Self-Regulatory Organization; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 by the Pacific Exchange, Inc. Relating to Trading, Either by Listing or Pursuant to Unlisted Trading Privileges, Commodity-Based Trust Shares and Trading, Pursuant to Unlisted Trading Privileges, iShares® COMEX Gold Trust, 3952-3959 [E5-311]
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Federal Register / Vol. 70, No. 17 / Thursday, January 27, 2005 / Notices
Ohio. Woodsdale is wholly-owned by
CG&E. At June 30, 2004, the net book
value of Woodsdale was approximately
$153 million (including CWIP of
approximately $11 million).
CG&E will transfer the Plants at net
book value at closing, plus CWIP and
transaction costs. Declarants represent
that as of June 30, 2004, the net book
value of the Plants was approximately
$353.8 million. CWIP, as of June 30,
2004, was approximately $20.2 million.
Transaction costs will be approximately
$4.9 million.
CG&E proposes to transfer its right,
title and interest in and to the three
electric generating stations, together in
each case with certain realty and other
improvements, equipment, assets,
properties, facilities (e.g., inventories of
fuel, supplies, materials and spare parts)
associated with or ancillary to each
Plant. CG&E will retain all transmission
facilities and generation step-up
transformers or other FERCjurisdictional facilities physically
connected to the Plants.
Declarants state that the Plants are in
good operating condition and are
directly interconnected to the Cinergy
joint transmission system. Following the
Transfer, CG&E will continue to operate
Miami Fort 6. UHL&P will operate East
Bend and Woodsdale with assistance,
provided at cost, from Cinergy Services,
Inc. (Cinergy’s service company
subsidiary) in accordance with its utility
service agreement and with assistance
from CG&E, on an as-needed basis,
pursuant to the exemption under rule
87(a)(3).
The Plants will be transferred
pursuant to the terms of separate but
substantially identical Asset Transfer
Agreements.
At closing, ULH&P will compensate
CG&E at cost for inventories of fuels,
supplies, materials and spare parts of
CG&E located at or in transit to the
Plants. Also at closing, ULH&P will
reimburse CG&E for the transaction
costs incurred by CG&E or any of its
affiliates in connection with the
Transfer.
ULH&P will fund its acquisition of the
Plants with debt and equity, in reliance
on existing Commission authorization
and/or the exemption for state
commission-authorized financings
under rule 52(a). ULH&P anticipates the
equity to be additional common stock
and the debt to be long term debt with
an expected maturity of less than 40
years. ULH&P may issue some or all of
that long term debt to CG&E.
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17:20 Jan 26, 2005
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For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–308 Filed 1–26–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51067; File No. SR–PCX–
2004–132]
Self-Regulatory Organization; Notice of
Filing and Order Granting Accelerated
Approval of a Proposed Rule Change
and Amendment No. 1 by the Pacific
Exchange, Inc. Relating to Trading,
Either by Listing or Pursuant to
Unlisted Trading Privileges,
Commodity-Based Trust Shares and
Trading, Pursuant to Unlisted Trading
Privileges, iShares COMEX Gold
Trust
January 21, 2005.
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 December
28, 2004, the Pacific Exchange, Inc.
(‘‘PCX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. On January 13, 2005,
PCX amended the proposal.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons and is
approving the proposal on an
accelerated basis.
U.S.C. 78s(b)(l).
CFR 240.19b–4.
3 See Amendment No. 1, dated January 13, 2005
(‘‘Amendment No. 1’’). In Amendment No. 1, the
Exchange proposed new PCXE Rules 8.201(g)–(i),
which set forth certain restrictions on Equity
Trading Permit (‘‘ETP’’) Holders acting as registered
Market Makers in Commodity-Based Trust Shares,
explained in further detail below. In addition, the
Exchange proposed changes to Commentary .04 to
PCXE Rule 8.201 for the purpose of clarifying that
the Exchange will submit separate rule filings under
Section 19(b)(2) of the Act in connection with the
listing and/or trading of each Commodity-Based
Trust Shares. Further, in Amendment No. 1 the
Exchange represented that (1) as provided in the
Registration Statement to the Trust, the trustee will
charge a transaction fee in connection with the
redemption and/or creation of Baskets; (2) Barclays
Capital, Inc., the Initial Purchaser, will purchase
150,000 Shares of the Trust to compose the initial
Baskets; and (3) the Exchange’s surveillance
procedures are adequate to properly monitor the
trading of the Shares.
PO 00000
1 15
2 17
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange, through its wholly
owned subsidiary PCX Equities, Inc.
(‘‘PCXE’’ or ‘‘Corporation’’), proposes to
amend its rules governing the
Archipelago Exchange (‘‘ArcaEx’’), the
equities trading facility of PCXE. With
this filing, PCX proposes new PCXE
Rule 8.201 in order to permit trading,
either by listing or pursuant to unlisted
trading privileges (‘‘UTP’’), trust issued
receipts based on commodity interests
(‘‘Commodity-Based Trust Shares’’) and
trading, pursuant to UTP, iShares
COMEX 4 Gold Trust Shares (‘‘Gold
Shares’’).5 The text of the proposed rule
change is available at the PCX’s Web
site https://www.pacificex.com/legal/
legal_pending.html, the PCX’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,
PCX 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 III below. PCX 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
The Exchange proposes to add new
PCXE Rule 8.201 in order to permit
trading, either by listing or pursuant to
UTP, of Commodity-Based Trust Shares.
The Exchange also proposes to trade
pursuant to UTP the Gold Shares.
Introduction
PCXE Rule 8.201 will permit ArcaEx
to list and trade Commodity-Based Trust
Shares. Under the rule, for each series
of Commodity-Based Trust Shares, the
Exchange will submit for Commission
review and approval a filing pursuant to
4 COMEX is a division of the New York
Mercantile Exchange, Inc. (‘‘NYMEX’’) where gold
futures contracts are traded.
5 Telephone conversation between Tania
Blanford, Staff Attorney, Regulatory Policy, PCX,
and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on
January 21, 2005 (regarding scope of proposed rule
change).
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Federal Register / Vol. 70, No. 17 / Thursday, January 27, 2005 / Notices
Section 19(b) of the Act.6 Proposed
PCXE Rule 8.201(e) sets forth initial and
continued listing and trading criteria for
Commodity-Based Trust Shares on
ArcaEx.7 This rule proposal is based on
the rules of the American Stock
Exchange, LLC (‘‘Amex’’).8
The Exchange initially proposes to
trade, pursuant to UTP, iShares
COMEX Gold Trust Shares that
represent beneficial ownership interests
in the net assets of the Trust consisting
primarily of gold. As explained further
herein, Gold Shares will be issued in
baskets. Initially, each basket of 50,000
shares will correspond to 5,000 troy
ounces of gold. Thus, each Gold Share
will correspond to one-tenth of a troy
ounce of gold.9 The Gold Shares will
conform to the initial and continued
listing criteria under PCXE Rule
8.201(e). The Gold Trust will be formed
under a depositary trust agreement,
among Bank of New York (‘‘BNY’’) as
Trustee, Barclays Global Investors, N.A.
(‘‘Barclays’’) as the Sponsor, all
depositors,10 and the holders of Gold
Shares.11
In effect, purchasing Gold Shares in
the Trust will provide investors a new
mechanism to participate in the gold
market. The Trustee will not actively
manage the gold held by the Trust.
Information about the liquidity, depth,
and pricing mechanisms of the
international gold market, management
and structure of the Trust, and
description of the Gold Shares follows
below.
6 15 U.S.C. 78s(b). Because of the nature of the
Gold Trust, representing an interest in underlying
gold, the Exchange’s existing listing and trading
rules that permit the listing and trading of TIRs
pursuant to Rule 19b–4(e) under the Securities Act
of 1934 (‘‘Act’’) (‘‘Generic Listing Standards’’)
cannot be used to list or trade pursuant to UTP this
product.
7 Proposed PCXE Rule 8.201 for CommodityBased Trust Shares tracks but is not identical to
current PCXE Rule 8.200 relating to TIRs. The
initial listing standards set forth in PCXE Rule 8.201
provide that the Exchange establish a minimum
number of TIRs required to be outstanding at the
time of the commencement of trading on the
Exchange. As set forth in the section ‘‘Criteria for
Initial and Continued Listing,’’ the Exchange
represents the minimum number of Gold Shares
required to be outstanding at the time of trading to
be 150,000. See Amendment No. 1, supra note 3.
8 See Securities Exchange Act Release No. 50792
(December 3, 2004) 69 FR 71446 (December 9, 2004)
(SR–Amex–2004–38) (‘‘Amex Notice’’); Securities
Exchange Act Release No. 51058 (January 19,
2005)(’’Amex Order’’).
9 The amount of gold associated with each basket
(and individual Gold Share) is expected to decrease
over time as the Trust incurs and pays maintenance
fees and other expenses.
10 Barclays Capital, Inc., the Initial Purchaser, will
purchase 150,000 Shares of the Trust to compose
the initial Baskets. See Amendment No. 1, supra
note 3.
11 The Trust is not an investment company as
defined in Section 3(a) of the Investment Company
Act of 1940 (‘‘1940 Act’’).
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17:20 Jan 26, 2005
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Description of the Gold Market
In its filing with the Commission, the
PCX made the following representations
regarding the worldwide gold market,
citing the proposal of the Amex to list
the Gold Shares.12 The gold market is a
global marketplace consisting of both
over-the-counter (‘‘OTC’’) transactions
and exchange-traded products. The OTC
market generally consists of transactions
in spot, forwards, options and other
derivatives, while exchange-traded
transactions consist of futures and
options on futures.
(a) The OTC Market
The OTC market trades on a 24-hour
continuous basis and accounts for the
substantial portion of global gold
trading. Liquidity in the OTC market
can vary from time to time during the
course of the 24-hour trading day.
Fluctuations in liquidity are reflected in
adjustments to dealing spreads—the
differential between a dealer’s buy and
sell prices. The period of greatest
liquidity in the gold market is typically
that time of day when trading in the
European time zone overlaps with
trading in the United States. This occurs
when the OTC market trading in
London, New York, and other centers
coincides with futures and options
trading on the COMEX.13 This period
lasts for approximately four (4) hours
each New York business day morning.
The OTC market has no formal
structure and no open-outcry meeting
place. The main centers of the OTC
market are in London, New York, and
Zurich. Bullion dealers have offices
around the world, and most of the
world’s major bullion dealers are either
members or associate members of the
London Bullion Market Association
(‘‘LBMA’’), a trade association of
participants in the London Bullion
market.
There are no authoritative published
figures for overall worldwide volume in
gold trading. There are published
sources that do suggest the significant
size of the overall market. The LBMA
publishes statistics compiled from the
five (5) members offering clearing
services.14 The monthly average daily
Amex Notice.
open outcry trading hours of the COMEX
gold futures contract is from 8:20 a.m. to 1:30 p.m.
New York time Monday through Friday. NYMEX
ACCESS, an electronic trading system, is open for
trading on COMEX gold futures contracts from 2
p.m. Monday afternoon until 8 a.m. Friday morning
New York time; and from 7 p.m. Sunday night until
Monday morning at 8 a.m. New York time.
14 Information regarding clearing volume
estimates by the LBMA can be found at https://
www.lbma.org.uk/clearing_table.htm. The three
measures published by the LBMA are: volume, the
amount of metal transferred on average each day
PO 00000
12 See
13 The
Frm 00051
Fmt 4703
Sfmt 4703
3953
volume figures published by the LBMA
for 2003 range from a high of 19 million
to a low of 13.6 million troy ounces per
day. Through September 2004, the
monthly average daily volume has
ranged from a high of 17 million to a
low of 12.4 million. The COMEX also
publishes price and volume statistics for
transactions in contracts for the future
delivery of gold. COMEX figures for
2003 indicate that the average daily
volume for gold futures and options
contracts was 4.89 million (48,943
contracts) and 1.7 million (17,241
contracts) troy ounces per day,
respectively. Through October 2004, the
average daily volume for gold futures
and options was 6.08 million (60,817
contracts) and 2.01 million (20,173
contracts), respectively.15
(b) Futures Exchanges
The most significant gold futures
exchanges are the COMEX division of
the NYMEX and the Tokyo Commodity
Exchange (‘‘TOCOM’’).16 Trading on
these exchanges is based on fixed
delivery dates and transaction sizes for
the futures and options contracts traded.
The daily settlement price for COMEX
gold futures contracts is publicly
available on the NYMEX Web site at
https://www.nymex.com.17 The Exchange
measured in millions of troy ounces; value,
measured in U.S. dollars, using the monthly average
London PM fixing price; and the number of
transfers, which is the average number recorded
each day. The statistics exclude allocated and
unallocated balance transfers where the sole
purpose is for overnight credit and physical
movements arranged by clearing members in
locations other than London.
15 Information regarding average daily volume
estimates by the COMEX can be found at https://
www.nymex.com/jsp/markets.md_annualvolume6.jsp#2. The statistics are based on gold
futures contracts, each of which relates to 100 troy
ounces of gold.
16 There are other gold exchange markets, such as
the Istanbul Gold Exchange, the Shanghai Gold
Exchange and the Hong Kong Chinese Gold & Silver
Exchange Society.
17 The COMEX daily settlement price for each
gold futures contract is established by a
subcommittee of COMEX members shortly after the
close of trading of regular trading on the COMEX.
NYMEX Rule 3.43 sets forth the composition of the
subcommittee requiring that it consist of three (3)
members that represent the gold market.
Specifically, the Rule calls for the subcommittee to
include a floor broker, a floor trader, and one who
represents the trade. Rule 3.02 provides restrictions
on Committee members and others who possess
material, non-public information. A Committee
Member is prohibited from disclosing for any
purpose other than the performance of official
duties relating to the Committee, material, nonpublic information obtained as a result of such
person’s participation on the Committee. In
addition, no person may trade for his own account
or for or on behalf of any other account, in any
commodity interest on the basis of any material,
non-public information that such person knows was
obtained from such Committee member in violation
of Rule 3.02. Telephone conversation between
E:\FR\FM\27JAN1.SGM
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27JAN1
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Federal Register / Vol. 70, No. 17 / Thursday, January 27, 2005 / Notices
will provide a hyperlink on its Web site
(https://www.pacificex.com), via the
ArcaEx Web site (https://
www.archipelago.com), to the NYMEX
Web site for the purpose of disclosing
gold futures contract pricing.18 In
addition, the PCX represents that
COMEX gold futures prices, options on
futures quotes, and last sale information
are widely disseminated through a
variety of market data vendors
worldwide, including Bloomberg and
Reuters. The PCX further represents that
complete real-time data for COMEX gold
futures and options is available by
subscription from Reuters and
Bloomberg. The NYMEX also provides
delayed futures and options information
on current and past trading sessions and
market news free of charge on its Web
site at https://www.nymex.com. The
contract specifications for COMEX gold
futures contracts are also available from
the NYMEX at its Web site at https://
www.nymex.com, as well as other
financial informational sources.
(c) Gold Market Regulation
There is no direct regulation of the
global OTC market in gold. However,
indirect regulation of some of the
overseas participants does occur. In the
United Kingdom, responsibility for the
regulation of financial market
participants, including the major
participating members of the LBMA,
falls under the authority of the Financial
Services Authority (‘‘FSA’’) as provided
by the Financial Services and Market
Act of 2000 (‘‘FSM Act’’). Under the
FSM Act, all UK-based banks, together
with other investment firms, are subject
to a range of requirements, including
fitness and properness, capital
adequacy, liquidity, and systems and
controls. The FSA is responsible for
regulating investment products,
including derivatives, and those who
deal in investment products. Regulation
of spot, commercial forwards, and
deposits of gold and silver not covered
by the FSM Act is provided for by The
London Code of Conduct for NonInvestment Products, which was
established by market participants in
conjunction with the Bank of England,
and is a voluntary code of conduct
among market participants.
Participants in the U.S. OTC market
for gold are generally regulated by their
Tania Blanford, Staff Attorney, Regulatory Policy,
PCX, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation,
Commission, on January 18, 2005.
18 Telephone conversation between Tania
Blanford, Staff Attorney, Regulatory Policy, PCX,
and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on
January 19, 2005.
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17:20 Jan 26, 2005
Jkt 205001
institutional supervisors, which regulate
their activities in the other markets in
which they operate. For example,
participating banks are regulated by the
banking authorities. In the U.S., the
Commodity Futures Trading
Commission (‘‘CFTC’’), an independent
governmental agency with the mandate
to regulate commodity futures and
options markets in the U.S., regulates
market participants and has established
rules designed to prevent market
manipulation, abusive trade practices,
and fraud.
TOCOM has authority to perform
financial and operational surveillance
on its members’ trading activities,
scrutinize positions held by members
and large-scale customers, and monitor
price movements of futures markets by
comparing them with cash and other
derivative markets’ prices.
Trust Management and Structure
Initially, the Exchange proposes to
trade pursuant to UTP on ArcaEx Gold
Shares, which represent units of
fractional undivided beneficial interest
in and ownership of the Trust. The
purpose of the Trust is to hold gold
bullion.19 The Exchange states that the
investment objective of the Trust is for
the Gold Shares to reflect the
performance of the price of gold, less
the Trust’s expenses.
The Trust is an investment trust and
is not managed like a corporation or an
active investment vehicle. The Trust has
no board of directors or officers or
persons acting in a similar capacity. The
Exchange states that the Trust is not a
registered investment company under
the 1940 Act and is not required to
register under such Act. The Sponsor
(Barclays), Trustee (BNY), and
Custodian (The Bank of Nova Scotia) are
not affiliated with one another or with
the Exchange.
Trust Expenses and Management Fees
Generally, the assets of the Trust (e.g.,
gold bullion) will be sold to pay Trust
expenses and management fees. These
expenses and fees will reduce the value
of an investor’s Share as gold bullion is
sold to pay such costs. Ordinary
operating expenses of the Trust include
(1) fees paid to the Sponsor, (2) fees
19 The Commission has previously approved the
listing of products for which the underlying was a
commodity or otherwise was not a security trading
on a regulated market. See, e.g., Securities Exchange
Act Release Nos. 19133 (October 14, 1982)
(approving the listing of standardized options on
foreign currencies ); 36505 (November 22, 1995)
(approving the listing of dollar-denominated
delivery foreign currency options on the Japanese
Yen); and 36165 (August 29, 1995) (approving
listing standards for, among other things, currency
and currency index warrants).
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Frm 00052
Fmt 4703
Sfmt 4703
paid to the Trustee, (3) fees paid to the
Custodian, and (4) various Trust
administration fees, including printing
and mailing costs, legal and audit fees,
registration fees, and Amex listing fees.
The Trust’s estimated ordinary
operating expenses are accrued daily
and reflected in the net asset value
(‘‘NAV’’) of the Trust.
Description and Characteristics of the
Gold Shares
(i) Liquidity
The Exchange represents that a
minimum of 150,000 Gold Shares will
be outstanding at the start of trading.20
The minimum number of shares
required to be outstanding at the start of
trading is comparable to requirements
that have been applied to previously
listed series of trust issues receipts,
Portfolio Depository Receipts and Index
Fund Shares.
While the Gold Shares will trade on
the Amex and ArcaEx until 4:15 p.m.
New York time, liquidity in the OTC
market for gold will be reduced after the
close of the COMEX at 1:30 p.m. New
York time when daily trading at COMEX
and other world gold trading counters
ends. Trading spreads and the resulting
premium or discount on the Gold
Shares may widen as a result of reduced
liquidity in the OTC gold market. The
Exchange does not believe that the Gold
Shares will trade at a material discount
or premium to the value of the
underlying gold held by the Trust
because of arbitrage opportunities.21
(ii) Creation and Redemption of Trust
Shares
Gold Shares will be issued only in
baskets of 50,000 shares or multiples
thereof (such aggregation referred to as
the ‘‘Basket Aggregation’’ or ‘‘Basket’’).
The Trust will issue and redeem the
Gold Shares on a continuous basis, by
or through participants that have
entered into participant agreements
(each, an ‘‘Authorized Participant’’) 22
with the Sponsor, Barclays, and the
Trustee, BNY, at the NAV per share next
20 See
Amendment No. 1, supra note 3.
represents that Gold Shares will only trade
on ArcaEx during Amex trading hours for this
product of 9:30 a.m. to 4:15 p.m., New York time.
These are the hours during which Amex
disseminates the Indicative Trust Value. Telephone
conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, on January 21,
2005.
22 An ‘‘Authorized Participant’’ is a person, who
at the time of submitting to the trustee an order to
create or redeem one or more Baskets, (i) is a
registered broker-dealer, (ii) is a Depository Trust
Company (‘‘DTC’’) Participant or an Indirect
Participant, and (iii) has in effect a valid Authorized
Participant Agreement.
21 PCX
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Federal Register / Vol. 70, No. 17 / Thursday, January 27, 2005 / Notices
determined after an order to purchase or
redeem Gold Shares in a Basket
Aggregation is received in proper form.
Authorized Participants are the only
persons that may place orders to create
and redeem Baskets. Authorized
Participants purchasing Baskets will be
able to separate a Basket into individual
Gold Shares for resale.
Basket Aggregations will be issued in
exchange for a corresponding amount of
gold, measured in fine ounces (the
‘‘Basket Gold Amount’’). The Basket
Gold Amount will be determined at or
about 4 p.m. each business day by the
Trustee, BNY.23 Initially, creation of a
Basket will require delivery of 5,000
fine ounces of gold. This Basket Gold
Amount will change from day to day
and decrease over the life of the Trust
due to the payment or accrual of fees
and other expenses payable by the
Trust. On each day that the Amex is
open for regular trading, the BNY will
adjust the quantity of gold constituting
the Basket Gold Amount as appropriate
to reflect sales of gold, any loss of gold
that may occur, and accrued expenses.24
The BNY will determine the Basket
Gold Amount for a given business day
by multiplying the NAV for each Gold
Share by the number of Gold Shares in
each Basket (50,000) and dividing the
resulting product by that day’s COMEX
settlement price for the spot month gold
futures contract. Authorized
Participants that submitted an order
prior to 4:00 p.m. to purchase a Basket
must transfer the Basket Gold Amount
to the Trust in exchange for a Basket.
Gold Shares are not individually
redeemable, and Authorized
Participants that wish to redeem a
Basket (i.e., 50,000 Gold Shares) will
receive the Basket Gold Amount in
exchange for each Basket surrendered.
Upon the surrender of the Gold Shares
and payment of the applicable Trustee’s
fee and any expenses, taxes or charges,
the BNY will deliver to the redeeming
Authorized Participant the amount of
23 At the same time the BNY will also determine
an ‘‘Indicative Basket Gold Amount’’ that
Authorized Participants can use as an indicative
amount of gold to be deposited for issuance of the
Gold Shares on the next business day. The Trustee
will disseminate daily the Indicative Basket Gold
Amount on the Trust Web site. Because the
creation/redemption process is based entirely on
the physical delivery of gold (and does not
contemplate a cash component), the actual number
of fine ounces required for the Indicative Basket
Gold Amount will not change intraday, even though
the value of the Indicative Amount may change
based on the market price of gold.
24 The Trust’s expense ratio, in the absence of any
extraordinary expenses and liabilities, is
established at 0.40% of the net assets of the Trust.
As a result, the amount of gold by which the Basket
Gold Amount will decrease each day will be
predictable (i.e. 1/365th of the net asset value of the
Trust multiplied by 0.40%).
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17:20 Jan 26, 2005
Jkt 205001
gold corresponding to the redeemed
Baskets. Unless otherwise requested by
the Authorized Participants, gold will
then be delivered to the redeeming
Authorized Participants in the form of
physical bars only.25 Thus, although
Authorized Participants place orders to
purchase or redeem Gold Shares
throughout the trading day, the actual
Basket Gold Amount is determined at 4
p.m. or shortly thereafter.
The Bank of Nova Scotia (‘‘BNS’’) will
be the custodian for the Trust and
responsible for safekeeping the gold.26
Gold deposited with BNS must either (a)
meet the requirements to be delivered in
settlement of a COMEX gold futures
contract pursuant to the rules adopted
by the COMEX or (b) meet the
specifications for weight, dimensions,
fineness (or purity), identifying marks
and appearance of gold bars as set forth
in ‘‘The Good Delivery Rules for Gold
and Silver Bars’’ published by the
LBMA.
Shortly after 4 p.m. each business
day, the BNY will determine the NAV
for the Trust. The BNY will calculate
the NAV by multiplying the fine ounces
of gold held by the Trust (after gold has
been sold for that day to pay that day’s
fees and expenses) by the daily
settlement value of the COMEX spot
month gold futures contract.27 At any
25 If the amount of gold corresponding to the
Basket Gold Amount results in an amount that is
less than a full gold bar denomination, the
Authorized Participant has the ability to take and/
or deliver fractional gold bar amounts. Telephone
conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, on January 18,
2005.
26 If the total value of the Trust’s gold held by the
custodian exceeds $2 billion, then the custodian
will be under no obligation to accept additional
gold deliveries. In such a case, the Trustee will
retain an additional custodian.
27 As previously stated, the COMEX daily
settlement price for each gold futures contract is
established by a subcommittee of COMEX members
shortly after the close of trading in New York. The
daily settlement price for each contract (delivery
month) is derived from the daily settlement price
for the most active futures contract month that is
not necessarily the spot month. This settlement
price is the average of the highest and lowest priced
trades reported during the last one (1) minute of
trading during regular trading hours. For all other
gold futures contract months (which may include
the spot month), the settlement prices are
determined by COMEX based upon differentials
reflected in spread trades between adjacent months,
such differentials being directly or indirectly
related to the most active month. These differentials
are the average of the highest and lowest spread
trades (trades based upon the differential between
the prices for two contract months) reported during
the last fifteen (15) minutes of trading during
regular trading hours. In the case that there were no
such spread trades, the average of the bids and
offers for spread transactions during that last fifteen
(15) minute period are used. In the case where there
are no bids and offers during that time, the
contracts are settled at prices consistent with the
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point in time, the spot month contract
is the futures contract then closest to
maturity. If a COMEX settlement price
for a spot month gold futures contract is
not announced, the Trustee will use the
most recently announced spot month
COMEX settlement price, unless the
Trustee (BNY), in consultation with the
Sponsor (Barclays), determines that
such price is inappropriate. Once the
value of the gold is determined, the
BNY will then subtract all accrued fees
(other than the fees to be computed by
reference to the value of the Trust or its
assets), expenses, and other liabilities of
the Trust from the total value of gold
and all other assets of the Trust. This
adjusted NAV is then used to compute
all fees (including the Trustee and
Sponsor fees) that are calculated from
the value of Trust assets. To determine
the NAV, the BNY will subtract from the
adjusted NAV the amount of accrued
fees from the value of Trust assets. The
BNY will calculate the NAV per share
by dividing the NAV by the number of
Gold Shares outstanding.
Availability of Information Regarding
Gold Shares
The Web site for the Trust at https://
www.ishares.com, which will be
publicly accessible at no charge, will
contain the following information about
Gold Shares: (a) The prior business
day’s NAV, Basket Gold Amount, the
reported closing price, and the present
day’s Indicative Basket Gold Amount;
(b) the mid-point of the bid-ask price 28
in relation to the NAV as of the time the
NAV is calculated (the ‘‘Bid-Ask
Price’’); (c) calculation of the premium
or discount of such price against such
NAV; (d) data in chart form displaying
the frequency distribution of discounts
and premiums of the Bid-Ask Price
against the NAV, within appropriate
ranges for each of the four (4) previous
calendar quarters; (e) the Prospectus;
and (f) other applicable quantitative
information, such as expense ratios,
trading volumes, and the total return of
the Gold Shares.29 The Exchange will
provide a hyperlink on its Web site
(https://www.pacificex.com), via the
differentials for other contract months that were
settled by the first or second method. If the third
method is used, the subcommittee of the COMEX
members establishing those settlement prices
provides a record of the differentials from other
contract months that formed the basis for those
settlements.
28 The bid-ask price of Gold Shares is determined
using the highest bid and lowest offer as of the time
of calculation of the NAV.
29 Telephone conversation between Tania
Blanford, Staff Attorney, Regulatory Policy, PCX,
and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on
January 19, 2005 (as to examples of ‘‘other
quantitative information’’).
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ArcaEx Web site (https://
www.archipelago.com), to the Trust’s
Web site at https://www.ishares.com.30
The Exchange will also provide a
hyperlink on its Web site (https://
www.pacificex.com), via the ArcaEx
Web site (https://www.archipelago.com),
to the Amex Web site at https://
www.amex.com on which Amex will
make available daily trading volume,
closing prices, and the NAV from the
previous day of Gold Shares.31 Amex
will also disseminate during regular
Amex trading hours from 9:30 a.m. to
4:15 p.m. New York time through the
facilities of the Consolidated Tape
Association (‘‘CTA’’) the last sale price
for Gold Shares on a real-time basis.32
In addition, Amex will disseminate each
day the prior day’s NAV and shares
outstanding through the facilities of the
CTA. Amex will also disseminate the
Indicative Trust Value on a per Gold
Share basis every 15 seconds through
the facilities of the CTA during regular
Amex trading hours of 9:30 a.m. to 4:15
p.m. New York time.33 Shortly after 4
p.m. each business day, the BNY, Amex,
and Barclays (Sponsor) will disseminate
the NAV for the Gold Shares, the Basket
Gold Amount (for orders placed during
the day), and the Indicative Basket Gold
Amount (for use by Authorized
Participants contemplating placing
orders the following business day). The
Basket Gold Amount, the Indicative
Basket Gold Amount, and the NAV are
30 Telephone conversation between Tania
Blanford, Staff Attorney, Regulatory Policy, PCX,
and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on
January 19, 2005.
31 Id.
32 Telephone conversation between Tania
Blanford, Staff Attorney, Regulatory Policy, PCX,
and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on
January 19, 2005 (as to real-time dissemination of
last sale price).
33 The Indicative Trust Value will be calculated
based on the estimated amount of gold required for
creations and redemptions on that day (e.g.,
Indicative Basket Gold Amount) and a price of gold
derived from the most recently reported trade price
in the active gold futures contract. The prices
reported for the active contract month will be
adjusted based on the prior day’s spread differential
between settlement values for that contract and the
spot month contract. In the event that the spot
month contract is also the active contract, the last
sale price for the active contract will not be
adjusted.
The Indicative Trust Value will not reflect
changes to the price of gold between the close of
trading at the COMEX, typically 1:30 p.m. New
York time, and the open of trading on the NYMEX
ACCESS market at 2 p.m. New York time. While the
market for the gold futures is open for trading, the
Indicative Trust Value can be expected to closely
approximate the value per share of the Indicative
Basket Gold Amount. The Indicative Trust Value on
a per Gold Share basis disseminated during Amex
trading hours should not be viewed as a real time
update of the NAV, which is calculated only once
a day.
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communicated by the BNY to all
Authorized Participants via facsimile or
electronic mail message and will be
available on the Trust’s Web site at
https://www.ishares.com.
Shares: (i) If the Trust has more than
sixty (60) days remaining until
termination and there are fewer than
fifty (50) record and/or beneficial
holders of the Gold Shares for thirty (30)
or more consecutive trading days; (ii) if
the Trust has fewer than 50,000 Gold
Shares issued and outstanding; or (iii) if
the market value of all Gold Shares is
less than $1,000,000.
(b) If the value of the underlying gold
is no longer calculated or available on
at least a 15 second delayed basis from
a source unaffiliated with the sponsor,
trust, custodian or the Exchange or the
Exchange stops providing a hyperlink
on its Web site to any such unaffiliated
gold value.
(c) The Indicative Trust Value is no
longer made available on at least a 15
second delayed basis.
(d) If such other event shall occur or
condition exists which in the opinion of
the Exchange makes further dealings on
the Exchange inadvisable.
Information about Underlying Gold
Holdings
There is a considerable amount of
gold price and gold market information
available on public Web sites and
through professional and subscription
services. In most instances, real-time
information is only available for a fee,
and information available free of charge
is subject to delay (typically 20
minutes). The Exchange states that
investors may obtain on a 24-hour basis
gold pricing information based on the
spot price for a troy ounce of gold from
various financial information service
providers, such as Reuters and
Bloomberg. Reuters and Bloomberg
provide at no charge on their Web sites
delayed information regarding the spot
price of gold and last sale prices of gold
futures, as well as information about
news and developments in the gold
market. Reuters and Bloomberg also
offer a professional service to
subscribers for a fee that provides
information on gold prices directly from
market participants. In addition, an
organization named EBS provides an
electronic trading platform to
institutions such as bullion banks and
dealers for the trading of spot gold, as
well as a feed of live streaming prices
to Reuters and Moneyline Telerate
subscribers.
As previously stated, the Exchange
states that complete real-time data for
gold futures and options prices traded
on the COMEX is available by
subscription from Reuters and
Bloomberg. The closing price and
settlement prices of the COMEX gold
futures contracts are publicly available
from the NYMEX at https://
www.nymex.com, automated quotation
systems, published or other public
sources, or on-line information services
such as Bloomberg or Reuters. The
NYMEX also provides delayed futures
and options information on current and
past trading sessions and market news
free of charge on its Web site.
ArcaEx Trading Rules and Policies
Gold Shares are equity securities
subject to Exchange Rules governing the
trading of equity securities, including
among others, rules governing priority,
parity and precedence of orders, and
customer suitability (PCXE Rule 9.2).
Initial equity margin requirements of
50% will apply to transactions in Gold
Shares. Gold Shares will trade on
ArcaEx during the Amex trading hours
until 4:15 p.m. New York time, and will
trade in a minimum price variation of
$0.01 pursuant to PCXE Rule 7.6.
Trading rules pertaining to odd-lot
trading in Exchange equities (PCXE Rule
7.38) will also apply.34
Gold Shares will be deemed ‘‘Eligible
Securities,’’ as defined in PCXE Rule
7.55(a)(3), for purposes of the
Intermarket Trading System Plan and
therefore will be subject to the tradethrough provisions of PCXE Rule 7.56,
which require that ETP Holders avoid
initiating trade-throughs for ITS
securities.
Unless exemptive or no-action relief
is available, Gold Shares will be subject
to the short sale requirements of Rule
10a–1 and Regulation SHO under the
Act.35 If exemptive or no-action relief is
Criteria for Initial and Continued Listing
The Trust will be subject to the
criteria in proposed PCXE Rule 8.201(e)
for initial and continued trading of Gold
Shares. The continued trading criteria
provides for the removal from trading of
the Gold Shares under any of the
following circumstances:
(a) Following the initial twelve (12)
month period from the date of
commencement of trading of the Gold
34 Rules applicable to the Amex Specialist trading
of the Gold Shares, e.g., Amex Rules 154,
Commentary .04(c); 190; and 170, are not applicable
to ETP Holders, functioning as market makers in the
Gold Shares. Telephone conversation between
Tania Blanford, Staff Attorney, Regulatory Policy,
PCX, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation,
Commission, on January 21, 2005.
35 The Gold Trust has requested exemptive relief
in connection with the trading of Gold Shares from
the operation of certain short sale requirements of
Rule 10a–1 and may seek no-action relief from Rule
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3957
provided, the Exchange will issue a
notice detailing the terms of the
exemption or relief.
PCXE has proposed Rule 8.201(g),
which addresses potential conflicts of
interest in connection with acting as a
market maker in the Gold Shares.
Specifically, Rule 8.201(g) will provide
that an ETP Holder acting as a registered
Market Maker in Commodity-Based
Trust Shares is obligated to comply with
PCXE Rule 7.26 pertaining to limitations
on dealings when such Market Maker,
or affiliate, engages in certain ‘‘Other
Business Activities.’’ Such ‘‘Other
Business Activities’’ will be deemed to
include trading in an underlying
commodity, related commodity futures
or options on commodity futures, or any
other related commodity derivatives.
Pursuant to PCXE Rule 7.26, a Market
Maker may engage in ‘‘Other Business
Activities’’ only if there is an
information barrier between the market
making activities and the ‘‘Other
Business Activities.’’ 36
8.201(h) will require that the ETP
Holder acting as a registered Market
Maker in the Gold Shares provide the
Exchange with information relating to
its trading in physical gold, gold futures
contracts, options on gold futures, or
any other gold derivative.38 PCXE Rule
8.201(i) will prohibit the ETP Holder
acting as a registered Market Maker in
the Gold Shares from using any material
nonpublic information received from
any person associated with an ETP
Holder or employee of such person
regarding trading by such person or
employee in physical gold, gold futures
contracts, options on gold futures, or
any other gold derivatives (including
the Gold Shares).39 In addition, as stated
above, PCXE Rule 8.201(g) will prohibit
the ETP Holder acting as a registered
Market Maker in the Gold Shares from
being affiliated with a market maker in
physical gold, gold futures, or options
on gold futures unless adequate
information barriers are in place, as
provided in PCXE Rule 7.26.40
over the trading of gold as a physical
commodity.
The Information Circular will also
notify ETP Holders about the
procedures for purchases and
redemptions of Gold Shares in baskets
and that Gold Shares are not
individually redeemable but are
redeemable only in basket size
aggregations or multiples thereof. The
Information Circular will advise ETP
Holders of their suitability obligations
with respect to recommended
transactions to customers in Gold
Shares. The Information Circular will
also discuss any relief, if granted, by the
Commission or the staff from any rules
under the Act.
The Information Circular will disclose
that the NAV for Gold Shares will be
disseminated shortly after 4 p.m. ET
each trading day based on the COMEX
daily settlement value, which is
disseminated shortly after 1:30 p.m. ET
each trading day.
Surveillance
PCX represents that its surveillance
procedures applicable to trading of Gold
Shares on ArcaEx are adequate to deter
manipulation and will be similar to
those applicable to TIRs, exchangetraded funds (‘‘ETFs’’) currently trading
on ArcaEx. In addition, the Exchange
has entered into an Information Sharing
Agreement with NYMEX for the
purpose of providing information in
connection with trading in or related to
COMEX gold futures contracts.
Further, PCX has proposed new PCXE
Rules 8.201(g)–(i), which set forth
certain restrictions on ETP Holders
acting as registered Market Makers in
Commodity-Based Trust Shares to
facilitate surveillance.37 PCXE Rule
Information Circular
The Exchange will distribute an
information circular (‘‘Information
Circular’’) to its ETP Holders in
connection with the trading of Gold
Shares. The Information Circular will
discuss the special characteristics and
risks of trading this type of security.
Specifically, the Information Circular,
among other things, will discuss what
the Gold Shares are, how a basket is
created and redeemed, the requirement
that ETP Holders deliver a prospectus to
investors purchasing the Gold Shares
prior to or concurrently with the
confirmation of a transaction, applicable
PCXE rules, dissemination information
regarding the per share Indicative Trust
Value, trading information, and
applicable suitability rules. The
Information Circular will also explain
that the Gold Trust is subject to various
fees and expenses described in the
Registration Statement and that the
number of ounces of gold required to
create a basket or to be delivered upon
redemption of a basket will gradually
decrease over time because the Gold
Shares comprising a basket will
represent a decreasing amount of gold
due to the sale of the Gold Trust’s gold
to pay Trust expenses. The Information
Circular will also reference the fact that
there is no regulated source of last sale
information regarding physical gold and
that the Commission has no jurisdiction
Suitability
200(g) of Regulation SHO under the Act. See 17
CFR 240.10a–1; 17 CFR 240.200(g). The requested
relief is currently pending with the Commission
staff in the Division of Market Regulation. If
granted, Gold Shares would be exempt from Rule
10a–1, permitting sales without regard to the ‘‘tick’’
requirements of Rule 10a–1. Rule 10a–1(a)(1)(i)
provides that a short sale of an exchange-traded
security may not be effected (i) below the last
regular-way sale price (an ‘‘uptick’’) or (ii) at such
price unless such price is above the next preceding
different price at which a sale was reported (a
‘‘zero-plus tick’’). No-action relief from the marking
requirements of Rule 200(g) of Regulation SHO
would permit broker-dealers, subject to certain
conditions, to mark short sales in the Gold Shares
‘‘short,’’ rather than ‘‘short exempt.’’
36 Telephone conversation between Tania
Blanford, Staff Attorney, Regulatory Policy, PCX,
and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on
January 19, 2005.
37 See Amendment No. 1, supra note 3. ETP
Holders acting as registered Market Makers in
Commodity-Based Trust Shares are not specialists.
Nevertheless, to enhance PCX’s surveillance
capabilities, PCX has put in place the additional
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responsibilities set forth in PCXE Rules 8.201(g)–(i)
to aid their surveillance of trading in this product.
38 Id.
39 Id.
40 Id.
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As stated, the Information Circular
referenced above will inform ETP
Holders of the characteristics of the
Gold Trust and of applicable Exchange
rules, as well as of the requirements of
PCXE Rule 9.2.
Pursuant to PCXE Rule 9.2(a), every
ETP Holder, through a general partner,
a principal executive officer or a
designated authorized person, shall use
due diligence to learn the essential facts
relative to every customer, every order,
every account accepted or carried by
such ETP Holder and every person
holding power of attorney over any
account accepted or carried by such ETP
Holder.
Trading Halts
PCXE Rule 7.12 sets forth the trading
parameters, i.e., ‘‘circuit breakers,’’
applicable to Gold Shares during
periods of extraordinary volatility. In
addition to the parameters set forth in
PCXE Rule 7.12, the Exchange will halt
trading in Gold Shares if trading in the
underlying COMEX gold futures
contract is halted or suspended. Third,
with respect to a halt in trading that is
not specified above, the Exchange may
also consider other relevant factors and
the existence of unusual conditions or
circumstances that may be detrimental
to the maintenance of a fair and orderly
market.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
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Section 6(b) of the Act,41 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,42 in particular, in that it is
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and to protect investors
and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments on the proposed
rule change were neither solicited nor
received.
III. 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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–PCX–2004–132 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–PCX–2004–132. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://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
41 15
42 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such
filing also will be available on PCX’s
Web site (https://www.pacificex.com/
legal/legal_pending.html) and for
inspection and copying at the principal
offices of PCX. 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–PCX–
2004–132 and should be submitted on
or before February 17, 2005.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
with the Act 43 and the rules and
regulations thereunder applicable to a
national securities exchange.44
A. Surveillance
Information sharing agreements with
markets trading securities underlying a
derivative product are an important part
of a self-regulatory organization’s ability
to monitor for trading abuses in
derivative products. Although an
information sharing agreement with the
OTC gold market is not possible, the
Commission believes that the unique
liquidity and depth of the gold market,
together with the Exchange’s
information sharing agreement with
NYMEX (of which COMEX is a division)
and PCXE Rules 8.201(g)–(i) create the
basis for PCX to monitor for fraudulent
and manipulative practices in the
trading of the Gold Shares.45
U.S.C. 78f(b).
approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
45 The Commission notes that it recently reached
a similar conclusion with respect to a proposal by
the New York Stock Exchange to list and trade trust
shares that, as in the PCX proposal, correspond to
a fixed amount of gold. See Securities Exchange Act
Release No. 50603 (October 28, 2004), 69 FR 64614
(November 5, 2004). In that recent order, the
Commission noted that it had previously approved
the listing and trading of foreign currency options,
for which there is no self-regulatory organization or
Commission surveillance of the underlying markets,
on the basis that the magnitude of the underlying
currency market militated against manipulations
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The OTC market for gold is extremely
deep and liquid. The LBMA estimates
that the monthly average daily volume
figures published by the LBMA for 2003
range from a high of 19 million to a low
of 13.6 million troy ounces per day.46 In
addition, COMEX figures for 2003
indicate that the average daily volume
for gold futures contracts was 4.9
million ounces per day.47
Finally, PCXE Rule 8.201(h) will
require that the ETP Holder acting as a
registered Market Maker in the Gold
Shares provide the Exchange with
information relating to its trading in
physical gold, gold futures contracts,
options on gold futures, or any other
gold derivative.48 Although registered
Market Makers on PCXE do not have the
same informational advantages as
specialists on Amex, the Exchange
believes these reporting and recordkeeping requirements will assist the
Exchange in identifying situations
potentially susceptible to manipulation.
PCXE Rule 8.201(i) will prohibit the
ETP Holder acting as a registered Market
Maker in the Gold Shares from using
any material nonpublic information
received from any person associated
with a member or employee of such
person regarding trading by such person
or employee in physical gold, gold
futures contracts, options on gold
futures, or any other gold derivatives
(including the Gold Shares).49 In
addition, PCXE Rule 8.201(g) will
prohibit the ETP Holder acting as a
registered Market Maker in the Gold
Shares from being affiliated with a
market maker in physical gold, gold
futures, or options on gold futures
unless adequate information barriers are
in place and approved by the
Exchange.50
through inter-market trading activity. See id., at
64619 (Securities Exchange Act Release Nos. 19133
(October 14, 1982) (approving the listing of
standardized options on foreign currencies ); 36505
(November 22, 1995) (approving the listing of
dollar-denominated delivery foreign currency
options on the Japanese Yen); and 36165 (August
29, 1995) (approving listing standards for, among
other things, currency and currency index
warrants).
46 There are no authoritative published figures for
overall worldwide volume in gold trading. The
LBMA publishes statistics compiled from the six
members offering clearing services. Information
regarding clearing volume estimates by the LBMA
can be found at https://www.lbma.org.uk/
clearing_table.htm.
47 Information regarding average daily volume
estimates by the COMEX (a division of NYMEX) can
be found at https://www.nymex.com/jsp/markets/
md_annual_volume6.jsp#2. The statistics are based
on gold futures contracts, each of which relates to
100 ounces of gold.
48 See Amendment No. 1, supra note 3.
49 Id.
50 Id.
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B. Dissemination of Information About
the Gold Shares
The Commission finds that sufficient
venues for obtaining reliable gold price
information exist so that investors in the
Gold Shares can adequately monitor the
underlying spot market in gold relative
to the NAV of their Gold Shares. As
discussed more fully above, the
Commission notes that there is a
considerable amount of gold price and
gold market information available 24
hours per day on public Web sites and
through professional and subscription
services. The PCX, via the ArcaEx Web
site, will link to the Amex and Trust
Web sites, which will provide trading
information about the Gold Shares. For
example, the Trustee will disseminate
daily on the Trust Web site an estimated
amount representing the Basket Gold
Amount. The Amex will also
disseminate through the CTA the
Indicative Trust Value on a per share
basis every 15 seconds during regular
Amex trading hours of 9:30 a.m. to 4:15
p.m. New York time (except between
1:30 p.m. and 2 p.m., the time period
from the close of regular trading of the
COMEX gold futures contract and the
start of trading of COMEX gold futures
contracts on NYMEX ACCESS). The last
sale price for Gold Shares will also be
disseminated on a real-time basis
through the facilities of CTA.
The Commission also notes that the
Trust’s Web site at https://
www.ishares.com is and will be publicly
accessible at no charge and will contain
the NAV of the Gold Shares and the
Basket Gold Amount as of the prior
business day, the Bid-Ask Price, and a
calculation of the premium or discount
of the Bid-Ask Price in relation to the
closing NAV. Additionally, the Trust’s
Web site will also provide data in chart
form displaying the frequency
distribution of discounts and premiums
of the Bid-Ask Price against the NAV,
within appropriate ranges for each of
the four previous calendar quarters, the
Prospectus, and other applicable
quantitative information. The
Commission believes that dissemination
of this information will facilitate
transparency with respect to the Gold
Shares and diminish the risk of
manipulation or unfair informational
advantage.
Further, the Commission finds that
the Exchange’s proposed rules and
procedures for the listing and trading of
the proposed Gold Shares are consistent
with the Act. For example, Gold Shares
will be subject to PCXE rules governing
trading halts, responsibilities of the ETP
17:20 Jan 26, 2005
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 53 that the
proposed rule change (SR–PCX–2004–
132), as amended, is hereby approved
on an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.54
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–311 Filed 1–26–05; 8:45 am]
BILLING CODE 8010–01–P
Jkt 205001
SUMMARY: Notice is hereby given of the
following determinations: Pursuant to
the authority vested in me by the Act of
October 19, 1965 [79 Stat. 985; 22 U.S.C.
2459], Executive Order 12047 of March
27, 1978, the Foreign Affairs Reform and
Restructuring Act of 1998 [112 Stat.
2681, et seq.; 22 U.S.C. 6501 note, et
seq.], Delegation of Authority No. 234 of
October 1, 1999 [64 FR 56014],
Delegation of Authority No. 236 of
October 19, 1999 [64 FR 57920], as
amended, and Delegation of Authority
No. 257 of April 15, 2003 [68 FR 19875],
I hereby determine that the objects to be
included in the exhibition, ‘‘Basquiat,’’
imported from abroad for temporary
exhibition within the United States, are
of cultural significance. The objects are
imported pursuant to loan agreements
with the foreign lenders. I also
determine that the exhibition or display
of the exhibit objects at the Brooklyn
Museum, Brooklyn, New York, from on
or about March 11, 2005, to on or about
June 5, 2005, the Museum of
Contemporary Art, Los Angeles,
California, from on or about July 15,
2005, to on or about October 9, 2005, the
Museum of Fine Arts, Houston, Texas,
from on or about November 18, 2005, to
on or about February 12, 2006, and at
possible additional venues yet to be
determined, is in the national interest.
Public Notice of these determinations is
ordered to be published in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: For
further information or a list of exhibit
objects, contact Paul W. Manning,
Attorney-Adviser, Office of the Legal
Adviser, (202) 453–8052, and the
address is United States Department of
State, SA–44, Room 700, 301 4th Street,
SW., Washington, DC 20547–0001.
Dated: January 21, 2005.
C. Miller Crouch,
Principal Deputy Assistant Secretary for
Educational and Cultural Affairs, Department
of State.
[FR Doc. 05–1524 Filed 1–26–05; 8:45 am]
BILLING CODE 4710–08–P
DEPARTMENT OF STATE
[Public Notice 4974]
DEPARTMENT OF STATE
Culturally Significant Objects Imported
for Exhibition Determinations:
‘‘Basquiat’’
Department of State.
ACTION: Notice.
AGENCY:
C. Listing and Trading
VerDate jul<14>2003
Holders, and customer suitability
requirements. In addition, the Gold
Shares will be subject to PCXE Rule
8.201(e) for initial and continued
trading of Gold Shares.
The Commission believes that listing
and delisting criteria for the Gold Shares
should help to maintain a minimum
level of liquidity and therefore
minimize the potential for manipulation
of the Gold Shares. Finally, the
Commission believes that the
Exchange’s Information Circular
adequately will inform members and
member organizations about the terms,
characteristics, and risks in trading the
Gold Shares.
The Commission finds good cause for
approving the proposed rule change
prior to the 30th day after the date of
publication of the notice of filing thereof
in the Federal Register. The Exchange
has requested accelerated approval
because this product is similar to
another product recently approved by
the Commission for listing and trading
on Amex.51 The Commission believes
that the Gold Shares will provide
investors with an additional investment
choice and that accelerated approval of
the proposal will allow investors to
begin trading the Gold Shares promptly.
Therefore, the Commission finds good
cause, consistent with Section 19(b)(2)
of the Act,52 to approve the proposal, as
amended, on an accelerated basis.
3959
[Public Notice 4975]
Culturally Significant Objects Imported
for Exhibition Determinations: ‘‘Max
Ernst: A Retrospective’’
Department of State.
Notice.
AGENCY:
Securities Exchange Act Release No. 51058
(January 19, 2005) (SR–Amex–2004–38), supra, note
9.
52 15 U.S.C. 78s(b)(2).
53 Id.
54 17 CFR 200.30–3(a)(12).
PO 00000
51 See
Frm 00057
Fmt 4703
Sfmt 4703
ACTION:
SUMMARY: Notice is hereby given of the
following determinations: Pursuant to
the authority vested in me by the Act of
October 19, 1965 [79 Stat. 985; 22 U.S.C.
E:\FR\FM\27JAN1.SGM
27JAN1
]]>Agencies
[Federal Register Volume 70, Number 17 (Thursday, January 27, 2005)]
[Notices]
[Pages 3952-3959]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-311]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51067; File No. SR-PCX-2004-132]
Self-Regulatory Organization; Notice of Filing and Order Granting
Accelerated Approval of a Proposed Rule Change and Amendment No. 1 by
the Pacific Exchange, Inc. Relating to Trading, Either by Listing or
Pursuant to Unlisted Trading Privileges, Commodity-Based Trust Shares
and Trading, Pursuant to Unlisted Trading Privileges, iShares[supreg]
COMEX Gold Trust
January 21, 2005.
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 December 28, 2004, the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. On January
13, 2005, PCX amended the proposal.\3\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons and is approving the proposal on an accelerated
basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(l).
\2\ 17 CFR 240.19b-4.
\3\ See Amendment No. 1, dated January 13, 2005 (``Amendment No.
1''). In Amendment No. 1, the Exchange proposed new PCXE Rules
8.201(g)-(i), which set forth certain restrictions on Equity Trading
Permit (``ETP'') Holders acting as registered Market Makers in
Commodity-Based Trust Shares, explained in further detail below. In
addition, the Exchange proposed changes to Commentary .04 to PCXE
Rule 8.201 for the purpose of clarifying that the Exchange will
submit separate rule filings under Section 19(b)(2) of the Act in
connection with the listing and/or trading of each Commodity-Based
Trust Shares. Further, in Amendment No. 1 the Exchange represented
that (1) as provided in the Registration Statement to the Trust, the
trustee will charge a transaction fee in connection with the
redemption and/or creation of Baskets; (2) Barclays Capital, Inc.,
the Initial Purchaser, will purchase 150,000 Shares of the Trust to
compose the initial Baskets; and (3) the Exchange's surveillance
procedures are adequate to properly monitor the trading of the
Shares.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, through its wholly owned subsidiary PCX Equities,
Inc. (``PCXE'' or ``Corporation''), proposes to amend its rules
governing the Archipelago Exchange (``ArcaEx''), the equities trading
facility of PCXE. With this filing, PCX proposes new PCXE Rule 8.201 in
order to permit trading, either by listing or pursuant to unlisted
trading privileges (``UTP''), trust issued receipts based on commodity
interests (``Commodity-Based Trust Shares'') and trading, pursuant to
UTP, iShares[supreg] COMEX \4\ Gold Trust Shares (``Gold Shares'').\5\
The text of the proposed rule change is available at the PCX's Web site
https://www.pacificex.com/legal/legal_pending.html, the PCX's Office of
the Secretary, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------
\4\ COMEX is a division of the New York Mercantile Exchange,
Inc. (``NYMEX'') where gold futures contracts are traded.
\5\ Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 21, 2005 (regarding scope of proposed rule change).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, PCX 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 III below. PCX 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
The Exchange proposes to add new PCXE Rule 8.201 in order to permit
trading, either by listing or pursuant to UTP, of Commodity-Based Trust
Shares. The Exchange also proposes to trade pursuant to UTP the Gold
Shares.
Introduction
PCXE Rule 8.201 will permit ArcaEx to list and trade Commodity-
Based Trust Shares. Under the rule, for each series of Commodity-Based
Trust Shares, the Exchange will submit for Commission review and
approval a filing pursuant to
[[Page 3953]]
Section 19(b) of the Act.\6\ Proposed PCXE Rule 8.201(e) sets forth
initial and continued listing and trading criteria for Commodity-Based
Trust Shares on ArcaEx.\7\ This rule proposal is based on the rules of
the American Stock Exchange, LLC (``Amex'').\8\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b). Because of the nature of the Gold Trust,
representing an interest in underlying gold, the Exchange's existing
listing and trading rules that permit the listing and trading of
TIRs pursuant to Rule 19b-4(e) under the Securities Act of 1934
(``Act'') (``Generic Listing Standards'') cannot be used to list or
trade pursuant to UTP this product.
\7\ Proposed PCXE Rule 8.201 for Commodity-Based Trust Shares
tracks but is not identical to current PCXE Rule 8.200 relating to
TIRs. The initial listing standards set forth in PCXE Rule 8.201
provide that the Exchange establish a minimum number of TIRs
required to be outstanding at the time of the commencement of
trading on the Exchange. As set forth in the section ``Criteria for
Initial and Continued Listing,'' the Exchange represents the minimum
number of Gold Shares required to be outstanding at the time of
trading to be 150,000. See Amendment No. 1, supra note 3.
\8\ See Securities Exchange Act Release No. 50792 (December 3,
2004) 69 FR 71446 (December 9, 2004) (SR-Amex-2004-38) (``Amex
Notice''); Securities Exchange Act Release No. 51058 (January 19,
2005)(''Amex Order'').
---------------------------------------------------------------------------
The Exchange initially proposes to trade, pursuant to UTP,
iShares[supreg] COMEX Gold Trust Shares that represent beneficial
ownership interests in the net assets of the Trust consisting primarily
of gold. As explained further herein, Gold Shares will be issued in
baskets. Initially, each basket of 50,000 shares will correspond to
5,000 troy ounces of gold. Thus, each Gold Share will correspond to
one-tenth of a troy ounce of gold.\9\ The Gold Shares will conform to
the initial and continued listing criteria under PCXE Rule 8.201(e).
The Gold Trust will be formed under a depositary trust agreement, among
Bank of New York (``BNY'') as Trustee, Barclays Global Investors, N.A.
(``Barclays'') as the Sponsor, all depositors,\10\ and the holders of
Gold Shares.\11\
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\9\ The amount of gold associated with each basket (and
individual Gold Share) is expected to decrease over time as the
Trust incurs and pays maintenance fees and other expenses.
\10\ Barclays Capital, Inc., the Initial Purchaser, will
purchase 150,000 Shares of the Trust to compose the initial Baskets.
See Amendment No. 1, supra note 3.
\11\ The Trust is not an investment company as defined in
Section 3(a) of the Investment Company Act of 1940 (``1940 Act'').
---------------------------------------------------------------------------
In effect, purchasing Gold Shares in the Trust will provide
investors a new mechanism to participate in the gold market. The
Trustee will not actively manage the gold held by the Trust.
Information about the liquidity, depth, and pricing mechanisms of the
international gold market, management and structure of the Trust, and
description of the Gold Shares follows below.
Description of the Gold Market
In its filing with the Commission, the PCX made the following
representations regarding the worldwide gold market, citing the
proposal of the Amex to list the Gold Shares.\12\ The gold market is a
global marketplace consisting of both over-the-counter (``OTC'')
transactions and exchange-traded products. The OTC market generally
consists of transactions in spot, forwards, options and other
derivatives, while exchange-traded transactions consist of futures and
options on futures.
---------------------------------------------------------------------------
\12\ See Amex Notice.
---------------------------------------------------------------------------
(a) The OTC Market
The OTC market trades on a 24-hour continuous basis and accounts
for the substantial portion of global gold trading. Liquidity in the
OTC market can vary from time to time during the course of the 24-hour
trading day. Fluctuations in liquidity are reflected in adjustments to
dealing spreads--the differential between a dealer's buy and sell
prices. The period of greatest liquidity in the gold market is
typically that time of day when trading in the European time zone
overlaps with trading in the United States. This occurs when the OTC
market trading in London, New York, and other centers coincides with
futures and options trading on the COMEX.\13\ This period lasts for
approximately four (4) hours each New York business day morning.
---------------------------------------------------------------------------
\13\ The open outcry trading hours of the COMEX gold futures
contract is from 8:20 a.m. to 1:30 p.m. New York time Monday through
Friday. NYMEX ACCESS[reg], an electronic trading system,
is open for trading on COMEX gold futures contracts from 2 p.m.
Monday afternoon until 8 a.m. Friday morning New York time; and from
7 p.m. Sunday night until Monday morning at 8 a.m. New York time.
---------------------------------------------------------------------------
The OTC market has no formal structure and no open-outcry meeting
place. The main centers of the OTC market are in London, New York, and
Zurich. Bullion dealers have offices around the world, and most of the
world's major bullion dealers are either members or associate members
of the London Bullion Market Association (``LBMA''), a trade
association of participants in the London Bullion market.
There are no authoritative published figures for overall worldwide
volume in gold trading. There are published sources that do suggest the
significant size of the overall market. The LBMA publishes statistics
compiled from the five (5) members offering clearing services.\14\ The
monthly average daily volume figures published by the LBMA for 2003
range from a high of 19 million to a low of 13.6 million troy ounces
per day. Through September 2004, the monthly average daily volume has
ranged from a high of 17 million to a low of 12.4 million. The COMEX
also publishes price and volume statistics for transactions in
contracts for the future delivery of gold. COMEX figures for 2003
indicate that the average daily volume for gold futures and options
contracts was 4.89 million (48,943 contracts) and 1.7 million (17,241
contracts) troy ounces per day, respectively. Through October 2004, the
average daily volume for gold futures and options was 6.08 million
(60,817 contracts) and 2.01 million (20,173 contracts),
respectively.\15\
---------------------------------------------------------------------------
\14\ Information regarding clearing volume estimates by the LBMA
can be found at https://www.lbma.org.uk/clearing_table.htm. The
three measures published by the LBMA are: volume, the amount of
metal transferred on average each day measured in millions of troy
ounces; value, measured in U.S. dollars, using the monthly average
London PM fixing price; and the number of transfers, which is the
average number recorded each day. The statistics exclude allocated
and unallocated balance transfers where the sole purpose is for
overnight credit and physical movements arranged by clearing members
in locations other than London.
\15\ Information regarding average daily volume estimates by the
COMEX can be found at https://www.nymex.com/jsp/markets.md_annual-
volume6.jsp#2. The statistics are based on gold futures contracts,
each of which relates to 100 troy ounces of gold.
---------------------------------------------------------------------------
(b) Futures Exchanges
The most significant gold futures exchanges are the COMEX division
of the NYMEX and the Tokyo Commodity Exchange (``TOCOM'').\16\ Trading
on these exchanges is based on fixed delivery dates and transaction
sizes for the futures and options contracts traded.
---------------------------------------------------------------------------
\16\ There are other gold exchange markets, such as the Istanbul
Gold Exchange, the Shanghai Gold Exchange and the Hong Kong Chinese
Gold & Silver Exchange Society.
---------------------------------------------------------------------------
The daily settlement price for COMEX gold futures contracts is
publicly available on the NYMEX Web site at https://www.nymex.com.\17\
The Exchange
[[Page 3954]]
will provide a hyperlink on its Web site (https://www.pacificex.com),
via the ArcaEx Web site (https://www.archipelago.com), to the NYMEX Web
site for the purpose of disclosing gold futures contract pricing.\18\
In addition, the PCX represents that COMEX gold futures prices, options
on futures quotes, and last sale information are widely disseminated
through a variety of market data vendors worldwide, including Bloomberg
and Reuters. The PCX further represents that complete real-time data
for COMEX gold futures and options is available by subscription from
Reuters and Bloomberg. The NYMEX also provides delayed futures and
options information on current and past trading sessions and market
news free of charge on its Web site at https://www.nymex.com. The
contract specifications for COMEX gold futures contracts are also
available from the NYMEX at its Web site at https://www.nymex.com, as
well as other financial informational sources.
---------------------------------------------------------------------------
\17\ The COMEX daily settlement price for each gold futures
contract is established by a subcommittee of COMEX members shortly
after the close of trading of regular trading on the COMEX. NYMEX
Rule 3.43 sets forth the composition of the subcommittee requiring
that it consist of three (3) members that represent the gold market.
Specifically, the Rule calls for the subcommittee to include a floor
broker, a floor trader, and one who represents the trade. Rule 3.02
provides restrictions on Committee members and others who possess
material, non-public information. A Committee Member is prohibited
from disclosing for any purpose other than the performance of
official duties relating to the Committee, material, non-public
information obtained as a result of such person's participation on
the Committee. In addition, no person may trade for his own account
or for or on behalf of any other account, in any commodity interest
on the basis of any material, non-public information that such
person knows was obtained from such Committee member in violation of
Rule 3.02. Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 18, 2005.
\18\ Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 19, 2005.
---------------------------------------------------------------------------
(c) Gold Market Regulation
There is no direct regulation of the global OTC market in gold.
However, indirect regulation of some of the overseas participants does
occur. In the United Kingdom, responsibility for the regulation of
financial market participants, including the major participating
members of the LBMA, falls under the authority of the Financial
Services Authority (``FSA'') as provided by the Financial Services and
Market Act of 2000 (``FSM Act''). Under the FSM Act, all UK-based
banks, together with other investment firms, are subject to a range of
requirements, including fitness and properness, capital adequacy,
liquidity, and systems and controls. The FSA is responsible for
regulating investment products, including derivatives, and those who
deal in investment products. Regulation of spot, commercial forwards,
and deposits of gold and silver not covered by the FSM Act is provided
for by The London Code of Conduct for Non-Investment Products, which
was established by market participants in conjunction with the Bank of
England, and is a voluntary code of conduct among market participants.
Participants in the U.S. OTC market for gold are generally
regulated by their institutional supervisors, which regulate their
activities in the other markets in which they operate. For example,
participating banks are regulated by the banking authorities. In the
U.S., the Commodity Futures Trading Commission (``CFTC''), an
independent governmental agency with the mandate to regulate commodity
futures and options markets in the U.S., regulates market participants
and has established rules designed to prevent market manipulation,
abusive trade practices, and fraud.
TOCOM has authority to perform financial and operational
surveillance on its members' trading activities, scrutinize positions
held by members and large-scale customers, and monitor price movements
of futures markets by comparing them with cash and other derivative
markets' prices.
Trust Management and Structure
Initially, the Exchange proposes to trade pursuant to UTP on ArcaEx
Gold Shares, which represent units of fractional undivided beneficial
interest in and ownership of the Trust. The purpose of the Trust is to
hold gold bullion.\19\ The Exchange states that the investment
objective of the Trust is for the Gold Shares to reflect the
performance of the price of gold, less the Trust's expenses.
---------------------------------------------------------------------------
\19\ The Commission has previously approved the listing of
products for which the underlying was a commodity or otherwise was
not a security trading on a regulated market. See, e.g., Securities
Exchange Act Release Nos. 19133 (October 14, 1982) (approving the
listing of standardized options on foreign currencies ); 36505
(November 22, 1995) (approving the listing of dollar-denominated
delivery foreign currency options on the Japanese Yen); and 36165
(August 29, 1995) (approving listing standards for, among other
things, currency and currency index warrants).
---------------------------------------------------------------------------
The Trust is an investment trust and is not managed like a
corporation or an active investment vehicle. The Trust has no board of
directors or officers or persons acting in a similar capacity. The
Exchange states that the Trust is not a registered investment company
under the 1940 Act and is not required to register under such Act. The
Sponsor (Barclays), Trustee (BNY), and Custodian (The Bank of Nova
Scotia) are not affiliated with one another or with the Exchange.
Trust Expenses and Management Fees
Generally, the assets of the Trust (e.g., gold bullion) will be
sold to pay Trust expenses and management fees. These expenses and fees
will reduce the value of an investor's Share as gold bullion is sold to
pay such costs. Ordinary operating expenses of the Trust include (1)
fees paid to the Sponsor, (2) fees paid to the Trustee, (3) fees paid
to the Custodian, and (4) various Trust administration fees, including
printing and mailing costs, legal and audit fees, registration fees,
and Amex listing fees. The Trust's estimated ordinary operating
expenses are accrued daily and reflected in the net asset value
(``NAV'') of the Trust.
Description and Characteristics of the Gold Shares
(i) Liquidity
The Exchange represents that a minimum of 150,000 Gold Shares will
be outstanding at the start of trading.\20\ The minimum number of
shares required to be outstanding at the start of trading is comparable
to requirements that have been applied to previously listed series of
trust issues receipts, Portfolio Depository Receipts and Index Fund
Shares.
---------------------------------------------------------------------------
\20\ See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------
While the Gold Shares will trade on the Amex and ArcaEx until 4:15
p.m. New York time, liquidity in the OTC market for gold will be
reduced after the close of the COMEX at 1:30 p.m. New York time when
daily trading at COMEX and other world gold trading counters ends.
Trading spreads and the resulting premium or discount on the Gold
Shares may widen as a result of reduced liquidity in the OTC gold
market. The Exchange does not believe that the Gold Shares will trade
at a material discount or premium to the value of the underlying gold
held by the Trust because of arbitrage opportunities.\21\
---------------------------------------------------------------------------
\21\ PCX represents that Gold Shares will only trade on ArcaEx
during Amex trading hours for this product of 9:30 a.m. to 4:15
p.m., New York time. These are the hours during which Amex
disseminates the Indicative Trust Value. Telephone conversation
between Tania Blanford, Staff Attorney, Regulatory Policy, PCX, and
Florence Harmon, Senior Special Counsel, Division of Market
Regulation, Commission, on January 21, 2005.
---------------------------------------------------------------------------
(ii) Creation and Redemption of Trust Shares
Gold Shares will be issued only in baskets of 50,000 shares or
multiples thereof (such aggregation referred to as the ``Basket
Aggregation'' or ``Basket''). The Trust will issue and redeem the Gold
Shares on a continuous basis, by or through participants that have
entered into participant agreements (each, an ``Authorized
Participant'') \22\ with the Sponsor, Barclays, and the Trustee, BNY,
at the NAV per share next
[[Page 3955]]
determined after an order to purchase or redeem Gold Shares in a Basket
Aggregation is received in proper form. Authorized Participants are the
only persons that may place orders to create and redeem Baskets.
Authorized Participants purchasing Baskets will be able to separate a
Basket into individual Gold Shares for resale.
---------------------------------------------------------------------------
\22\ An ``Authorized Participant'' is a person, who at the time
of submitting to the trustee an order to create or redeem one or
more Baskets, (i) is a registered broker-dealer, (ii) is a
Depository Trust Company (``DTC'') Participant or an Indirect
Participant, and (iii) has in effect a valid Authorized Participant
Agreement.
---------------------------------------------------------------------------
Basket Aggregations will be issued in exchange for a corresponding
amount of gold, measured in fine ounces (the ``Basket Gold Amount'').
The Basket Gold Amount will be determined at or about 4 p.m. each
business day by the Trustee, BNY.\23\ Initially, creation of a Basket
will require delivery of 5,000 fine ounces of gold. This Basket Gold
Amount will change from day to day and decrease over the life of the
Trust due to the payment or accrual of fees and other expenses payable
by the Trust. On each day that the Amex is open for regular trading,
the BNY will adjust the quantity of gold constituting the Basket Gold
Amount as appropriate to reflect sales of gold, any loss of gold that
may occur, and accrued expenses.\24\ The BNY will determine the Basket
Gold Amount for a given business day by multiplying the NAV for each
Gold Share by the number of Gold Shares in each Basket (50,000) and
dividing the resulting product by that day's COMEX settlement price for
the spot month gold futures contract. Authorized Participants that
submitted an order prior to 4:00 p.m. to purchase a Basket must
transfer the Basket Gold Amount to the Trust in exchange for a Basket.
---------------------------------------------------------------------------
\23\ At the same time the BNY will also determine an
``Indicative Basket Gold Amount'' that Authorized Participants can
use as an indicative amount of gold to be deposited for issuance of
the Gold Shares on the next business day. The Trustee will
disseminate daily the Indicative Basket Gold Amount on the Trust Web
site. Because the creation/redemption process is based entirely on
the physical delivery of gold (and does not contemplate a cash
component), the actual number of fine ounces required for the
Indicative Basket Gold Amount will not change intraday, even though
the value of the Indicative Amount may change based on the market
price of gold.
\24\ The Trust's expense ratio, in the absence of any
extraordinary expenses and liabilities, is established at 0.40% of
the net assets of the Trust. As a result, the amount of gold by
which the Basket Gold Amount will decrease each day will be
predictable (i.e. 1/365th of the net asset value of the Trust
multiplied by 0.40%).
---------------------------------------------------------------------------
Gold Shares are not individually redeemable, and Authorized
Participants that wish to redeem a Basket (i.e., 50,000 Gold Shares)
will receive the Basket Gold Amount in exchange for each Basket
surrendered. Upon the surrender of the Gold Shares and payment of the
applicable Trustee's fee and any expenses, taxes or charges, the BNY
will deliver to the redeeming Authorized Participant the amount of gold
corresponding to the redeemed Baskets. Unless otherwise requested by
the Authorized Participants, gold will then be delivered to the
redeeming Authorized Participants in the form of physical bars
only.\25\ Thus, although Authorized Participants place orders to
purchase or redeem Gold Shares throughout the trading day, the actual
Basket Gold Amount is determined at 4 p.m. or shortly thereafter.
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\25\ If the amount of gold corresponding to the Basket Gold
Amount results in an amount that is less than a full gold bar
denomination, the Authorized Participant has the ability to take
and/or deliver fractional gold bar amounts. Telephone conversation
between Tania Blanford, Staff Attorney, Regulatory Policy, PCX, and
Florence Harmon, Senior Special Counsel, Division of Market
Regulation, Commission, on January 18, 2005.
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The Bank of Nova Scotia (``BNS'') will be the custodian for the
Trust and responsible for safekeeping the gold.\26\ Gold deposited with
BNS must either (a) meet the requirements to be delivered in settlement
of a COMEX gold futures contract pursuant to the rules adopted by the
COMEX or (b) meet the specifications for weight, dimensions, fineness
(or purity), identifying marks and appearance of gold bars as set forth
in ``The Good Delivery Rules for Gold and Silver Bars'' published by
the LBMA.
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\26\ If the total value of the Trust's gold held by the
custodian exceeds $2 billion, then the custodian will be under no
obligation to accept additional gold deliveries. In such a case, the
Trustee will retain an additional custodian.
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Shortly after 4 p.m. each business day, the BNY will determine the
NAV for the Trust. The BNY will calculate the NAV by multiplying the
fine ounces of gold held by the Trust (after gold has been sold for
that day to pay that day's fees and expenses) by the daily settlement
value of the COMEX spot month gold futures contract.\27\ At any point
in time, the spot month contract is the futures contract then closest
to maturity. If a COMEX settlement price for a spot month gold futures
contract is not announced, the Trustee will use the most recently
announced spot month COMEX settlement price, unless the Trustee (BNY),
in consultation with the Sponsor (Barclays), determines that such price
is inappropriate. Once the value of the gold is determined, the BNY
will then subtract all accrued fees (other than the fees to be computed
by reference to the value of the Trust or its assets), expenses, and
other liabilities of the Trust from the total value of gold and all
other assets of the Trust. This adjusted NAV is then used to compute
all fees (including the Trustee and Sponsor fees) that are calculated
from the value of Trust assets. To determine the NAV, the BNY will
subtract from the adjusted NAV the amount of accrued fees from the
value of Trust assets. The BNY will calculate the NAV per share by
dividing the NAV by the number of Gold Shares outstanding.
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\27\ As previously stated, the COMEX daily settlement price for
each gold futures contract is established by a subcommittee of COMEX
members shortly after the close of trading in New York. The daily
settlement price for each contract (delivery month) is derived from
the daily settlement price for the most active futures contract
month that is not necessarily the spot month. This settlement price
is the average of the highest and lowest priced trades reported
during the last one (1) minute of trading during regular trading
hours. For all other gold futures contract months (which may include
the spot month), the settlement prices are determined by COMEX based
upon differentials reflected in spread trades between adjacent
months, such differentials being directly or indirectly related to
the most active month. These differentials are the average of the
highest and lowest spread trades (trades based upon the differential
between the prices for two contract months) reported during the last
fifteen (15) minutes of trading during regular trading hours. In the
case that there were no such spread trades, the average of the bids
and offers for spread transactions during that last fifteen (15)
minute period are used. In the case where there are no bids and
offers during that time, the contracts are settled at prices
consistent with the differentials for other contract months that
were settled by the first or second method. If the third method is
used, the subcommittee of the COMEX members establishing those
settlement prices provides a record of the differentials from other
contract months that formed the basis for those settlements.
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Availability of Information Regarding Gold Shares
The Web site for the Trust at https://www.ishares.com, which will be
publicly accessible at no charge, will contain the following
information about Gold Shares: (a) The prior business day's NAV, Basket
Gold Amount, the reported closing price, and the present day's
Indicative Basket Gold Amount; (b) the mid-point of the bid-ask price
\28\ in relation to the NAV as of the time the NAV is calculated (the
``Bid-Ask Price''); (c) calculation of the premium or discount of such
price against such NAV; (d) data in chart form displaying the frequency
distribution of discounts and premiums of the Bid-Ask Price against the
NAV, within appropriate ranges for each of the four (4) previous
calendar quarters; (e) the Prospectus; and (f) other applicable
quantitative information, such as expense ratios, trading volumes, and
the total return of the Gold Shares.\29\ The Exchange will provide a
hyperlink on its Web site (https://www.pacificex.com), via the
[[Page 3956]]
ArcaEx Web site (https://www.archipelago.com), to the Trust's Web site
at https://www.ishares.com.\30\
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\28\ The bid-ask price of Gold Shares is determined using the
highest bid and lowest offer as of the time of calculation of the
NAV.
\29\ Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 19, 2005 (as to examples of ``other quantitative
information'').
\30\ Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 19, 2005.
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The Exchange will also provide a hyperlink on its Web site (https://
www.pacificex.com), via the ArcaEx Web site (https://
www.archipelago.com), to the Amex Web site at https://www.amex.com on
which Amex will make available daily trading volume, closing prices,
and the NAV from the previous day of Gold Shares.\31\ Amex will also
disseminate during regular Amex trading hours from 9:30 a.m. to 4:15
p.m. New York time through the facilities of the Consolidated Tape
Association (``CTA'') the last sale price for Gold Shares on a real-
time basis.\32\ In addition, Amex will disseminate each day the prior
day's NAV and shares outstanding through the facilities of the CTA.
Amex will also disseminate the Indicative Trust Value on a per Gold
Share basis every 15 seconds through the facilities of the CTA during
regular Amex trading hours of 9:30 a.m. to 4:15 p.m. New York time.\33\
Shortly after 4 p.m. each business day, the BNY, Amex, and Barclays
(Sponsor) will disseminate the NAV for the Gold Shares, the Basket Gold
Amount (for orders placed during the day), and the Indicative Basket
Gold Amount (for use by Authorized Participants contemplating placing
orders the following business day). The Basket Gold Amount, the
Indicative Basket Gold Amount, and the NAV are communicated by the BNY
to all Authorized Participants via facsimile or electronic mail message
and will be available on the Trust's Web site at https://
www.ishares.com.
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\31\ Id.
\32\ Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 19, 2005 (as to real-time dissemination of last sale price).
\33\ The Indicative Trust Value will be calculated based on the
estimated amount of gold required for creations and redemptions on
that day (e.g., Indicative Basket Gold Amount) and a price of gold
derived from the most recently reported trade price in the active
gold futures contract. The prices reported for the active contract
month will be adjusted based on the prior day's spread differential
between settlement values for that contract and the spot month
contract. In the event that the spot month contract is also the
active contract, the last sale price for the active contract will
not be adjusted.
The Indicative Trust Value will not reflect changes to the price
of gold between the close of trading at the COMEX, typically 1:30
p.m. New York time, and the open of trading on the NYMEX ACCESS
market at 2 p.m. New York time. While the market for the gold
futures is open for trading, the Indicative Trust Value can be
expected to closely approximate the value per share of the
Indicative Basket Gold Amount. The Indicative Trust Value on a per
Gold Share basis disseminated during Amex trading hours should not
be viewed as a real time update of the NAV, which is calculated only
once a day.
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Information about Underlying Gold Holdings
There is a considerable amount of gold price and gold market
information available on public Web sites and through professional and
subscription services. In most instances, real-time information is only
available for a fee, and information available free of charge is
subject to delay (typically 20 minutes). The Exchange states that
investors may obtain on a 24-hour basis gold pricing information based
on the spot price for a troy ounce of gold from various financial
information service providers, such as Reuters and Bloomberg. Reuters
and Bloomberg provide at no charge on their Web sites delayed
information regarding the spot price of gold and last sale prices of
gold futures, as well as information about news and developments in the
gold market. Reuters and Bloomberg also offer a professional service to
subscribers for a fee that provides information on gold prices directly
from market participants. In addition, an organization named EBS
provides an electronic trading platform to institutions such as bullion
banks and dealers for the trading of spot gold, as well as a feed of
live streaming prices to Reuters and Moneyline Telerate subscribers.
As previously stated, the Exchange states that complete real-time
data for gold futures and options prices traded on the COMEX is
available by subscription from Reuters and Bloomberg. The closing price
and settlement prices of the COMEX gold futures contracts are publicly
available from the NYMEX at https://www.nymex.com, automated quotation
systems, published or other public sources, or on-line information
services such as Bloomberg or Reuters. The NYMEX also provides delayed
futures and options information on current and past trading sessions
and market news free of charge on its Web site.
Criteria for Initial and Continued Listing
The Trust will be subject to the criteria in proposed PCXE Rule
8.201(e) for initial and continued trading of Gold Shares. The
continued trading criteria provides for the removal from trading of the
Gold Shares under any of the following circumstances:
(a) Following the initial twelve (12) month period from the date of
commencement of trading of the Gold Shares: (i) If the Trust has more
than sixty (60) days remaining until termination and there are fewer
than fifty (50) record and/or beneficial holders of the Gold Shares for
thirty (30) or more consecutive trading days; (ii) if the Trust has
fewer than 50,000 Gold Shares issued and outstanding; or (iii) if the
market value of all Gold Shares is less than $1,000,000.
(b) If the value of the underlying gold is no longer calculated or
available on at least a 15 second delayed basis from a source
unaffiliated with the sponsor, trust, custodian or the Exchange or the
Exchange stops providing a hyperlink on its Web site to any such
unaffiliated gold value.
(c) The Indicative Trust Value is no longer made available on at
least a 15 second delayed basis.
(d) If such other event shall occur or condition exists which in
the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
ArcaEx Trading Rules and Policies
Gold Shares are equity securities subject to Exchange Rules
governing the trading of equity securities, including among others,
rules governing priority, parity and precedence of orders, and customer
suitability (PCXE Rule 9.2). Initial equity margin requirements of 50%
will apply to transactions in Gold Shares. Gold Shares will trade on
ArcaEx during the Amex trading hours until 4:15 p.m. New York time, and
will trade in a minimum price variation of $0.01 pursuant to PCXE Rule
7.6. Trading rules pertaining to odd-lot trading in Exchange equities
(PCXE Rule 7.38) will also apply.\34\
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\34\ Rules applicable to the Amex Specialist trading of the Gold
Shares, e.g., Amex Rules 154, Commentary .04(c); 190; and 170, are
not applicable to ETP Holders, functioning as market makers in the
Gold Shares. Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 21, 2005.
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Gold Shares will be deemed ``Eligible Securities,'' as defined in
PCXE Rule 7.55(a)(3), for purposes of the Intermarket Trading System
Plan and therefore will be subject to the trade-through provisions of
PCXE Rule 7.56, which require that ETP Holders avoid initiating trade-
throughs for ITS securities.
Unless exemptive or no-action relief is available, Gold Shares will
be subject to the short sale requirements of Rule 10a-1 and Regulation
SHO under the Act.\35\ If exemptive or no-action relief is
[[Page 3957]]
provided, the Exchange will issue a notice detailing the terms of the
exemption or relief.
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\35\ The Gold Trust has requested exemptive relief in connection
with the trading of Gold Shares from the operation of certain short
sale requirements of Rule 10a-1 and may seek no-action relief from
Rule 200(g) of Regulation SHO under the Act. See 17 CFR 240.10a-1;
17 CFR 240.200(g). The requested relief is currently pending with
the Commission staff in the Division of Market Regulation. If
granted, Gold Shares would be exempt from Rule 10a-1, permitting
sales without regard to the ``tick'' requirements of Rule 10a-1.
Rule 10a-1(a)(1)(i) provides that a short sale of an exchange-traded
security may not be effected (i) below the last regular-way sale
price (an ``uptick'') or (ii) at such price unless such price is
above the next preceding different price at which a sale was
reported (a ``zero-plus tick''). No-action relief from the marking
requirements of Rule 200(g) of Regulation SHO would permit broker-
dealers, subject to certain conditions, to mark short sales in the
Gold Shares ``short,'' rather than ``short exempt.''
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PCXE has proposed Rule 8.201(g), which addresses potential
conflicts of interest in connection with acting as a market maker in
the Gold Shares. Specifically, Rule 8.201(g) will provide that an ETP
Holder acting as a registered Market Maker in Commodity-Based Trust
Shares is obligated to comply with PCXE Rule 7.26 pertaining to
limitations on dealings when such Market Maker, or affiliate, engages
in certain ``Other Business Activities.'' Such ``Other Business
Activities'' will be deemed to include trading in an underlying
commodity, related commodity futures or options on commodity futures,
or any other related commodity derivatives. Pursuant to PCXE Rule 7.26,
a Market Maker may engage in ``Other Business Activities'' only if
there is an information barrier between the market making activities
and the ``Other Business Activities.'' \36\
---------------------------------------------------------------------------
\36\ Telephone conversation between Tania Blanford, Staff
Attorney, Regulatory Policy, PCX, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 19, 2005.
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Surveillance
PCX represents that its surveillance procedures applicable to
trading of Gold Shares on ArcaEx are adequate to deter manipulation and
will be similar to those applicable to TIRs, exchange-traded funds
(``ETFs'') currently trading on ArcaEx. In addition, the Exchange has
entered into an Information Sharing Agreement with NYMEX for the
purpose of providing information in connection with trading in or
related to COMEX gold futures contracts.
Further, PCX has proposed new PCXE Rules 8.201(g)-(i), which set
forth certain restrictions on ETP Holders acting as registered Market
Makers in Commodity-Based Trust Shares to facilitate surveillance.\37\
PCXE Rule 8.201(h) will require that the ETP Holder acting as a
registered Market Maker in the Gold Shares provide the Exchange with
information relating to its trading in physical gold, gold futures
contracts, options on gold futures, or any other gold derivative.\38\
PCXE Rule 8.201(i) will prohibit the ETP Holder acting as a registered
Market Maker in the Gold Shares from using any material nonpublic
information received from any person associated with an ETP Holder or
employee of such person regarding trading by such person or employee in
physical gold, gold futures contracts, options on gold futures, or any
other gold derivatives (including the Gold Shares).\39\ In addition, as
stated above, PCXE Rule 8.201(g) will prohibit the ETP Holder acting as
a registered Market Maker in the Gold Shares from being affiliated with
a market maker in physical gold, gold futures, or options on gold
futures unless adequate information barriers are in place, as provided
in PCXE Rule 7.26.\40\
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\37\ See Amendment No. 1, supra note 3. ETP Holders acting as
registered Market Makers in Commodity-Based Trust Shares are not
specialists. Nevertheless, to enhance PCX's surveillance
capabilities, PCX has put in place the additional responsibilities
set forth in PCXE Rules 8.201(g)-(i) to aid their surveillance of
trading in this product.
\38\ Id.
\39\ Id.
\40\ Id.
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Information Circular
The Exchange will distribute an information circular (``Information
Circular'') to its ETP Holders in connection with the trading of Gold
Shares. The Information Circular will discuss the special
characteristics and risks of trading this type of security.
Specifically, the Information Circular, among other things, will
discuss what the Gold Shares are, how a basket is created and redeemed,
the requirement that ETP Holders deliver a prospectus to investors
purchasing the Gold Shares prior to or concurrently with the
confirmation of a transaction, applicable PCXE rules, dissemination
information regarding the per share Indicative Trust Value, trading
information, and applicable suitability rules. The Information Circular
will also explain that the Gold Trust is subject to various fees and
expenses described in the Registration Statement and that the number of
ounces of gold required to create a basket or to be delivered upon
redemption of a basket will gradually decrease over time because the
Gold Shares comprising a basket will represent a decreasing amount of
gold due to the sale of the Gold Trust's gold to pay Trust expenses.
The Information Circular will also reference the fact that there is no
regulated source of last sale information regarding physical gold and
that the Commission has no jurisdiction over the trading of gold as a
physical commodity.
The Information Circular will also notify ETP Holders about the
procedures for purchases and redemptions of Gold Shares in baskets and
that Gold Shares are not individually redeemable but are redeemable
only in basket size aggregations or multiples thereof. The Information
Circular will advise ETP Holders of their suitability obligations with
respect to recommended transactions to customers in Gold Shares. The
Information Circular will also discuss any relief, if granted, by the
Commission or the staff from any rules under the Act.
The Information Circular will disclose that the NAV for Gold Shares
will be disseminated shortly after 4 p.m. ET each trading day based on
the COMEX daily settlement value, which is disseminated shortly after
1:30 p.m. ET each trading day.
Suitability
As stated, the Information Circular referenced above will inform
ETP Holders of the characteristics of the Gold Trust and of applicable
Exchange rules, as well as of the requirements of PCXE Rule 9.2.
Pursuant to PCXE Rule 9.2(a), every ETP Holder, through a general
partner, a principal executive officer or a designated authorized
person, shall use due diligence to learn the essential facts relative
to every customer, every order, every account accepted or carried by
such ETP Holder and every person holding power of attorney over any
account accepted or carried by such ETP Holder.
Trading Halts
PCXE Rule 7.12 sets forth the trading parameters, i.e., ``circuit
breakers,'' applicable to Gold Shares during periods of extraordinary
volatility. In addition to the parameters set forth in PCXE Rule 7.12,
the Exchange will halt trading in Gold Shares if trading in the
underlying COMEX gold futures contract is halted or suspended. Third,
with respect to a halt in trading that is not specified above, the
Exchange may also consider other relevant factors and the existence of
unusual conditions or circumstances that may be detrimental to the
maintenance of a fair and orderly market.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with
[[Page 3958]]
Section 6(b) of the Act,\41\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\42\ in particular, in that it is designed
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and to protect investors and
the public interest.
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\41\ 15 U.S.C. 78f(b).
\42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments on the proposed rule change were neither solicited
nor received.
III. 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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-PCX-2004-132 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-PCX-2004-132. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Section, 450 Fifth
Street, NW., Washington, DC 20549. Copies of such filing also will be
available on PCX's Web site (https://www.pacificex.com/legal/legal_
pending.html) and for inspection and copying at the principal offices
of PCX. 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-PCX-
2004-132 and should be submitted on or before February 17, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the Act \43\ and the rules
and regulations thereunder applicable to a national securities
exchange.\44\
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\43\ 15 U.S.C. 78f(b).
\44\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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A. Surveillance
Information sharing agreements with markets trading securities
underlying a derivative product are an important part of a self-
regulatory organization's ability to monitor for trading abuses in
derivative products. Although an information sharing agreement with the
OTC gold market is not possible, the Commission believes that the
unique liquidity and depth of the gold market, together with the
Exchange's information sharing agreement with NYMEX (of which COMEX is
a division) and PCXE Rules 8.201(g)-(i) create the basis for PCX to
monitor for fraudulent and manipulative practices in the trading of the
Gold Shares.\45\
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\45\ The Commission notes that it recently reached a similar
conclusion with respect to a proposal by the New York Stock Exchange
to list and trade trust shares that, as in the PCX proposal,
correspond to a fixed amount of gold. See Securities Exchange Act
Release No. 50603 (October 28, 2004), 69 FR 64614 (November 5,
2004). In that recent order, the Commission noted that it had
previously approved the listing and trading of foreign currency
options, for which there is no self-regulatory organization or
Commission surveillance of the underlying markets, on the basis that
the magnitude of the underlying currency market militated against
manipulations through inter-market trading activity. See id., at
64619 (Securities Exchange Act Release Nos. 19133 (October 14, 1982)
(approving the listing of standardized options on foreign currencies
); 36505 (November 22, 1995) (approving the listing of dollar-
denominated delivery foreign currency options on the Japanese Yen);
and 36165 (August 29, 1995) (approving listing standards for, among
other things, currency and currency index warrants).
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The OTC market for gold is extremely deep and liquid. The LBMA
estimates that the monthly average daily volume figures published by
the LBMA for 2003 range from a high of 19 million to a low of 13.6
million troy ounces per day.\46\ In addition, COMEX figures for 2003
indicate that the average daily volume for gold futures contracts was
4.9 million ounces per day.\47\
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\46\ There are no authoritative published figures for overall
worldwide volume in gold trading. The LBMA publishes statistics
compiled from the six members offering clearing services.
Information regarding clearing volume estimates by the LBMA can be
found at https://www.lbma.org.uk/clearing_table.htm.
\47\ Information regarding average daily volume estimates by the
COMEX (a division of NYMEX) can be found at https://www.nymex.com/
jsp/markets/md_annual_volume6.jsp#2. The statistics are based on
gold futures contracts, each of which relates to 100 ounces of gold.
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Finally, PCXE Rule 8.201(h) will require that the ETP Holder acting
as a registered Market Maker in the Gold Shares provide the Exchange
with information relating to its trading in physical gold, gold futures
contracts, options on gold futures, or any other gold derivative.\48\
Although registered Market Makers on PCXE do not have the same
informational advantages as specialists on Amex, the Exchange believes
these reporting and record-keeping requirements will assist the
Exchange in identifying situations potentially susceptible to
manipulation. PCXE Rule 8.201(i) will prohibit the ETP Holder acting as
a registered Market Maker in the Gold Shares from using any material
nonpublic information received from any person associated with a member
or employee of such person regarding trading by such person or employee
in physical gold, gold futures contracts, options on gold futures, or
any other gold derivatives (including the Gold Shares).\49\ In
addition, PCXE Rule 8.201(g) will prohibit the ETP Holder acting as a
registered Market Maker in the Gold Shares from being affiliated with a
market maker in physical gold, gold futures, or options on gold futures
unless adequate information barriers are in place and approved by the
Exchange.\50\
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\48\ See Amendment No. 1, supra note 3.
\49\ Id.
\50\ Id.
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[[Page 3959]]
B. Dissemination of Information About the Gold Shares
The Commission finds that sufficient venues for obtaining reliable
gold price information exist so that investors in the Gold Shares can
adequately monitor the underlying spot market in gold relative to the
NAV of their Gold Shares. As discussed more fully above, the Commission
notes that there is a considerable amount of gold price and gold market
information available 24 hours per day on public Web sites and through
professional and subscription services. The PCX, via the ArcaEx Web
site, will link to the Amex and Trust Web sites, which will provide
trading information about the Gold Shares. For example, the Trustee
will disseminate daily on the Trust Web site an estimated amount
representing the Basket Gold Amount. The Amex will also disseminate
through the CTA the Indicative Trust Value on a per share basis every
15 seconds during regular Amex trading hours of 9:30 a.m. to 4:15 p.m.
New York time (except between 1:30 p.m. and 2 p.m., the time period
from the close of regular trading of the COMEX gold futures contract
and the start of trading of COMEX gold futures contracts on NYMEX
ACCESS). The last sale price for Gold Shares will also be disseminated
on a real-time basis through the facilities of CTA.
The Commission also notes that the Trust's Web site at https://
www.ishares.com is and will be publicly accessible at no charge and
will contain the NAV of the Gold Shares and the Basket Gold Amount as
of the prior business day, the Bid-Ask Price, and a calculation of the
premium or discount of the Bid-Ask Price in relation to the closing
NAV. Additionally, the Trust's Web site will also provide data in chart
form displaying the frequency distribution of discounts and premiums of
the Bid-Ask Price against the NAV, within appropriate ranges for each
of the four previous calendar quarters, the Prospectus, and other
applicable quantitative information. The Commission believes that
dissemination of this information will facilitate transparency with
respect to the Gold Shares and diminish the risk of manipulation or
unfair informational advantage.
C. Listing and Trading
Further, the Commission finds that the Exchange's proposed rules
and procedures for the listing and trading of the proposed Gold Shares
are consistent with the Act. For example, Gold Shares will be subject
to PCXE rules governing trading halts, responsibilities of the ETP
Holders, and customer suitability requirements. In addition, the Gold
Shares will be subject to PCXE Rule 8.201(e) for initial and continued
trading of Gold Shares.
The Commission believes that listing and delisting criteria for the
Gold Shares should help to maintain a minimum level of liquidity and
therefore minimize the potential for manipulation of the Gold Shares.
Finally, the Commission believes that the Exchange's Information
Circular adequately will inform members and member organizations about
the terms, characteristics, and risks in trading the Gold Shares.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publication of the
notice of filing thereof in the Federal Register. The Exchange has
requested accelerated approval because this product is similar to
another product recently approved by the Commission for listing and
trading on Amex.\51\ The Commission believes that the Gold Shares will
provide investors with an additional investment choice and that
accelerated approval of the proposal will allow investors to begin
trading the Gold Shares promptly. Therefore, the Commission finds good
cause, consistent with Section 19(b)(2) of the Act,\52\ to approve the
proposal, as amended, on an accelerated basis.
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\51\ See Securities Exchange Act Release No. 51058 (January 19,
2005) (SR-Amex-2004-38), supra, note 9.
\52\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\53\ that the proposed rule change (SR-PCX-2004-132), as amended, is
hereby approved on an accelerated basis.
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\53\ Id.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\54\
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\54\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-311 Filed 1-26-05; 8:45 am]
BILLING CODE 8010-01-P
