Federal Register on June 16, 2021
(86 FR 31992). In the NPRM, the FAA proposed to require, within 50
hours TIS, tap inspecting each MRB tip cap for disbonding using a tap
hammer or equivalent. If there is no disbonding, the NPRM proposed to
require tap inspecting the MRB tip cap at intervals not to exceed 50
hours TIS. If there is any disbonding that does not exceed the
specified limits in ASB 139-520, the NPRM proposed to require tap
inspecting the MRB at intervals not to exceed 10 hours TIS. If there is
any disbonding that exceeds the specified limits in ASB 139-520, the
NPRM proposed to require removing the MRB from service before further
flight. The NPRM also specified that the accumulation of 1,200 total
hours TIS on the affected part without findings of any disbonded area
or with findings of any disbonded area that is within the permitted
limits in Annex A of ASB 139-520 would constitute terminating action
for the proposed repetitive inspections. Finally, the NPRM proposed to
prohibit installing any MRB that is identified in the applicability
section of this AD on any helicopter.
    The NPRM was prompted by reports of incorrect bonding procedures on
certain MRBs, which if not detected and corrected, could result in loss
of the MRB tip cap, severe vibrations, and subsequent loss of control
of the helicopter.
    The FAA issued AD 2018-03-01, Amendment 39-19174 (83 FR 4136,
January 30, 2018) (AD 2018-03-01) for Agusta S.p.A. (now Leonardo
S.p.a.) Model AB139 and AW139 helicopters with MRB P/N 3G6210A00131
with an S/N 3615, 3634, 3667, or 3729 installed. AD 2018-03-01 requires
inspecting the MRB tip cap for disbonding and was prompted by EASA AD
2017-0175-E, dated September 13, 2017 (EASA AD 2017-0175-E), issued by
EASA, which is the Technical Agent for the Member States of the
European Union. EASA advised of an in-flight loss of an MRB tip cap on
an AW139 helicopter where the pilot was able to safely land the
helicopter. EASA further advised that an investigation determined the
cause as incorrect bonding procedures used during production on MRB P/N
3G6210A00131, S/N 3615, 3634, 3667, and 3729. According to EASA, this
condition could result in loss of an MRB tip cap, increased pilot
workload, and reduced control of the helicopter. To address this unsafe
condition, EASA AD 2017-0175-E requires a one-time inspection of the
affected MRB tip caps within 5 flight hours (FH) and replacing the
affected MRBs within 10 FH if not replaced as a result of the
inspection. EASA AD 2017-0175-E also prohibits installing the affected
MRBs on a helicopter. AD 2018-03-01 requires the same corrective
actions.
    After the FAA issued AD 2018-03-01, EASA issued EASA AD 2018-0130,
dated June 18, 2018 (EASA AD 2018-0130), to correct the same unsafe
condition for Leonardo S.p.a. Model AB139 and AW139 helicopters with
additional serial-numbered MRBs installed. EASA advises that further
investigations after EASA AD 2017-0175-E was issued determined that
another batch of P/N 3G6210A00131 MRBs may have been subject to the
incorrect bonding procedure, but to a less critical extent. EASA AD
2018-0130, which neither revises nor supersedes EASA AD 2017-0175-E,
applies to the following serial-numbered MRBs with less than 1,200 FH:
2709, 3558, 3624, 3707, 3790, 3486, 3561, 3625, 3717, 3795, 3488, 3569,
3626, 3720, 3798, 3495, 3570, 3627, 3725, 3803, 3500, 3574, 3628, 3726,
3807, 3501, 3575, 3633, 3734, 3812, 3502, 3582, 3636, 3735, 3822, 3503,
3583, 3638, 3738, 3824, 3508, 3586, 3642, 3739, 3825, 3510, 3590, 3648,
3741, 3827, 3513, 3592, 3649, 3743, 3831, 3520, 3595, 3650, 3744, 3832,
3527, 3597, 3651, 3745, 3838, 3528, 3599, 3657, 3753, 3841, 3529, 3602,
3665, 3754, 3842, 3531, 3603, 3672, 3761, 3847, 3536, 3605, 3682, 3766,
3850, 3539, 3609, 3684, 3770, 3851, 3544, 3612, 3686, 3771, 3852, 3549,
3613, 3690, 3777, 3853, 3551, 3616, 3691, 3783, 3854, 3556, 3620, 3695,
3788, 3855, 3557, 3622, 3696, and 3789.
    Accordingly, EASA AD 2018-0130 requires within 50 FH and thereafter
at intervals not to exceed 50 FH, tap inspecting the MRB for
disbonding. If there is disbonding within permitted limits, EASA AD
2018-0130 requires tap inspecting the disbonded area within 10 FH and
thereafter at intervals not to exceed 10 FH. If disbonding that exceeds
the permitted limits is found during any inspection, EASA AD 2018-0130
requires replacing the part. EASA AD 2018-0130 also prohibits
installing the affected part unless it is a serviceable part and
includes a terminating action for the repetitive inspections, which is
accumulation of 1,200 FH by an affected part without findings of
disbonded area, or findings of disbonded area within the limits
specified in Annex A of ASB 139-520.

Discussion of Final Airworthiness Directive

    The FAA received no comments on the NPRM or on the determination of
the costs.

Conclusion

    These helicopters have been approved by EASA and are approved for
operation in the United States. Pursuant to the FAA's bilateral
agreement with the European Union, EASA has notified the FAA about the
unsafe condition described in its AD. The FAA reviewed the relevant
data and determined that air safety requires adopting this AD as
proposed. Accordingly, the FAA is issuing this AD to address the unsafe
condition on these helicopters.

Related Service Information Under 1 CFR Part 51

    The FAA reviewed ASB 139-520. This service information specifies
procedures for repetitively inspecting the tip cap on a certain batch
of MRBs for disbonding using a tap test and replacing the MRB if
disbonding is not within permitted limits.
    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.

Differences Between This AD and the EASA AD

    EASA AD 2018-0130 allows replacing an affected part with a
serviceable part, which is marked with the letter ``R'' (repaired tip
cap) as the last digit of the S/N, as a terminating action for the
repetitive inspections specified in that AD, whereas this AD does not.

Costs of Compliance

    The FAA estimates that this AD affects 114 helicopters of U.S.
Registry. Labor rates are estimated at $85 per work-hour. Based on
these numbers, the FAA estimates the following costs to comply with
this AD.
    Tap inspecting an MRB tip cap takes 1 work-hour, for a cost per
helicopter of $85 per inspection cycle for a total U.S. fleet cost of
$9,690 per inspection cycle. Replacing 1 MRB, if required, takes 4
work-hours, and required parts cost $141,725, for a total cost of
$142,065 per MRB.
    The FAA has included all known costs in its cost estimate.
According to the manufacturer, however, some of the costs of this AD
may be covered under warranty, thereby reducing the cost impact on
affected operators.

Authority for This Rulemaking

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

Regulatory Findings

    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 above, I certify that this AD:
    (1) Is not a ``significant regulatory action'' under Executive
Order 12866,
    (2) Will not affect intrastate aviation in Alaska, 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.

List of Subjects in 14 CFR Part 39

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

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:

2021-17-15 Leonardo S.p.a.: Amendment 39-21698; Docket No. FAA-2021-
0463; Project Identifier 2018-SW-050-AD.

(a) Effective Date

    This airworthiness directive (AD) is effective October 13, 2021.

(b) Affected ADs

    None.

(c) Applicability

    This AD applies to Leonardo S.p.a. Model AB139 and AW139
helicopters, certificated in any category, with a main rotor blade
(MRB) that has less than 1,200 total hours time-in-service (TIS) and
has part number 3G6210A00131 with any serial number listed in Table
1 of Leonardo Helicopters Alert Service Bulletin No. 139-520, dated
April 26, 2018 (ASB 139-520), installed.

(d) Subject

    Joint Aircraft Service Component (JASC) Code: 6210, Main Rotor
Blades.

(e) Unsafe Condition

    This AD was prompted by a report of disbonding of an MRB tip
cap, which if not detected and corrected, could result in loss of
the MRB tip cap, severe vibrations, and subsequent loss of control
of the helicopter.

(f) Compliance

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

(g) Required Actions

    (1) Within 50 hours TIS after the effective date of this AD,
using a tap hammer or equivalent, tap inspect each MRB tip cap for
disbonding in the area depicted in Figure 1 of ASB 139-520.
    (i) If there is no disbonding, tap inspect each MRB tip cap as
required by paragraph (g)(1) of this AD at intervals not to exceed
50 hours TIS.
    (ii) If there is any disbonding that does not exceed the limits
specified in Annex A, paragraphs 2.3 and 2.4 of ASB 139-520, tap
inspect the MRB tip cap as required by paragraph (g)(1) of this AD
at intervals not to exceed 10 hours TIS.
    (iii) If there is any disbonding that exceeds the limits
specified in Annex A, paragraphs 2.3 and 2.4 of ASB 139-520, remove
the MRB from service before further flight.
    (2) Accumulation of 1,200 total hours TIS on the affected part
without findings of any disbonded area or with findings of any
disbonded area that is within the permitted limits specified in
Annex A, paragraphs 2.3 and 2.4 of ASB 139-520, constitutes
terminating action for the repetitive inspections required by
paragraphs (g)(1)(i) and (ii) of this AD.
    (3) As of effective date of this AD, do not install any MRB that
is identified in paragraph (c) of this AD on any helicopter.

(h) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, International Validation Branch, FAA, has the
authority to approve AMOCs for this AD, if requested using the
procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19,
send your request to your principal inspector or local Flight
Standards District Office, as appropriate. If sending information
directly to the manager of the International Validation Branch, send
it to the attention of the person identified in paragraph (i)(1) of
this AD. Information may be emailed to<EMAIL_ADDRESS>    (2) Before using any approved AMOC, notify your appropriate
principal inspector, or lacking a principal inspector, the manager
of the local flight standards district office/certificate holding
district office.

(i) Related Information

    (1) For more information about this AD, contact Bang Nguyen,
Aerospace Engineer, Certification Section, Fort Worth ACO Branch,
Compliance & Airworthiness Division, FAA, 10101 Hillwood Pkwy., Fort
Worth, TX 76177; telephone<PHONE_NUMBER>; email
<EMAIL_ADDRESS>    (2) The subject of this AD is addressed in European Aviation
Safety Agency (now European Union Aviation Safety Agency) (EASA) AD
2018-0130, dated June 18, 2018. You may view the EASA AD at https://www.regulations.gov in Docket No. FAA-2021-0463.

(j) 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) Leonardo Helicopters Alert Service Bulletin No. 139-520,
dated April 26, 2018.
    (ii) [Reserved]
    (3) For service information identified in this AD, contact
Leonardo S.p.A. Helicopters, Emanuele Bufano, Head of Airworthiness,
Viale G.Agusta 520, 21017 C.Costa di Samarate (Va) Italy; telephone
+39-0331-225074; fax +39-0331-229046; or at https://customerportal.leonardocompany.com/en-US/.

    (4) You may view this service information at the FAA, Office of
the Regional Counsel, Southwest Region, 10101 Hillwood Pkwy., Room
6N-321, Fort Worth, TX 76177. For information on the availability of
this material at the FAA, call<PHONE_NUMBER>.
    (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, email<EMAIL_ADDRESS>or go to: https://www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued on August 13, 2021.
Lance T. Gant,
Director, Compliance & Airworthiness Division, Aircraft Certification
Service.
[FR Doc. 2021-19243 Filed 9-7-21; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 81, Number 129 (Wednesday, July 6, 2016)]
[Notices]
[Pages 44065-44073]
[FR Doc No: 2016-15918]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78196; File No. SR-FINRA-2016-023]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Increase
Transparency for CMO Transactions

June 29, 2016.
    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 June 27, 2016, Financial Industry Regulatory Authority, Inc.
(``FINRA'') 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 FINRA. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to to [sic] amend the FINRA Rule 6700 Series and
the Trade Reporting and Compliance Engine (``TRACE'') dissemination
protocols to provide for dissemination of transactions in an additional
type of Securitized Products--specifically, collateralized mortgage
obligations (``CMOs''). In addition, FINRA is proposing a corresponding
change to Rule 6730 to reduce the reporting period for CMOs from end-
of-day to 60 minutes, and also to amend Rule 6730 to simplify the
reporting requirements for transactions in CMOs executed prior to
issuance. FINRA further proposes technical and conforming changes to
the FINRA Rule 6700 Series and Rule 7730 in connection with the changes
referenced above.
    The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA proposes to amend the Rule 6700 Series and the TRACE
dissemination protocols to: (1) Provide for the dissemination of
transactions in CMOs,\3\ an additional group of Securitized Products
\4\ not yet subject to dissemination; (2) reduce the reporting
timeframe for CMOs from end-of-day to 60 minutes; and (3) simplify the
reporting requirements for pre-issuance CMO transactions. FINRA also
proposes technical and conforming changes to the Rule 6700 Series and
Rule 7730.
---------------------------------------------------------------------------

    \3\ The term ``Collateralized Mortgage Obligation,'' or CMO, is
defined in FINRA Rule 6710(dd) to mean a type of Securitized Product
backed by Agency Pass-Through Mortgage-Backed Securities as defined
in paragraph (v), mortgage loans, certificates backed by project
loans or construction loans, other types of mortgage-backed
securities or assets derivative of mortgage-backed securities,
structured in multiple classes or tranches with each class or
tranche entitled to receive distributions of principal and/or
interest according to the requirements adopted for the specific
class or tranche, and includes a real estate mortgage investment
conduit (``REMIC'').
    \4\ The term ``Securitized Product'' is defined in Rule 6710(m)
to mean a security collateralized by any type of financial asset,
such as a loan, a lease, a mortgage, or a secured or unsecured
receivable, and includes but is not limited to an asset-backed
security as defined in Section 3(a)(79)(A) of the Exchange Act, a
synthetic asset-backed security, and any residual tranche or
interest of any security specified above, which tranche or interest
is a debt security for purposes of paragraph (a) and the Rule 6700
Series.
---------------------------------------------------------------------------

Background
    FINRA requires members to report transactions in any security that
meets the definition of ``TRACE-Eligible Security'' \5\ to TRACE. Most
transactions

must be reported to TRACE within 15 minutes of the time of execution
and are subsequently disseminated.
---------------------------------------------------------------------------

    \5\ Rule 6710 generally defines a ``TRACE-Eligible Security''
as: (1) A debt security that is U.S. dollar-denominated and issued
by a U.S. or foreign private issuer (and, if a ``restricted
security'' as defined in Securities Act Rule 144(a)(3), sold
pursuant to Securities Act Rule 144A); or (2) a debt security that
is U.S. dollar-denominated and issued or guaranteed by an ``Agency''
as defined in Rule 6710(k) or a ``Government-Sponsored Enterprise''
as defined in Rule 6710(n).
---------------------------------------------------------------------------

    Securitized Products were the last major group of fixed income
securities to become subject to TRACE reporting. Initially, FINRA
received reports of transactions in these products for regulatory audit
trail purposes only and did not disseminate transaction data. FINRA
used the transaction reports it received to study the liquidity and
trading characteristics of various types of Securitized Products. Based
on its study, FINRA then started a phased approach to disseminating
transaction information for certain Securitized Products.
    For the first phase, on November 12, 2012, FINRA began
disseminating transactions in Agency Pass-Through Mortgage-Backed
Securities traded To Be Announced (``TBA'') (``MBS TBA'' transactions),
which are the most liquid types of Securitized Products.\6\ Next, on
July 22, 2013, FINRA began disseminating transactions in Agency Pass-
Through Mortgage-Backed Securities and SBA-Backed ABS (as defined in
FINRA Rule 6710(bb)) traded in Specified Pool Transactions.\7\ On June
30, 2014, FINRA began to disseminate information on transactions in
TRACE-Eligible Securities effected as Rule 144A transactions, provided
that such transactions were in securities that would be subject to
dissemination if effected in non-Rule 144A transactions.\8\ And most
recently, on June 1, 2015, FINRA began to disseminate transactions in
Asset-Backed Securities.\9\ Today, the remaining types of Securitized
Products not yet subject to dissemination are CMOs, commercial
mortgage-backed securities (``CMBSs''), and collateralized debt
obligations (``CDOs'').\10\ CMOs are the largest and most actively
traded of these remaining Securitized Products types. In addition, CMOs
typically have relatively smaller transaction sizes than those for
CMBSs and CDOs.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 66829 (April 18,
2012), 77 FR 24748 (April 25, 2012) (Order Approving File No. SR-
FINRA-2012-020); Regulatory Notice 12-26 (May 2012) and Regulatory
Notice 12-48 (November 2012).
    \7\ See Securities Exchange Act Release No. 68084 (October 23,
2012), 77 FR 65436 (October 26, 2012) (Order Approving File No. SR-
FINRA-2012-042) and Regulatory Notice 12-56 (December 2012).
    \8\ See Securities Exchange Act Release No. 70345 (September 6,
2013), 78 FR 56251 (September 12, 2013) (Order Approving File No.
SR-FINRA-2013-029) and Regulatory Notice 13-35 (October 2013).
    \9\ See Securities Exchange Act Release No. 71607 (February 24,
2014), 79 FR 11481 (February 28, 2014) (Order Approving File No. SR-
FINRA-2013-046) and Regulatory Notice 14-34 (August 2014).
    \10\ A ``Collateralized Debt Obligation,'' or CDO, would be
defined in proposed FINRA Rule 6710(ff) to mean a type of
Securitized Product backed by fixed-income assets (such as bonds,
receivables on loans, or other debt) or derivatives of these fixed-
income assets, structured in multiple classes or tranches with each
class or tranche entitled to receive distributions of principal and/
or interest in accordance with the requirements adopted for the
specific class or tranche. A CDO includes, but is not limited to, a
collateralized loan obligation, or CLO, and a collateralized bond
obligation, or CBO.
---------------------------------------------------------------------------

Current Proposal
    FINRA is proposing to expand the dissemination of Securitized
Products to include CMOs. Under the proposal, a CMO transaction will be
subject either to dissemination immediately upon receipt of the TRACE
transaction report, or to aggregate, periodic dissemination, depending
on the size of the transaction and the number of transactions in the
CMO security during a given period.
    Specifically, transactions in CMOs, including transactions effected
pursuant to Securities Act Rule 144A, will be subject to aggregate,
periodic dissemination on a weekly and monthly basis where the
transaction value is $1 million or more (calculated based upon original
principal balance) and where there have been five or more transactions
of $1 million or more in the reporting period reported by at least two
different market participant identifiers (``MPIDs'').\11\ For the
smaller-size transactions--i.e., transactions valued under $1 million
(calculated based upon original principal balance)--FINRA will
disseminate trade-by-trade information immediately upon receipt by
TRACE.\12\
---------------------------------------------------------------------------

    \11\ For example, if five transactions occurred in a particular
CMO security during each of the four weeks in a calendar month and
were reported by at least two unique MPIDs, then four weekly reports
would be disseminated; in addition, information on those
transactions would be included in the aggregate monthly report for
that calendar month. If five transactions occurred over the course
of a calendar month, but did not occur during a single week, then a
weekly report would not be available for that security (but the
transaction information would be included in the monthly report
provided the transactions were reported by at least two unique
MPIDs). For purposes of determining if a CMO security has been
reported by at least two different MPIDs, FINRA notes that it would
consider an interdealer trade to be reported by one MPID--the sell
side dealer--even though the trade is reported by both sides of the
transaction.
    \12\ Also in connection with the proposed dissemination of
information on CMO transactions, FINRA proposes to amend Rule 7730
(fees for TRACE) to reflect the addition of CMOs to the applicable
data sets. Disseminated periodic reports will become available as
part of the Securitized Products Data Set and all CMO transactions--
even if not previously disseminated upon receipt or as part of a
periodic report--will become part of the Historic Securitized
Products Data Set in FINRA Rule 7730. Similarly, disseminated
periodic reports for transactions in CMOs issued pursuant to Rule
144A will become part of the Rule 144A Data Set, and all Rule 144A
transactions in CMOs will become part of the Historic Rule 144A Data
Set. The inclusion of this additional data in such data sets will
not affect the fees currently in effect.
---------------------------------------------------------------------------

    The proposal will provide for this approach to CMO dissemination by
amending FINRA Rule 6750 (Dissemination of Transaction Information).
Rule 6750 currently contains two operative paragraphs--paragraph (a),
which provides generally for the dissemination of TRACE-Eligible
Securities immediately upon receipt of a transaction report, and
paragraph (b), which contains an exception to the general dissemination
provision in paragraph (a) and which notes the security or transaction
types that are not subject to dissemination. Currently, the remaining
Securitized Products--CMOs, CMBSs, and CDOs, are found within paragraph
(b) and are therefore not subject to dissemination.
    Under the proposal, current paragraph (b) will be replaced with a
paragraph that provides specifically for the dissemination of larger-
size ($1 million or more) CMO transactions on a periodic, rather than
immediate, basis, provided the transaction occurs in a CMO security
that meets the minimum activity threshold described above (i.e., at
least five transactions in the period reported by at least two
different MPIDs). The exception paragraph, which sets forth the
transaction types not subject to dissemination, will be new paragraph
(c). It will be revised to note that the only Securitized Products not
subject to dissemination are CMBSs, CDOs, and CMOs where the CMO
transaction value is $1 million or more (calculated based upon original
principal balance) and the transaction does not qualify for periodic
dissemination. However, as noted above, all transactions in CMOs will
become part of the historic data sets even if they were not subject to
dissemination upon receipt or periodic dissemination.\13\
---------------------------------------------------------------------------

    \13\ See supra note 12.
---------------------------------------------------------------------------

    To facilitate the proposed dissemination of CMOs, the proposal will
also amend Rule 6730(a)(3) to reduce the time period for reporting to
TRACE transactions in CMOs to TRACE executed on or after issuance.\14\
Currently, these CMO transactions must be reported to TRACE no later
than the close of the TRACE system on the date

of execution.\15\ Under the proposal, paragraph (H) would be added to
require that transactions in these CMOs must be reported to TRACE
within 60 minutes of execution.\16\
---------------------------------------------------------------------------

    \14\ As discussed in further detail below, reporting
requirements for transactions in a CMO prior to that CMO's issuance
are addressed separately in FINRA Rule 6730(a)(3)(C). FINRA notes
that it will also make a technical, clarifying edit to Rule
6730(a)(3) that is otherwise unrelated to this proposal;
specifically, FINRA will delete language in Rule 6730(a)(3)(B) that
describes the transitional reporting phase for Asset-Backed
Securities, since the transitional phase is now complete.
    \15\ See FINRA Rule 6730(a)(3)(A). As part of this proposal,
FINRA is proposing a technical, clarifying change to Rule
6730(a)(3)(A). This paragraph currently is titled ``General
Reporting Requirements'' for Securitized Products, but because only
CDOs and CMBSs will remain subject to the paragraph after this
proposal becomes effective, FINRA will rename this paragraph to make
clear that applies specifically to CDOs and CMBSs.
    \16\ As with other TRACE-Eligible Securities that are subject to
60-minute reporting, under proposed Rules 6730(a)(3)(H)(iii)-(iv),
transactions in CMOs, CMBSs, and CDOs that are executed less than 60
minutes before the TRACE system closes, or after, would need to be
reported no later than 60 minutes after TRACE opens the following
business day.
---------------------------------------------------------------------------

    Finally, FINRA proposes to modify the reporting timeframe for pre-
issuance CMO transactions. FINRA is proposing to amend Rule
6730(a)(3)(C) to provide that transactions in CMOs that are executed
before the date of issuance of the security must be reported no later
than the first settlement date of the security. Under the current rule,
firms generally must report CMO transactions that are executed prior to
issuance on the earlier of the business day that the security is
assigned a CUSIP, or the date of issuance of the security. FINRA is
aware that some firms, particularly small and mid-size firms, have had
difficulty in determining with accuracy in a timely manner when the
reporting obligation has been triggered, due to inconsistencies in
communicating the relevant information between underwriters and trading
parties. As a result, these firms do not always report trades in these
instruments on the earlier of the two dates specified in the current
rule. FINRA believes that, because new issuances in CMOs generally
settle on the last business day of the month, the amended proposal
would provide for a uniform reporting deadline that can be easily
ascertained by all firms.
    If the Commission approves the proposed rule change, FINRA will
announce the operative date of the proposed rule change in a Regulatory
Notice to be published no later than 90 days following Commission
approval. The operative date will be no later than 365 days following
publication of the Regulatory Notice announcing Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\17\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. As discussed throughout the filing, FINRA believes
that the proposed rule change will promote greater transparency in the
marketplace for CMOs. Based on dialogue with a variety of market
participants, FINRA believes the information it proposes to disseminate
would be valuable to assist in price discovery, determination of
execution quality, and, in particular, valuation of securities
positions. Furthermore, FINRA believes the proposal strikes an
appropriate balance between promoting transparency and preserving
anonymity, which may facilitate larger size trades and liquidity
provision. Based on FINRA's ongoing study of the trading
characteristics of Securitized Products, FINRA believes this proposal
is an important next phase in dissemination that will position FINRA to
evaluate whether and how to complete its expansion of dissemination to
cover all Securitized Product types.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    FINRA further believes that the proposed change to 60-minute trade
reporting will facilitate CMO dissemination by ensuring that FINRA is
able to receive and disseminate CMO transaction information in a timely
manner. Accordingly, FINRA believes this element of the filing will
help promote transparency and enhance investor protection and the
public interest.
    Finally, FINRA believes the proposed change to the reporting
timeframe for pre-issuance CMOs will further just and equitable
principles of trade by providing greater clarity and promoting
compliance with applicable reporting rules.

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

    FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. FINRA has undertaken an
economic impact assessment, as set forth below, to analyze the
regulatory need for the proposed rule change, its potential economic
impacts, including anticipated costs and benefits, and the alternatives
FINRA considered in assessing how to best meet its regulatory
objectives.
Need for the Rule
    As discussed above, FINRA believes this proposal is necessary and
appropriate to further promote transparency in the markets for
additional Securitized Products. FINRA believes the proposed
dissemination of transaction information for CMOs would be valuable to
assist in price discovery, determination of execution quality, and, in
particular, valuation of securities positions. FINRA believes the
proposed transition to 60-minute trade reporting for transactions in
CMOs executed on or after issuance is necessary to facilitate
meaningful dissemination of information for these securities. Finally,
FINRA believes the proposed change to the reporting timeframe for
transactions in pre-issuance CMOs is necessary to simplify the
reporting process, given that some firms, small and medium size firms
in particular, may have difficulty in determining with accuracy and in
a timely manner when their reporting obligations have been triggered.
Economic Impacts
    FINRA believes that enhanced transparency in CMOs will benefit
market participants, as discussed above, by contributing to more
efficient pricing and better execution quality for market participants
and clients. However, the proposed changes may impose direct and
indirect costs on market participants; for example, the proposal might
impose direct costs associated with more timely reporting of CMO
transactions and indirect costs associated with the potential leakage
of proprietary information. In the analysis below, we individually
assess the impact on market participants of each proposed change--(1)
dissemination of CMO transactions, (2) reducing the timeframe for
reporting CMO transactions, and (3) simplifying the reporting
requirements for pre-issuance CMO transactions.
(1) Dissemination of CMO Transactions
    The proposed dissemination of CMO transactions will enhance
transparency, which should benefit market participants and clients via
improved market quality. However, while enhanced transparency should
provide benefits broadly to the marketplace, it may impose indirect
costs on certain market participants, like those whose transaction
information is subject to dissemination. FINRA is cognizant of the
concern that the risk of information leakage could potentially harm
market quality if it discourages liquidity provision. Accordingly,
FINRA staff considered the potential for indirect costs associated with
providing information publicly that might permit competitors to reverse
engineer the disseminated data to produce private

information about trade participants, their trade positions and
possibly their trading strategies.
    To investigate whether dissemination, as proposed, could
potentially allow market participants to reverse-engineer the
identities of broker-dealers or positions, FINRA staff examined the
distribution of the number of MPIDs reporting transactions in each CMO
CUSIP, over the time period spanning May 13, 2011 to August 14, 2015.
Table 1 suggests that trading activity in CMOs, on a per-CUSIP basis,
is quite concentrated, with 32,200 CUSIPs--33.3% of all CMO CUSIPs--in
the sample traded by only one MPID over the sample period. These CUSIPs
traded by only one MPID are referred to as ``concentrated'' CUSIPs.
There were 64,449 remaining CUSIPs in the sample traded by two or more
MPIDs, referred to as ``non-concentrated'' CUSIPs.\18\ CUSIPs are
classified as concentrated and non-concentrated based on a threshold of
one MPID, as it represents cases where the information about firm
activity is most concentrated.
---------------------------------------------------------------------------

    \18\ Concentrated CUSIPs have a Herfindahl-Hirschman Index (HHI)
of one, while non-concentrated have an HHI that is less than one.
Algebraically, HHI is calculated as follows: HHI =
[Sigma]Ni = 1 si2 where si is the market share
of firm i, and there are N total firms in a market. HHI is a
succinct measure of market concentration, and it is widely used in
analyses of monopoly power, antitrust litigation, and other
prominent issues in industrial organization. The HHI of a market can
range from 0 to 1 (some publications use 0 to 10,000, but the
interpretation is the same after adjusting for scale), where HHI = 1
represents a perfectly concentrated market (one firms controls the
entire market) and HHI = 0 represents a perfectly competitive market
(infinitely many firms have infinitesimally small market share).

      Table 1--The Number of Different MPIDs Trading in CMO CUSIPs
------------------------------------------------------------------------
                Number of MPIDs                    CUSIPs         %
------------------------------------------------------------------------
1.............................................       32,220         33.3
2.............................................       17,792         18.4
3.............................................       10,573         10.9
4.............................................        6,677          6.9
5.............................................        4,595          4.8
6.............................................        3,511          3.6
7.............................................        2,737          2.8
8.............................................        2,229          2.3
9.............................................        1,903          2.0
10............................................        1,590          1.6
11............................................        1,317          1.4
12............................................        1,128          1.2
13............................................          955          1.0
14............................................          869          0.9
15............................................          753          0.8
15+...........................................        7,820          8.1
                                               -------------------------
    Total.....................................       96,669          100
------------------------------------------------------------------------

    Table 2 reports trading activity (the number of transactions and
trading volume) for the sample by concentrated versus non-concentrated
CUSIPs. Trading activity in concentrated CUSIPs represents only 1.73%
of transactions, but 15.75% of the trading volume. This suggests that
concentrated CUSIPs have relatively larger trade sizes.

          Table 2--Aggregate Trading Activity by Concentration
------------------------------------------------------------------------
                                                 Number of      Volume
                                               transactions    ($bil.)
------------------------------------------------------------------------
HHI = 1......................................        50,714       $1,692
HHI < 1......................................     2,879,089        9,049
                                              --------------------------
    Total....................................     2,929,803       10,741
------------------------------------------------------------------------

    Table 3 reports that the typical concentrated CUSIP trades only
about one to two times over the entire sample period. For non-
concentrated CUSIPs reported by two or more MPIDs, the typical CMO
trades 44.67 times over the sample period.\19\ In general, concentrated
CUSIPs have on average about half of the trading volume of non-
concentrated CUSIPs.
---------------------------------------------------------------------------

    \19\ On average, CMOs trade in 10.74 days out of 1,071 days in
the sample period.

               Table 3--Average Trading Activity per CUSIP
------------------------------------------------------------------------
                                                    Mean        Median
------------------------------------------------------------------------
HHI = 1......................  Number of               1.57         1.00
                                transactions/
                                CUSIP.
                               Transaction           $33.37       $10.60
                                size ($mil.).
                               Volume ($mil.).       $52.52       $19.00
------------------------------------------------------------------------
HHI < 1......................  Number of              44.67        10.00
                                transactions/
                                CUSIP.
                               Transaction            $3.14        $0.03
                                size ($mil.).
                               Volume ($mil.).      $140.40       $41.85
------------------------------------------------------------------------
Overall......................  Number of              30.31         5.00
                                transactions/
                                CUSIP.
                               Transaction            $3.67        $0.03
                                size ($mil.).
                               Volume ($mil.).      $111.11       $30.67
------------------------------------------------------------------------

    FINRA staff also investigated the trading activity above and below
the proposed threshold for immediate dissemination upon receipt, $1
million in original principal balance traded. Table 4 reports the
frequency of transactions that would have fallen above and below the
proposed threshold had they been in place during the sample period,
broken down by concentrated and non-concentrated CUSIPs. In the sample,
79.21% (0.36% + 78.85%) of transactions and 1.64% (0.02% + 1.62%) of
trading volume in CMOs would have been below the proposed threshold,
and thus would have been disseminated immediately upon receipt to FINRA
under the proposal.

                    Table 4--Distribution of Transactions Above and Below Proposed Threshold
----------------------------------------------------------------------------------------------------------------
                                                      Number of
                                                     transactions      Percent      Volume ($bil.)     Percent
----------------------------------------------------------------------------------------------------------------
HHI = 1 Below Threshold.........................             10,526         0.36              $1.97         0.02
HHI = 1 At/Above Threshold......................             40,188         1.37           1,690.13        15.74
HHI < 1 Below Threshold.........................          2,310,110        78.85             173.98         1.62
HHI < 1 At/Above Threshold......................            568,979        19.42           8,874.67        82.63
                                                 ---------------------------------------------------------------

    Total.......................................          2,929,803       100.00          10,740.75       100.00
----------------------------------------------------------------------------------------------------------------

    The total number of transactions and the trading volume that would
be disseminated under the $1 million threshold and the minimum five-
trade per CUSIP requirement are presented in Table 5. The table shows
that approximately 8.65% (6.24% + 2.41%) of transactions and 28.63%
(16.64% + 7.99%) of trading volume in CMOs would be disseminated in
weekly and monthly reports.

  Table 5--Aggregate Percentage of Transactions by Type and Dissemination With Minimum Two MPID Requirement for
                                                Periodic Reports
----------------------------------------------------------------------------------------------------------------
                                                   Transactions          %        Volume ($bil.)         %
----------------------------------------------------------------------------------------------------------------
Immediate.......................................       2,320,636           79.21             176            1.64
Weekly..........................................         182,893            6.24           1,787           16.64
Monthly.........................................          70,528            2.41             858            7.99
Not dis.........................................         355,746           12.14           7,919           73.73
                                                 ---------------------------------------------------------------
    Total.......................................       2,929,803          100.00          10,741          100.00
----------------------------------------------------------------------------------------------------------------

    Table 6 reports the average trade characteristics by concentration
at the MPID level. As illustrated by the table, 79.29% of an MPID's CMO
transactions would be disseminated immediately upon receipt, with 0.18%
in concentrated CUSIPs and 79.11% in non-concentrated CUSIPs.
Similarly, 11.74% (9.19% + 2.55%) of CMO transactions for the typical
MPID would be disseminated via weekly and monthly periodic reports,
with all transactions in non-concentrated CUSIPs. Finally, on average,
8.97% of an MPID's CMO transactions would not be subject to any
dissemination under the proposal, with 0.36% of in concentrated CUSIPs
and 8.61% in non-concentrated CUSIPs.

             Table 6--Average Trading Activity per MPID by Dissemination Frequency and Concentration
----------------------------------------------------------------------------------------------------------------
                                                                     (Number of MPIDs = 1,002)
                                                 ---------------------------------------------------------------
                                                         % of transactions                  % of volume
                                                 ---------------------------------------------------------------
                                                      HH = 1          HH < 1          HH = 1          HH < 1
----------------------------------------------------------------------------------------------------------------
Immediate.......................................            0.18           79.11            0.13           58.17
Weekly..........................................            0.00            9.19            0.02           20.46
Monthly.........................................            0.00            2.55            0.00            4.31
Not dis.........................................            0.36            8.61            0.85           16.05
----------------------------------------------------------------------------------------------------------------

    This analysis suggests that information leakage may not be a
significant issue based on the concentration of trading activity in
certain CUSIPs. Tables 5 and 6 confirm that it would be difficult to
ascertain significant information about a single MPID's trading
strategy from both the real time and periodic dissemination of CMO
trades, as less than 1% of trading in concentrated CUSIPs is expected
to be disseminated. Moreover, there are no concentrated CUSIPs where
the proposed rule would have led to dissemination of all trades by any
individual MPID.\20\
---------------------------------------------------------------------------

    \20\ 463 MPIDs would have all of their CMO trades disseminated
immediately upon receipt; however, none of those trades are in
concentrated CUSIPs.
---------------------------------------------------------------------------

(2) Reducing the Timeframe for Reporting CMO Transactions
    The second proposed change, reducing the reporting timeframe for
CMOs from end-of-day to 60 minutes is intended to facilitate timely
dissemination of information for these securities. However, FINRA is
aware that a narrower reporting window may impose direct costs on firms
to the extent that the firms have to modify or upgrade their reporting
systems to comply with the reduced time period for transactions in CMOs
executed on or after issuance.
    In a sample of 2,476,666 transactions reported on the day of the
execution, the average and median reporting time after execution are
approximately 19 minutes and 33 seconds, respectively.\21\
Approximately 92% of CMO transactions are currently reported to TRACE
within 60 minutes. Reports received 60 minutes or more after the
transaction execution are significantly larger than those that are
reported within 60 minutes.\22\
---------------------------------------------------------------------------

    \21\ The sample for the analysis of the reporting timeframes
excludes 453,137 ``as of'' trades that were in the original sample,
since such trades are reported at least a day after the transaction
day and are disseminated with a ``late'' flag and are subject to a
fine.
    \22\ Trades that are reported after 60 minutes have an average
transaction size of approximately $9.76 million, whereas the same
figure is approximately $2.76 million for trades that are reported
within 60 minutes. The difference of $7.00 million is statistically
significant at the 1% level.
---------------------------------------------------------------------------

    Of the 974 market participants that reported CMO trades during the
sample period, 417 reported all transactions

within 60 minutes. Another 400 market participants reported at least
90%, but less than 100% of their CMO transactions within 60 minutes of
execution. Finally, 157 market participants reported less than 90% of
their transactions within 60 minutes; of these, only six reported all
of their transactions more than 60 minutes after execution, but each of
the six reported fewer than five trades during the sample period.
    This analysis suggests that many market participants will require
no change in behavior to meet the proposed rule, and, as such, should
face no material costs. A second group of market participants currently
meet the proposed reporting standards at least 90% of the time,
suggesting that their costs for compliance should also be low. The data
indicate that there are a small but material number of market
participants that currently do not report in a manner consistent with
the proposed rule, but these firms engage in small numbers of
transactions in CMO securities. The cost that these firms would be
expected to incur as a result of the shorter reporting timeframe would
depend on the extent of the modification or upgrade to the reporting
systems to stay in compliance with the proposed rule.
(3) Simplifying the Reporting Requirements for Pre-Issuance CMO
Transactions
    The final proposed change would impact the reporting timeframe for
pre-issuance CMO transactions and is expected to benefit firms, since
it is intended to eliminate potential confusion about when the
reporting obligation has been triggered. The proposed requirement that
transactions in CMOs that are executed before the issuance of the
security must be reported no later than the first settlement date
provides firms with more time to report the transactions than they have
today.
Alternatives Considered
    As discussed in detail below, FINRA staff also considered the
dissemination of CMBSs and CDOs in addition to CMOs. Likely due to
differences in the customers that trade Securitized Products, CMOs
typically have relatively smaller transactions sizes than those for
CMBSs and CDOs and thus would be more likely disseminated under the
thresholds applied in this rule. For example, Table 5 above
demonstrates that 79.21% (0.36% + 78.85%) of CMO transactions would
have been below the proposed threshold, and thus would have been
disseminated immediately upon receipt under the proposal, whereas,
FINRA staff found that, under the same thresholds, only 29.51% and
37.92% of CDO and CMBS transactions would have been disseminated,
respectively, upon receipt. This observation suggests that differences
in average trade characteristics may lead to different outcomes for
dissemination across security types. Therefore, FINRA believes that
proceeding with CMO dissemination is a sensible next step, and it will
continue to analyze the potential for enhanced transparency for the
remaining Securitized Product types.
    FINRA staff also assessed whether the five-transaction requirement
for periodic dissemination of trades in weekly and monthly reports is
reasonable and appropriate based on trading frequency. The staff found
that increasing the requirement from five to ten transactions creates a
significant shift of transactions from aggregate, periodic
dissemination to no dissemination. If the threshold were increased to a
minimum of 20 transactions, then approximately 96% of trading volume
would not be disseminated.
    A higher minimum transaction number threshold may also result in
aggregate, periodic dissemination for transactions reported by far
fewer market participants. For example, based on the sample data
referenced above and assuming a five-transaction threshold for periodic
dissemination, 14 MPIDs would have had all of their transactions
disseminated weekly and an additional three MPIDs would have had all of
their transactions disseminated monthly. However, if the minimum trade
threshold were increased to ten, there would only be a single MPID
whose transactions would be consistently disseminated in weekly
reports, and another single MPID whose transactions would be
consistently disseminated via monthly reports.
    The analysis implies that increasing the minimum transaction number
threshold for periodic dissemination would dramatically reduce the
amount of information that is disseminated. In addition, it may
actually increase the risk of reverse-engineering the identity or
trading strategies of the single or few MPIDs whose trades would be
subject to dissemination under a higher minimum transaction number
threshold.
    Another alternative that FINRA considered was a 15-minute reporting
requirement for CMO transactions, rather than the 60-minute requirement
that FINRA proposes in this filing. As noted above, based on sample
data that FINRA has analyzed, the median reporting time for CMO
transactions is just under 20 minutes. Accordingly, FINRA believes that
a 15-minute reporting requirement may impose significantly greater
costs than a 60-minute requirement. Notably, FINRA believes that the 60
minute requirement is still expected to provide sufficiently timely
transparency to the market. FINRA also notes that the proposed 60-
minute requirement for CMOs mirrors the 60-minute requirement currently
in place for another type of Securitized Product--agency pass-through
mortgage-backed securities traded to be announced not good for
delivery.
    Finally, with respect to the reporting process for pre-issuance
CMOs, FINRA considered requiring that transactions be reported no later
than two days prior to the first settlement date. However, FINRA
understands that in many cases, particularly for private label
securities, the characteristics of a new issue may not be finalized
until the first settlement date of the securities. As a result, FINRA
is instead proposing that pre-issuance CMO transactions be reported by
the first settlement date.

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

    The proposed rule change was published for comment in Regulatory
Notice 15-04 (February 2015). Five comments were received in response
to the Regulatory Notice.\23\ A copy of the Regulatory Notice is
attached as Exhibit 2a. Copies of the comment letters received in
response to the Regulatory Notice are attached as Exhibit 2c. The
comments are summarized below.
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    \23\ See Letters from Letters from the Financial Information
Forum, dated April 7, 2015 (``FIF Letter''); Bond Dealers of
America, dated April 9, 2015 (``BDA Letter''); Association of
Institutional INVESTORS, dated April 10, 2015 (``INVESTORS
Letter''); Bloomberg's Valuation Service, dated April 10, 2015
(``BVAL Letter''); and the Securities Industry and Financial Markets
Association, dated April 13, 2015 (``SIFMA Letter'').
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    As an initial step, prior to issuing Regulatory Notice 15-04, FINRA
staff solicited industry input from several of its industry advisory
committees. At this stage, as in the Regulatory Notice, FINRA was
contemplating expanding dissemination to all remaining Securitized
Products, including CMOs, CMBSs, and CDOs. FINRA was also considering
reducing the reporting timeframe for these remaining Securitized
Products to 15 minutes. The committees were generally supportive. To
the extent the committees raised concerns, they were focused primarily

on what an appropriate threshold would be to determine whether
transactions are subject to immediate or periodic dissemination. At the
time FINRA raised this proposal with the committees, it was proposing
immediate dissemination for transactions below a threshold of $1
million in transaction size, and aggregate periodic reporting for
transactions greater than $1 million, provided there were at least five
trade reports in the same security during the applicable reporting
period. FINRA committed to vetting these proposed thresholds more
completely through the Regulatory Notice comment process.
    FINRA then published Regulatory Notice 15-04 in February 2015 and
received five comments in response. Like the industry advisory
committees, commenters focused primarily on the merits of disseminating
transaction information for the remaining Securitized Products, as well
as the thresholds proposed for immediate versus aggregate, periodic
reporting. Some of the commenters also discussed the elements of the
proposal that would have reduced the reporting timeframe for the
remaining Securities Products to 15 minutes.
    Two of the commenters took different views on the merits of
expanding dissemination to include the remaining Securitized Products.
The Association of Institutional INVESTORS (``INVESTORS'') strongly
favored dissemination because ``transparency will be extremely
beneficial to all market participants and greatly assist in price
discovery and in decreasing price dispersion.'' \24\ In contrast, the
Securities Industry and Financial Markets Association (``SIFMA'')
acknowledged that dissemination may contribute to better price
formation for additional Securitized Products but expressed its belief
that dissemination may negatively impact market liquidity. In SIFMA's
view, liquidity should be prioritized over enhancing price
discovery.\25\
---------------------------------------------------------------------------

    \24\ INVESTORS Letter at 1.
    \25\ See SIFMA Letter at 1-2.
---------------------------------------------------------------------------

    With respect to the specific items of transaction information FINRA
proposed in the Regulatory Notice to disseminate, the Financial
Information Forum (``FIF'') argued that the information disseminated
for the remaining Securitized Products should align with the
information disseminated for Asset-Backed Securities. FIF specifically
recommended suppressing the contra-party indicator and identifying
transactions that meet the definition of a List or Fixed Offering Price
Transaction.\26\ SIFMA similarly argued that only secondary trades in
CMOs should be disseminated, to align dissemination for additional
Securitized Products with dissemination for corporate and agency debt
and Asset-Backed Securities. SIFMA also expressed concerns about the
ability to reverse engineer transactions more easily if last sale price
and last sale date information were included in the periodic
reports.\27\
---------------------------------------------------------------------------

    \26\ See FIF Letter at 2. The term ``List or Fixed Price
Transaction'' is defined in Rule 6710(q) to mean a primary market
sale transaction sold on the first day of trading of a security,
including an Asset-Backed Security as defined in paragraph (cc), but
excluding any other Securitized Product as defined in paragraph (m):
(i) By a sole underwriter, syndicate manager, syndicate member or
selling group member at the published or stated list or fixed
offering price, or (ii) in the case of a primary market sale
transaction effected pursuant to Securities Act Rule 144A, by an
initial purchaser, syndicate manager, syndicate member or selling
group member at the published or stated fixed offering price.
    \27\ See SIFMA Letter at 3.
---------------------------------------------------------------------------

    Four of the commenters disagreed with the $1 million real-time
dissemination threshold that FINRA proposed in the Regulatory Notice,
although they took opposing views as to whether the threshold would
result in too many or too few transactions being subject to real-time
dissemination. According to INVESTORS, $1 million is too low given that
the market for Securitized Products is primarily institutional, so
INVESTORS recommended a $5 million threshold instead.\28\ Another
commenter, Bloomberg's Valuation Service (``BVAL'') also stated that
the $1 million threshold is too low to provide relevant pricing
information to the market, since less than 1% of the market trades
below $1 million, and the trades that do occur below the threshold
involve a different buyer base and pricing model.\29\
---------------------------------------------------------------------------

    \28\ See INVESTORS Letter at 2-3.
    \29\ See BVAL Letter at 1.
---------------------------------------------------------------------------

    On the other hand, two of the commenters believed that the proposed
$1 million threshold was too high. SIFMA stated that the threshold
should be lowered from $1 million to $100,000 ``to ensure only truly
retail-sized transactions'' are subject to real-time dissemination.
According SIFMA, setting the threshold at $1 million would include
inter-dealer trades as well as retail, and disseminating information on
both types of transactions could be ``misleading'' to retail investors.
Additionally, SIFMA expressed its belief that disseminating larger-size
trades could harm liquidity in an already illiquid marketplace.\30\ The
Bond Dealers of America (``BDA'') echoed the concern that disseminating
trades up to $1 million in value could impact market pricing and
liquidity and impact trading strategies.\31\
---------------------------------------------------------------------------

    \30\ See SIFMA Letter at 2.
    \31\ See BDA Letter at 3.
---------------------------------------------------------------------------

    Three of the commenters provided views on the proposed five
transaction threshold for the dissemination of aggregate periodic
reports for larger-size transactions. INVESTORS and BVAL did not
believe that there should be any minimum number of transactions
required per reporting period to qualify for dissemination, and that
such a minimum would restrict the proposal's usefulness.\32\ In
contrast, SIFMA argued that the five transaction minimum was too low,
and believed that it should be raised from five to 20, because
``[l]iquidity in the securitized products markets will be least
impacted by price dissemination if only truly actively traded CUSIPs
are captured in the weekly and monthly reports.'' \33\
---------------------------------------------------------------------------

    \32\ See INVESTORS Letter at 2-3 and BVAL Letter at 1.
    \33\ See SIFMA Letter at 2-3. This commenter further asked that
the proposed aggregate periodic reports not include last price and
trade date, to minimize the potential for reverse engineering.
---------------------------------------------------------------------------

    One commenter also addressed the proposed reduction of the
reporting timeframe to 15 minutes for transactions in the remaining
Securitized Products. BDA expressed concern that a reduced reporting
timeframe could have a disproportionate impact on smaller dealers and
may result in these products being traded less by dealers and more by
banking institutions that do not have to comply with TRACE reporting
requirements. BDA stated that additional Securitized Products typically
trade in ``odd lot'' sizes, where liquidity has traditionally been
provided by small to medium size dealers, who would face ``significant
challenges'' complying with a 15-minute reporting requirement.\34\
---------------------------------------------------------------------------

    \34\ See BDA Letter at 2-3.
---------------------------------------------------------------------------

    Finally, three of the commenters addressed the element of the
proposal that would simplify the reporting process for pre-issuance
CMOs, which in the Regulatory Notice would have required reporting no
later than two days prior to the first settlement date, with varying
levels of support. SIFMA strongly supported the change as proposed.\35\
BDA expressed support for the proposed change, but recommended that the
reporting deadline be moved back further, to settlement minus one
day.\36\ FIF recommended greater relaxation of the reporting timeframe,
proposing a settlement date deadline, rather than settlement minus two.

According to FIF, information for pre-issuance CMOs ``is not
consistently available two days prior to the first settlement date.''
\37\
---------------------------------------------------------------------------

    \35\ See SIFMA Letter at 3.
    \36\ See BDA Letter at 4.
    \37\ See FIF Letter at 2.
---------------------------------------------------------------------------

    FINRA carefully considered the committee views and written
comments. After analyzing this feedback, FINRA believes it is
appropriate to proceed with the proposal as described and explained
above in the filing, which has been modified from what FINRA proposed
in Regulatory Notice 15-04. Based on FINRA's continued study of the
impact of dissemination on TRACE-Eligible Securities, and Securitized
Products in particular, in addition to dialogue with a variety of
market participants and the feedback received on Regulatory Notice 15-
04, FINRA believes the proposed dissemination of transaction
information for CMOs would be valuable to assist in price discovery,
determination of execution quality, and, in particular, valuation of
securities positions. FINRA recognizes, however, that CMOs generally
are more complex and less fungible than the securities that are
currently subject to dissemination. As a result, FINRA believes it is
important to calibrate its proposal to provide for tiered dissemination
of these products in a way that promotes transparency while minimizing
potential negative impacts on liquidity. Importantly, while FINRA has
decided not to expand dissemination to CMBSs and CDOs at this time,
FINRA believes this proposal is a careful step towards enhanced
transparency for these remaining Securitized Product types, and that it
will allow FINRA and market participants to consider how best to
approach the final phase of dissemination expansion.
    In an effort to further calibrate the proposal to provide
additional safeguards against the risk of reverse-engineering, FINRA
modified the minimum security activity threshold first proposed in
Regulatory Notice 15-04 for periodic reporting. The Regulatory Notice
proposed to disseminate larger-size transactions ($1 million or more)
on an aggregate periodic basis provided there were five or more
transactions in the security during the reporting period. In response
to the feedback FINRA received, FINRA is now proposing to disseminate
aggregate periodic reports for larger-size transactions provided there
are five or more transactions in the security during the reporting
period, and further that the transactions must be reported by at least
two different MPIDs. FINRA believes that this modified threshold for
aggregate periodic reporting will further the interests of transparency
while being sensitive to the confidentiality of positions or trading
strategies, particularly in securities that trade in a concentrated
market made by just one dealer.
    Concerning the specific items of transaction information that FINRA
would disseminate for CMOs, FINRA has modified the proposal in part to
reflect the input it received from commenters. Specifically, FINRA will
remove counterparty information from transactions that are disseminated
and will also remove the data fields that it proposed in Regulatory
Notice 15-04 for the periodic reports that would have conveyed last
sale price, last sale date, customer buy, customer sell, and
interdealer prices. FINRA believes these modifications are appropriate
to address commenters' concerns about reverse engineering. FINRA has
not modified the proposal, however, in response to commenters'
suggestion to suppress new issue transactions in CMOs. The definition
of List or Fixed Price Transaction does not apply to CMOs. FINRA
believes that redefining the term List or Fixed Price Transaction to
include CMOs would result in a significantly less effective proposal,
according to input FINRA has received from various market participants.
    Concerning the reporting timeframe for transactions in CMOs
executed on or after issuance, FINRA modified its proposal to allow for
60-minute reporting rather than 15-minute reporting. FINRA believes
this change is appropriate to minimize firms' reporting burdens while
improving the timeliness in the receipt and dissemination of CMO
transaction information. FINRA notes that the proposed 60-minute
timeframe is the same as the reporting requirement for other
Securitized Products, namely, agency pass-through mortgage-backed
securities traded to be announced not for good delivery.
    Finally, FINRA has modified its approach to simplifying the
reporting process for pre-issuance CMOs from what it proposed in its
Regulatory Notice. As noted above, FINRA understands that in many
cases, particularly for private label securities, the characteristics
of a new issue may not be finalized until the first settlement date of
the securities. As a result, FINRA is no longer proposing a reporting
deadline two days prior to the first settlement date, but is instead
proposing that pre-issuance CMO transactions be reported by the first
settlement date.

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 (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization 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-FINRA-2016-023 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2016-023. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such

filing also will be available for inspection and copying at the
principal office of FINRA. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-FINRA-2016-023, and should be submitted on or before July 27, 2016.
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    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-15918 Filed 7-5-16; 8:45 am]
 BILLING CODE 8011-01-P