Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to iShares® Dow Jones U.S. Energy Sector Index Fund and iShares Dow Jones U.S. Telecommunications Sector Index Fund, 71874-71882 [05-23496]
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Federal Register / Vol. 70, No. 229 / Wednesday, November 30, 2005 / Notices
Nasdaq currently charges customers
$.288 per initial request and per each
subsequent use of the ‘‘More’’ function.
Thus, Nasdaq customers would incur
additional incremental costs as they
increased their trade reporting activity.
Nasdaq has implemented new
technology that modifies the ‘‘Browse/
Query’’ function. The modified
‘‘Browse/Query’’ function has been
renamed the ‘‘Query’’ function and each
‘‘Query’’ request now provides a
complete summary of all trade reporting
activity per request. Nasdaq customers
no longer have to use the ‘‘More’’
function to view the next 18 records.
Under the proposed rule change, users
of the new ‘‘Query’’ function will be
charged $.50 per request.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 15A of the Act,7 in
general, and with Section 15A(b)(5) of
the Act,8 in particular, in that it
provides for the equitable allocation of
reasonable fees, dues, and other charges
among members and issuers and other
persons using any facility or system
which the NASD operates or controls.
Further, Nasdaq believes that the
proposed fee structure for the new
‘‘Query’’ function is reasonable because
the new ‘‘Query’’ function provides
more information per request than the
old ‘‘Browse/Query’’ function. Nasdaq
believes the new fee structure is also
equitable because it applies to all users
of the ‘‘Query’’ function on an equal
basis. Although the fee for the new
‘‘Query’’ function is more than the fee
for the old ‘‘Browse/Query’’ function,
Nasdaq believes its customers will
benefit from an overall reduction in
their costs because they will not incur
additional incremental charges to view
all of their trade reporting activity.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will impose any
inappropriate burden on competition.
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. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
has become immediately effective
pursuant to Section 19(b)(3)(A)(ii) of the
Act 9 and subparagraph (f)(2) of Rule
19b–4 thereunder,10 in that it
establishes or changes a due, fee or
other charge imposed by Nasdaq. At any
time within 60 days of the filing of such
proposed rule change, the Commission
may summarily abrogate such rule
change if it appears to the Commission
that such action is necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
the Commission’s Public Reference
Section. Copies of the filing also will be
available for inspection and copying at
the principal office of NASD. 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–NASD–2005–127 and
should be submitted on or before
December 21, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Jonathan G. Katz,
Secretary.
[FR Doc. 05–23495 Filed 11–29–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52826; File No. SR–NYSE–
2005–67]
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–NASD–2005–127 on the
subject line.
Self-Regulatory Organizations; New
York Stock Exchange, Inc.; Notice of
Filing and Order Granting Accelerated
Approval of Proposed Rule Change
Relating to iShares Dow Jones U.S.
Energy Sector Index Fund and iShares
Dow Jones U.S. Telecommunications
Sector Index Fund
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NASD–2005–127. 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
November 22, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on September 30, 2005 the New York
Stock Exchange, Inc. (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons and is
approving the proposal on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The NYSE proposes to list and trade
the iShares Dow Jones U.S. Energy
Sector Index Fund and iShares Dow
Jones U.S. Telecommunications Sector
Index Fund, both exchange-traded
11 17
7 15
U.S.C. 78o–3.
8 15 U.S.C. 78o–3(b)(5).
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19:12 Nov 29, 2005
9 15
U.S.C. 78s(b)(3)(A)(ii).
10 17 CFR 240.19b–4(f)(2).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 70, No. 229 / Wednesday, November 30, 2005 / Notices
funds, which the Exchange denominates
as Investment Company Units (‘‘ICUs’’).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
NYSE included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item III, below, and
is set forth in sections A, B, and C
below.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange has adopted listing
standards applicable to ICUs that are
consistent with the listing criteria
currently used by other national
securities exchanges, and trading
standards pursuant to which the
Exchange may either list and trade ICUs,
or trade such ICUs on the Exchange on
an unlisted trading privileges (‘‘UTP’’)
basis.3
The Exchange now proposes to list
and trade under Section 703.16 of the
NYSE Listed Company Manual
(‘‘Manual’’) and NYSE Rule 1100 et seq.
shares of the iShares 4 Dow Jones U.S.
Energy Sector Index Fund based on the
Dow Jones U.S. Oil and Gas Index and
iShares Dow Jones U.S.
Telecommunications Sector Index Fund
based on the Dow Jones
Telecommunications Index
(collectively, the ‘‘Funds’’). The Funds
are a series of the iShares Trust (the
‘‘Trust’’).5 The Funds are currently
3 In 1996, the Commission approved section
703.16 of the NYSE Listed Company Manual
(‘‘Manual’’), which sets forth the rules related to the
listing of ICUs. See Securities Exchange Act Release
No. 36923 (March 5, 1996), 61 FR 10410 (March 13,
1996) (SR–NYSE–95–23). In 2000, the Commission
also approved the Exchange’s generic listing
standards for listing and trading, or the trading
pursuant to UTP, of ICUs under section 703.16 of
the Manual and NYSE Rule 1100. See Securities
Exchange Act Release No. 43679 (December 5,
2000), 65 FR 77949 (December 13, 2000) (SR–
NYSE–00–46).
4 iShares is a registered trademark of Barclays
Global Investors, N.A.
5 The Trust is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a), (the
‘‘Investment Company Act’’). On April 15, 2005, the
Trust filed with the Commission a Registration
Statement for the Funds on Form N–1A under the
Securities Act of 1933 (15 U.S.C. 77a), and under
the Investment Company Act relating to the Funds
(File Nos. 333–92935 and 811–09729) (as amended,
the ‘‘Registration Statement’’).
On March 3, 2004, the Trust filed with the
Commission an Amended and Restated Application
for an Amended Order under sections 6(c) and 17(b)
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listed and traded on the American Stock
Exchange LLC, and the issuer intends to
move the listing of the Funds to the
NYSE. As described below, the Funds
do not meet the ‘‘generic’’ listing
requirements of Section 703.16 of the
Manual applicable to listing of ICUs
(permitting listing in reliance upon Rule
19b–4(e) under the Act) and cannot be
listed without a filing pursuant to Rule
19b–4 6 under the Act. Section
703.16(B)(2)(c) provides that the most
heavily weighted component stock may
not exceed 25% of the weight of the
index or portfolio, and the five most
heavily weighted component stocks may
not exceed 65% of the weight of the
index or portfolio. As of September 23,
2005, one stock in the Dow Jones U.S.
Oil and Gas Index— Exxon Mobil
Corp.—accounted for 31.91% of the
index weight and thus exceeded the
25% criterion. In addition, as of
September 23, 2005, the five most
heavily weighted stocks in the Dow
Jones U.S. Telecommunications Sector
Index exceeded the 65% weighting
criterion. The following five stocks
accounted for 83.24% of the index
weight: Verizon Communications Inc.
(24.17%), SBC Communications Inc.
(21.32%), Sprint Nextel Corp. (18.60%),
BellSouth Corp. (12.91%), and Alltel
Corp. (6.24%).
As set forth in detail below, the Funds
will hold certain securities
(‘‘Component Securities’’) selected to
correspond generally to the performance
of the Dow Jones U.S. Oil and Gas Index
and the Dow Jones U.S.
Telecommunications Sector Index (the
‘‘Underlying Indexes’’), respectively.
of the Investment Company Act and on September
8, 2004, the Trust filed with the Commission a
Second Amended and Restated Application to
Amend Orders under sections 6(c) and 17(b) of the
Investment Company Act for the purpose of
exempting the Fund from various provisions of the
Investment Company Act and the rules thereunder
(the ‘‘Application’’). The Application requested that
the Commission amend a prior Order received by
the Advisor, the Trust and the Distributor on
August 15, 2001, as amended (the ‘‘Prior Order’’).
On October 5, 2004, the SEC acted on the
Application by approving an order amending
certain prior orders under section 6(c) of the
Investment Company Act for an exemption from
sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Investment Company Act and Rule 22c–1 under the
Investment Company Act, and under sections 6(c)
and 17(b) of the Investment Company Act for an
exemption from sections 17(a)(1) and (a)(2) thereof.
Investment Company Act Release No. 26626
(October 5, 2004) (‘‘Amended Order’’). See also In
the Matter of iShares Trust, et al., Investment
Company Act Release No. 25111 (August 15, 2001)
as amended by In the Matter of iShares, Inc., et al.,
Investment Company Act Release No. 25623 (June
25, 2002) and In the Matter of iShares Trust, et al.,
Investment Company Act Release No. 26006 (April
15, 2003). The Amended Order permits the Trust
to offer the Funds and permits the Funds to invest
in certain depository receipts.
6 17 CFR 240.19b–4.
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71875
Each Fund intends to qualify as a
‘‘regulated investment company’’ (a
‘‘RIC’’) under the Internal Revenue Code
(the ‘‘Code’’). Barclays Global Fund
Advisors (the ‘‘Advisor’’ or ‘‘BGFA’’) is
the investment advisor to the Funds.
The Advisor is registered under the
Investment Advisers Act of 1940.7 The
Advisor is the wholly owned subsidiary
of Barclays Global Investors, N.A.
(‘‘BGI’’), a national banking association.
BGI is an indirect subsidiary of Barclays
Bank PLC of the United Kingdom. SEI
Investments Distribution Co. (‘‘SEI ‘‘ or
the ‘‘Distributor’’), a Pennsylvania
corporation and broker-dealer registered
under the Act, is the principal
underwriter and distributor of Creation
Unit Aggregations of iShares (see
‘‘Issuance of Creation Units
Aggregations,’’ below). The Distributor
is not affiliated with the Exchange or the
Advisor. The Trust has appointed
Investors Bank & Trust Co. (‘‘IBT’’) to
act as administrator (the
‘‘Administrator’’), custodian, fund
accountant, transfer agent, and dividend
disbursing agent for the Funds. The
Exchange expects that performance of
the Administrator’s duties and
obligations will be conducted within the
provisions of the Investment Company
Act 8 and the rules thereunder. There is
no affiliation between the Administrator
and the Trust, the Advisor, or the
Distributor.
(a) Operation of the Funds 9
The investment objective of the Funds
will be to provide investment results
that correspond generally to the price
and yield performance of the
Underlying Indexes.10 In seeking to
achieve their investment objective, the
Funds will utilize ‘‘passive’’ indexing
investment strategies. The Funds utilize
a ‘‘representative sampling’’ strategy to
track the applicable Underlying Index.
A Fund utilizing a representative
sampling strategy generally will hold a
basket of the Component Securities of
7 15
U.S.C. 80b.
U.S.C. 80a–1.
9 The Exchange states that the information
provided herein is based on information included
in the application, Prior Order and the Prior
Application as well as on the prospectus and
Statement of Additional Information for the Funds.
(See note 5, supra.) While the Advisor would
manage the Funds, the Funds’ Board of Directors
would have overall responsiblity for the Funds’
operations. The composition of the Board is, and
would be, in compliance with the requirements of
section 10 of the Investment Company Act. The
Funds are subject to and must comply with Section
303A.06 of the Manual, which requires that the
Funds have an audit committee that complies with
SEC Rule 10A–3, 17 CFR 240.10A–3.
10 The Funds’ investment objectives, policiies and
investment stategies will be fully disclosed in their
prospectus (‘‘Prospectus’’) and statement of
additional information (‘‘SAI’’).
8 15
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Federal Register / Vol. 70, No. 229 / Wednesday, November 30, 2005 / Notices
its Underlying Index, but it may not
hold all of the Component Securities of
its Underlying Index. The Application
states that the representative sampling
techniques that will be used by the
Advisor to manage the Funds do not
differ from the representative sampling
techniques it uses to manage the funds
that were the subject of the Prior Order.
From time to time, adjustments may
be made in the portfolio of the Funds in
accordance with changes in the
composition of the Underlying Indexes
or to maintain compliance with
requirements applicable to a ‘‘registered
investment company’’ (‘‘RIC’’) under the
Internal Revenue Code.11 For example,
if at the end of a calendar quarter a
Fund would not comply with the RIC
diversification tests, the Advisor would
make adjustments to the portfolio to
ensure continued RIC status. In order to
maintain RIC status, the Funds may not
hold Underlying Index stocks in the
same percentage weightings as in the
Underlying Index, and the individual
stock weightings in such indexes could
be more concentrated than the index
securities held by the Funds.
The Exchange states that an index is
a theoretical financial calculation, while
each Fund is an actual investment
portfolio. The performance of the Funds
and the Underlying Indexes will vary
somewhat due to transaction costs,
market impact, corporate actions (such
as mergers and spin-offs) and timing
variances. It is expected that, over time,
the correlation between each Funds’
performance and that of its respective
Underlying Index, before fees and
expenses, will be 95% or better. A figure
of 100% would indicate perfect
correlation. Any correlation of less than
100% is called ‘‘tracking error.’’ 12 As
11 In order for the Funds to qualify for tax
treatment as a RIC, they must meet several
requirements under the Code. Among these is a
requirement that, at the close of each quarter of the
Funds’ taxable year, (1) at least 50% of the market
value of the Funds’ total assets must be represented
by cash items, U.S. government securities,
securities of other RICs and other securities, with
such other securities limited for the purpose of this
calculation with respect to any one issuer to an
amount not greater than 5% of the value of the
Funds’ assets and not greater than 10% of the
outstanding voting securities of such issuer; and (2)
not more than 25% of the value of their total assets
may be invested in securities of any one issuer, or
two or more issuers that are controlled by the Funds
(within the meaning of section 851(b)(4)(B) of the
Code) and that are engaged in the same or similar
trades or business (other than U.S. government
securities of other RICs).
12 The Web site for the Funds, https://
www.iShares.com, contains detailed information on
the performance and the tracking error for each
Fund. Telephone conversation between Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, and Michael
Cavalier, Assistant General Counsel, NYSE, on
November 15, 2005.
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19:12 Nov 29, 2005
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stated in the Application under the
Investment Company Act applicable to
the Funds, the Funds are expected to
have a tracking error relative to the
performance of the applicable
Underlying Index of no more than 5%.
The Funds’ board of directors reviews
the tracking error of the Funds on a
quarterly basis and, based upon its
review, will consider if any action might
be appropriate.13
The Funds will not concentrate their
investments (i.e., hold 25% or more of
their assets) in a particular industry or
group of industries, except that the
Funds will concentrate their
investments to approximately the same
extent that the respective Underlying
Index is so concentrated. For purposes
of this limitation, securities of the U.S.
Government (including its agencies and
instrumentalities), repurchase
agreements collateralized by U.S.
Government securities, and securities of
state or municipal governments and
their political subdivisions are not
considered to be issued by members of
any industry.
Each Fund will invest at least 90% of
its assets in the securities of its
Underlying Index or in American
Depositary Receipts (‘‘ADRs’’) based on
securities in the Underlying Index. A
fund may invest the remainder of its
assets in securities not included in its
Underlying Index, which BGFA believes
will help the Fund track its Underlying
Index. For example, a Fund may invest
in securities not included in its
Underlying Index in order to reflect
various corporate actions (such as
mergers) and other changes in its
Underlying Index (such as
reconstitutions, additions and
deletions). A Fund also may invest its
other assets in futures contracts, options
on futures contracts, options, and swaps
related to its Underlying Index, as well
as cash and cash equivalents, including
shares of money market funds affiliated
with BGFA.
The Exchange believes that these
requirements and policies prevent the
Funds from being excessively weighted
in any single security or small group of
securities.14
13 The price at which the Funds’ shares trade
should be disciplined by arbitrage opportunities
created by the ability to purchase or redeem shares
of the Funds in Creation Unit Aggregations
throughout the trading day. This should help
ensure that the Funds’ shares will not trade at a
material discount or premium to their net asset
value or redemption value.
14 Both of the Funds hold securities and ADRs
(for at least 90% of their assets) that are registered
under Section 12 of the Exchange Act and listed on
a national securities exchange or traded through the
facilities of Nasdaq and that are ‘‘NMS stocks’’ as
defined in Rule 600 of Regulation NMS of the
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(b) Description of the Funds and the
Underlying Indexes
Index Description
The Dow Jones U.S. Oil and Gas Index
measures the performance of the oil and
gas sector of the U.S. equity market. The
Index includes companies in the
following sectors: oil and gas producers
and oil equipment, services and
distribution. The Fund will concentrate
its investments in a particular industry
or group of industries to approximately
the same extent as the Index is so
concentrated. As of the close of business
on December 17, 2004, the Index was
concentrated in the integrated oil and
gas industry group which comprised
56% of the market capitalization of the
Index.
As of September 23, 2005, the Dow
Jones U.S. Oil and Gas Index’s top three
holdings were Exxon Mobil Corp.,
Chevron Corp., and ConocoPhillips. The
Index’s top industries were Energy
Equipment and Services, and Oil, Gas &
Consumable Fuels.
As of September 23, 2005, the Dow
Jones U.S. Oil and Gas Index
components had a total market
capitalization of approximately $1.27
trillion. The average total market
capitalization was approximately $15.3
billion; the lowest market capitalization
figure was $529.6 million. The ten
largest constituents represented
approximately 68.2% of the Index
weight while the five highest weighted
stocks represented 56.4% of the Index
weight. During the past two months
(from September 23, 2005), the five
highest weighted stocks had an average
daily trading volume in excess of 8.1
million shares. From March 23, 2005
through September 23, 2005, 91.8% of
the component stocks traded at least 1.8
million shares. During August 23, 2005
through September 23, 2005, the
minimum monthly trading volume for
the lowest performing Index component
was at least 1.9 million shares.
The Dow Jones U.S.
Telecommunications Sector Index
measures the performance of the
telecommunications sector of the U.S.
equity market. The Index includes
companies in the following sectors:
fixed-line telecommunications and
mobile telecommunications.
The Fund will concentrate its
investments in a particular industry or
group of industries to approximately the
same extent as the Index is so
concentrated. As of the close of business
Exchange Act. Telephone conversation between
Florence Harmon, Senior Special Counsel, Division
of Market Regulation, Commission, and Michael
Cavalier, Assistant General Counsel, NYSE, on
November 22, 2005.
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on December 12, 2004, the Index was
concentrated in the fixed line
telecommunications industry group,
which comprised 84% of the market
capitalization of the Index.
As of September 23, 2005, the Dow
Jones U.S. Telecommunications Sector
Index’s top three holdings were Verizon
Communications Inc., SBC
Communications Inc., and Sprint Nextel
Corp. The Index’s top industry was
Telecommunication Services.
As of September 23, 2005, the Dow
Jones U.S. Telecommunications Sector
Index components had a total market
capitalization of approximately $368.2
billion. The average total market
capitalization was approximately $16.7
billion; the lowest market capitalization
figure was $209.3 million. The ten
largest constituents represented
approximately 93.5% of the Index
weight while the five highest weighted
stocks represented approximately 83.3%
of the Index weight. For July 23, 2005
through September 23, 2005, the five
highest weighted stocks had an average
daily trading volume in excess of 7.1
million shares. From March 23, 2005
through September 23, 2005, 99.9% of
the component stocks traded at least
850,000 shares. During August 23, 2005
through September 23, 2005, the
minimum monthly trading volume for
the lowest performing Index component
was at least 1.2 million shares.
The Dow Jones Indexes
Component Selection Criteria.
Securities of companies listed on a U.S.
exchange (such as the NYSE, the Amex
or the Nasdaq) are considered for
inclusion in the indexes, with the
following general rules and exceptions.
Stocks must have a minimum trade
history of six months on the rebalancing
date to be eligible for inclusion. Foreign
issues, including ADRs and GDRs, noncommon equity issues such as preferred
stocks, convertible notes, warrants,
rights, closed-end funds, trust receipts,
limited liabilities companies, royalty
trusts, units, limited partnerships, overthe-counter bulletin boards and pink
sheet stocks generally are not eligible for
inclusion in the indexes.
Issue Changes. Each index is
reviewed and rebalanced quarterly to
maintain accurate representation of the
market segment represented by the
Index. Securities that leave an index
between reconstitution dates are not
replaced. Thus, the number of securities
in an index between rebalancing dates
fluctuates according to corporate
activity. When a stock is acquired,
delisted, or moves to the pink sheets or
OTC bulletin board, the stock is deleted
from the index. The only additions
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between rebalancing dates are as a result
of spin-offs.
Index Maintenance. Maintaining the
Dow Jones Indexes includes monitoring
and completing the adjustments for
additions and deletions to each Index,
share changes, stock splits, stock
dividends, and stock price adjustments
due to restructuring and spin-offs.
Generally, each component security in
an Index is limited to a maximum
market capitalization of 25% of the
Index weight, and sum of the weights of
all component securities greater than
5% of the index is limited to 50% of the
Index total. If components fail either
rule, their market capitalization will be
reduced to meet the set guidelines.
However, as noted, the Indexes (upon
which the Funds are based) are subsets
of the Dow Jones Total Market Index
and contain components whose
weighting exceeds these general
parameters.15
The Dow Jones U.S. Oil & Gas Index
is a subset of the Dow Jones U.S. Total
Market Index. The Index is
capitalization weighted and includes
companies in the oil and gas industries
of the Dow Jones U.S. Total Market
Index.16 The component stocks are
weighted according to the total market
value of their outstanding shares. The
impact of a component’s price change is
proportional to the issue’s total market
value, which is the share price
multiplied by the number of shares
outstanding. The Index is adjusted to
reflect changes in capitalization
resulting from mergers, acquisitions,
stock rights, substitutions and other
capital events.
The Dow Jones U.S.
Telecommunications Index is also a
subset of the Dow Jones U.S. Total
Market Index. The Index is
capitalization-weighted and includes
only companies in the
telecommunications industry of the
Dow Jones U.S. Total Market Index. The
component stocks are weighted
according to the total market value of
their outstanding shares. The impact of
a component’s price change is
proportional to the issue’s total market
value, which is the share price
multiplied by the number of shares
outstanding. The Index is adjusted to
reflect changes in capitalization
resulting from mergers, acquisitions,
stock rights, substitutions and other
capital events.
The Dow Jones Indexes are calculated
continuously, and real-time index
values are available from major data
vendors at least every 15 seconds during
the hours that the Shares trade on the
Exchange.17
(c) Issuance of Creation Unit
Aggregations
(i) In General. Shares of the Funds
(the ‘‘iShares’’) will be issued on a
continuous offering basis in groups of
50,000 iShares, or multiples thereof.
These ‘‘groups’’ of shares are called
‘‘Creation Unit Aggregations.’’ The
Funds will issue and redeem iShares
only in Creation Unit Aggregations.18
As with other open-end investment
companies, iShares will be issued at the
net asset value (‘‘NAV’’) per share next
determined after an order in proper
form is received.
The NAV per share of the Funds is
determined as of the close of the regular
trading session on the Exchange on each
day that the Exchange is open. The
Trust sells Creation Unit Aggregations of
the Funds only on business days at the
next determined NAV of the Fund.
Creation Unit Aggregations generally
will be issued by the Funds in exchange
for the in-kind deposit of equity
securities designated by the Advisor to
correspond generally to the price and
yield performance of the Fund’s
Underlying Index (the ‘‘Deposit
Securities’’) and a specified cash
payment. Creation Unit Aggregations
generally will be redeemed by the Fund
in exchange for portfolio securities of
the Fund (‘‘Fund Securities’’) and a
specified cash payment. Fund Securities
received on redemption may not be
identical to Deposit Securities deposited
in connection with creations of Creation
Unit Aggregations for the same day.
All orders to purchase iShares in
Creation Unit Aggregations must be
placed through an Authorized
Participant. An Authorized Participant
must be either a ‘‘Participating Party,’’
i.e., a broker-dealer or other participant
in the clearing process through the
National Securities Clearing Corporation
(‘‘NSCC’’) Continuous Net Settlement
System (the ‘‘Clearing Process’’), a
clearing agency that is registered with
the SEC, or a Depository Trust Company
(‘‘DTC’’) participant, and in each case,
must enter into a Participant Agreement.
The Funds impose a transaction fee in
connection with the issuance and
17 See
15 Telephone
conversation between Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, and Michael
Cavalier, Assistant General Counsel, NYSE, on
November 22, 2005.
16 Id.
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71877
infra note 24 and accompanying text.
of September 20, 2005, a Creation Unit
Aggregation for the iShares Dow Jones Energy
Sector Index Fund and the iShares Dow Jones
Telecommunications Sector Index Fund had a value
of approximately $4,536,000 and $1,179,500,
respectively.
18 As
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redemption of iShares to offset transfer
and other transaction costs. The
transaction fee in connection with the
issuance and redemption of Creation
Unit Aggregations of the Funds are
estimated to be approximately $500–
$2000 for the iShares Dow Jones Energy
Sector Index Fund and between $250–
$1000 for the iShares Dow Jones
Telecommunications Sector Index
Fund.
(ii) In-Kind Deposit of Portfolio
Securities. Payment for Creation Unit
Aggregations will be made by the
purchasers generally by an in-kind
deposit with the applicable Fund of the
Deposit Securities together with an
amount of cash (the ‘‘Balancing
Amount’’) specified by the Advisor in
the manner described below. The
Balancing Amount is an amount equal
to the difference between (1) the NAV
(per Creation Unit Aggregation) of the
Fund and (2) the total aggregate market
value (per Creation Unit Aggregation) of
the Deposit Securities (such value
referred to herein as the ‘‘Deposit
Amount’’). The Balancing Amount
serves the function of compensating for
differences, if any, between the NAV per
Creation Unit Aggregation and that of
the Deposit Amount. The deposit of the
requisite Deposit Securities and the
Balancing Amount are collectively
referred to herein as a ‘‘Fund Deposit.’’
The Advisor will make available to the
market through the NSCC on each
business day, prior to the opening of
trading on the Exchange (currently 9:30
a.m. Eastern Time), the list of the names
and the required number of shares of
each Deposit Security included in the
current Fund Deposit (based on
information at the end of the previous
business day) for each Fund. The Fund
Deposit will be applicable to the
relevant Fund (subject to any
adjustments to the Balancing Amount,
as described below) in order to effect
purchases of Creation Unit Aggregations
of such Fund until such time as the
next-announced Fund Deposit
composition is made available.
The identity and number of shares of
the Deposit Securities required for the
Fund Deposit for each Fund will change
from time to time. The composition of
the Deposit Securities may change in
response to adjustments to the
weighting or composition of the
Component Securities in the Underlying
Index. In addition, the Trust reserves
the right to permit or require the
substitution of an amount of cash—i.e.,
a ‘‘cash in lieu’’ amount—to be added to
the Balancing Amount to replace any
Deposit Security that may not be
available in sufficient quantity for
delivery or that may not otherwise be
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19:12 Nov 29, 2005
Jkt 208001
eligible for transfer. The Trust also
reserves the right to permit or require a
‘‘cash in lieu’’ amount where the
delivery of the Deposit Security by the
Authorized Participant would be
restricted under the securities laws or
where the delivery of the Deposit
Security to the Authorized Participant
would result in the disposition of the
Deposit Security by the Authorized
Participant becoming restricted under
the securities laws, or in certain other
situations. The adjustments described
above will reflect changes known to the
Advisor on the date of announcement to
be in effect by the time of delivery of the
Fund Deposit, in the composition of the
applicable Underlying Index or
resulting from certain corporate actions.
(d) Redemption of iShares
Creation Unit Aggregations of the
Funds will be redeemable at the NAV
next determined after receipt of a
request for redemption. Creation Unit
Aggregations of the Funds generally will
be redeemed in-kind, together with a
balancing cash payment (although, as
described below, Creation Unit
Aggregations may sometimes be
redeemed for cash). The value of the
Funds’ redemption payments on a
Creation Unit Aggregation basis will
equal the NAV per the appropriate
number of iShares of the Funds. Owners
of iShares may sell their iShares in the
secondary market, but must accumulate
enough iShares to constitute a Creation
Unit Aggregation in order to redeem
through the Funds. Redemption orders
must be placed by or through an
Authorized Participant.
Shares may be redeemed only in
Creation Unit Aggregations at their NAV
next determined after receipt of a
redemption request in proper form by
the Fund through IBT and only on a
business day. A Fund will not redeem
shares in amounts less than Creation
Unit Aggregations.
With respect to each Fund, BGFA,
through the NSCC and through the
Distributor, makes available prior to the
opening of business on the Exchange
(currently 9:30 a.m., Eastern time) on
each business day, the identity of the
Fund securities that will be applicable
(subject to possible amendment or
correction) to redemption requests
received in proper form (as described
below) on that day (‘‘Fund Securities’’).
Fund Securities received on redemption
may not be identical to Deposit
Securities that are applicable to
creations of Creation Unit Aggregations.
Unless cash redemptions are available
or specified for a Fund, the redemption
proceeds for a Creation Unit
Aggregation generally consist of Fund
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
Securities—as announced on the
business day of the request for
redemption received in proper form—
plus cash in an amount equal to the
difference between the NAV of the
shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Fund Securities (the ‘‘Cash Redemption
Amount’’), less a redemption
transaction fee as noted above. In the
event that the Fund Securities have a
value greater than the NAV of the
shares, a compensating cash payment
equal to the difference is required to be
made by or through an Authorized
Participant by the redeeming
shareholder.
(e) Availability of Information Regarding
iShares and the Underlying Index
Prior to the opening of business on
the Exchange (currently 9:30 a.m.
Eastern time) on each business day,
BGFA, through NSCC, will make
available the list of names and amount
of each security constituting the current
Deposit Securities of the Fund Deposit
(subject to possible amendment or
correction) and the Balancing Amount
effective as of the previous business
day, per outstanding share of each
Fund.19
The NAV for the Fund will be
calculated and disseminated daily. The
Funds’ NAV will be published in a
number of places, including https://
www.iShares.com and on the
Consolidated Tape.20
An amount per iShare representing
the sum of the estimated Balancing
Amount effective through and including
the previous business day, plus the
current value of the Deposit Securities
in U.S. dollars, on a per iShare basis
(the ‘‘Intra-day Optimized Portfolio
Value’’ or ‘‘IOPV’’) will be calculated by
a third party independent of the issuer
(the ‘‘Value Calculator’’), at least every
15 seconds during the Exchange’s
regular trading hours and disseminated
at least every 15 seconds on the
Consolidated Tape. In addition, the
values of the Underlying Indexes will be
disseminated by one or more major
market vendors at least every 15
seconds during the Exchange’s regular
trading hours.21 The last sale prices of
19 BGFA will similarly make available the identity
of the Fund securities for redemption requests. See
‘‘Redemption of iShares,’’ supra.
20 Telephone conversation between Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, and Michael
Cavalier, Assistant General Counsel, NYSE, on
November 15, 2005.
21 The Exchange will commence delisting
proceedings of a series of ICUs if the value of the
index or portfolio of securities on which the series
is based is no longer calculated or available. See
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Fund shares traded in the secondary
market will be disseminated on the
Consolidated Tape on a real-time basis.
The IOPV reflects the current value of
the Deposit Securities and the Balancing
Amount. Since the Funds will utilize a
representative sampling strategy, the
IOPV may not reflect the value of all
securities included in the Underlying
Indexes. In addition, the IOPV does not
necessarily reflect the precise
composition of the current portfolio of
securities held by the Funds at a
particular point in time. Therefore, the
IOPV on a per Fund share basis
disseminated during the Exchange’s
trading hours should not be viewed as
a real time update of the NAV of the
Funds, which is calculated only once a
day. While the IOPV disseminated by
the Exchange at 9:30 a.m. is expected to
be generally very close to the most
recently calculated Fund NAV on a per
Fund share basis, it is possible that the
value of the portfolio of securities held
by each Fund may diverge from the
Deposit Securities values during any
trading day. In such case, the IOPV will
not precisely reflect the value of each
Fund’s portfolio.
However, during the trading day, the
IOPV can be expected to closely
approximate the value per Fund share of
the portfolio of securities for each Fund
except under unusual circumstances
(e.g., in the case of extensive
rebalancing of multiple securities in a
Fund at the same time by the Advisor).
The Exchange believes that
dissemination of the IOPV based on the
Deposit Securities provides additional
information regarding the Funds that is
not otherwise available to the public
and is useful to professionals and
investors in connection with Fund
shares trading on the Exchange or the
creation or redemption of Fund shares.
As noted, the Dow Jones Indexes are
calculated continuously, and real-time
index values are available from major
data vendors at least every 15 seconds
during the hours that the Shares trade
on the Exchange.22
Other information on the Funds,
regarding NAV, premium or discount to
NAV, distributions, shares outstanding
total returns, tracking error, holdings
and other information is available on
https://www.iShares.com.
section 703.16 of the Manual. Section 703.16
requires that, for ICUs listed in reliance upon Rule
19b–4(e) under the Act, the underlying index value
and the IOPV be disseminated by one or more major
market data vendors or over the consolidated tape
at least every 15 seconds. See Release No. 34–52081
(July 20, 2005), 70 FR 43488 (July 27, 2005) (SR–
NYSE–2005–44).
22 See infra note 24 and accompanying text.
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19:12 Nov 29, 2005
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(f) Dividends and Distributions
General Policies. Accrued dividends
from net investment income, if any, are
declared and paid at least annually by
each Fund. Distributions of net realized
securities gains, if any, generally are
declared and paid once a year, but the
Trust may make distributions on a more
frequent basis for certain Funds. The
Trust reserves the right to declare
special distributions if, in its reasonable
discretion, such action is necessary or
advisable to preserve the status of each
Fund as a RIC or to avoid imposition of
income or excise taxes on undistributed
income.
Dividends and other distribution in
shares are distributed on a pro rata basis
to Beneficial Owners of such shares.
Dividend payments are made through
DTC Participants and Indirect
Participants to Beneficial Owners then
of record with proceeds received from
the Funds.
Dividend Reinvestment Service. No
dividend reinvestment service is
provided by the Trust. Broker-dealers
may make available the DTC book-entry
Dividend Reinvestment Service for use
by Beneficial Owners of Funds for
reinvestment of their dividend
distributions. Beneficial Owners should
contact their broker to determine the
availability and costs of the service and
the details of participation therein.
Brokers may require Beneficial Owners
to adhere to specific procedures and
timetables. If this service is available
and used, dividend distributions of both
income and realized gains will be
automatically reinvested in additional
whole shares of the same Fund
purchased in the secondary market.
Beneficial owners of the Funds will
receive all of the statements, notices,
and reports required under the
Investment Company Act and other
applicable laws. They will receive, for
example, annual and semi-annual
reports, written statements
accompanying dividend payments,
proxy statements, annual notifications
detailing the tax status of distributions,
IRS Form 1099–DIVs, etc. Because the
Trust’s records reflect ownership of
iShares by DTC only, the Trust will
make available applicable statements,
notices, and reports to the DTC
Participants who, in turn, will be
responsible for distributing them to the
beneficial owners.
(g) Other Issues
(i) Criteria for Initial and Continued
Listing. The Funds are subject to the
criteria for initial and continued listing
of ICUs in section 703.16 of the Manual.
A minimum of two Creation Units
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
71879
(100,000 iShares) was required to be
outstanding at the start of trading. This
minimum number of shares of each
Fund required to be outstanding at the
start of trading will be comparable to
requirements that have been applied to
previously traded series of ICUs. The
Exchange notes that the number of
shares outstanding as of September 20,
2005 for the iShares Dow Jones U.S.
Energy Sector Index Fund and the Dow
Jones U.S. Telecommunications Sector
Index Fund were 9,800,000 and
22,150,000 shares, respectively.
(ii) Original and Annual Listing Fees.
The original listing fees applicable to
the Funds for listing on the Exchange is
$5,000 for each Fund, and the
continuing fees will be $2,000 for each
Fund.
(iii) Stop and Stop Limit Orders.
Commentary .30 to NYSE Rule 13
provides that stop and stop limit orders
in an ICU shall be elected by a
quotation, but specifies that if the
electing bid on an offer is more than
0.10 points away from the last sale and
is for the specialist’s dealer account,
prior Floor Official approval is required
for the election to be effective. This rule
applies to ICUs generally.
(iv) Rule 460.10. NYSE Rule 460.10
generally precludes certain business
relationships between an issuer and the
specialist or its affiliates in the issuer’s
securities. Exceptions in the Rule permit
specialists in Fund shares to enter into
Creation Unit transactions through the
Distributor to facilitate the maintenance
of a fair and orderly market. A specialist
or affiliate Creation Unit transaction
may only be effected on the same terms
and conditions as any other investor,
and only at the net asset value of the
Fund shares. A specialist or affiliate
may acquire a position in excess of 10%
of the outstanding issue of the Funds’
shares, provided, however, that a
specialist registered in a security issued
by an investment company may
purchase and redeem the investment
company unit or securities that can be
subdivided or converted into such unit
from the investment company as
appropriate to facilitate the maintenance
of a fair and orderly market in the
subject security.
(v) Prospectus or Product Description
Delivery. The Commission has granted
the Trust an exemption from certain
prospectus delivery requirements under
section 24(d) of the Investment
Company Act.23 Any product
description used in reliance on the
section 24(d) exemptive order will
23 15 U.S.C. 80a–24. See In the Matter of iShares,
Inc., et al., Investment Company Act Release No.
25623 (June 25, 2002).
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comply with all representations made
therein and all conditions thereto. The
Exchange, in an Information Memo to
Exchange members and member
organizations, will inform members and
member organizations, prior to
commencement of trading, of the
prospectus or product description
delivery requirements applicable to the
Funds and will refer members and
member organizations to NYSE Rule
1100(b). The Information Memo will
also advise members and member
organizations that delivery of a
prospectus to customers in lieu of a
product description would satisfy the
requirements of NYSE Rule 1100(b).
(vi) Information Memo. The Exchange
will distribute an Information Memo to
its members in connection with the
trading of the Funds. The Memo will
discuss the special characteristics and
risks of trading this type of security.
Specifically, the Memo, among other
things, will discuss what the Funds are,
how the Funds’ shares are created and
redeemed, the requirement that
members and member firms deliver a
prospectus or product description to
investors purchasing shares of the
Funds prior to or concurrently with the
confirmation of a transaction, applicable
Exchange rules, dissemination
information, trading information and
the applicability of suitability rules
(including NYSE Rule 405). The circular
will also discuss exemptive, no-action
and interpretive relief granted by the
Commission certain rules under the Act.
(vii) Trading Halts. In order to halt the
trading of the Funds, the Exchange may
consider, among other things, factors
such as the extent to which trading is
not occurring in underlying security(s)
and whether other unusual conditions
or circumstances detrimental to the
maintenance of a fair and orderly
market are present. In addition, trading
in the Funds’ shares is subject to trading
halts caused by extraordinary market
volatility pursuant to NYSE Rule 80B.
The Exchange will halt trading in a
Fund if the Index value or IOPV
applicable to such Fund is no longer
calculated or disseminated.24
(viii) Due Diligence/Suitability. The
Exchange represents that the
Information Memo to members will
note, for example, Exchange
responsibilities, including that before an
24 In the even an Index value of IOPV is no longer
calculated or disseminated, the Exchange would
immediately contact the Commission to discuss
measures that may be appropriate under the
circumstances. Telephone conversation between
Florence Harmon, Senior Special Counsel, Division
of Market Regulation, Commission, and Michael
Cavalier, Assistant General Counsel, NYSE, on
November 22, 2005.
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19:12 Nov 29, 2005
Jkt 208001
Exchange member, member
organization, or employee thereof
recommends a transaction in the Funds,
a determination must be made that the
recommendation is in compliance with
all applicable Exchange and Federal
rules and regulations, including due
diligence obligations under NYSE Rule
405 (Diligence as to Accounts).
(ix) Purchases and Redemptions in
Creation Unit Size. In the Memo
referenced above, members and member
organizations will be informed that
procedures for purchases and
redemptions of shares of the Funds in
Creation Unit Size are described in the
Funds’ Prospectus and SAI, and that
shares of the Funds are not individually
redeemable but are redeemable only in
Creation Unit Size aggregations or
multiples thereof.
(x) Surveillance. Exchange
surveillance procedures applicable to
trading in the proposed iShares are
comparable to those applicable to other
ICUs currently trading on the Exchange.
The Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Funds.
(xi) Hours of Trading/Minimum Price
Variation. The Funds will trade on the
Exchange until 4:15 p.m. (Eastern time).
The minimum price variation for
quoting will be $.01.
2. Statutory Basis
NYSE believes that the proposed rule
change is consistent with section 6(b)(5)
of the Act 25 requiring that an exchange
have rules that are designed, among
other things, to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
open market and, in general, 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
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
25 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00081
Fmt 4703
Sfmt 4703
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–NYSE–2005–67 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–NYSE–2005–67. 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
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the NYSE. 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–NYSE–2005–67 and should
be submitted on or before December 21,
2005.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder,
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applicable to a national securities
exchange.26 In particular, the
Commission finds that the proposed
rule change is consistent with section
6(b)(5) of the Act 27 and will promote
just and equitable principles of trade,
and facilitate transactions in securities,
and, in general, protect investors and
the public interest.
The Commission believes that the
proposed rule change raises no issues
that have not been previously
considered by the Commission.28 The
Fund is similar in structure and
operation to exchange-traded index
funds that the Commission has
previously approved for listing and
trading on national securities exchanges
under section 19(b)(2) of the Act.29
Further, with respect to each of the
following key issues, the Commission
believes that the Fund satisfies
established standards.
A. Surveillance
Given the market capitalization and
liquidity of the Underlying Indexes and
Funds’ component securities, the
Commission does not believe that the
Funds’ shares will be susceptible to
manipulation, despite the concentration
of individual components. Nevertheless,
the Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Funds, taking into account the
concentration of the individual
components. The Commission expects
the Exchange to employ adequate
surveillance for detecting manipulations
of both the Shares and the underlying
components, especially given the
concentration of individual
components.
B. Dissemination of Fund Information
With respect to pricing, once each
day, the NAV for the Fund will be
calculated and disseminated by IBT, to
various sources, including the NYSE,
and made available on https://
www.iShares.com and the Consolidated
Tape. Also, during the Exchange’s
regular trading hours, the IOPV
26 In approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
27 15 U.S.C. 78f(b)(5).
28 The Commission notes that, as is the case with
similar previously approved exchange traded funds,
investors in the Fund can redeem shares in
Creation-Unit-size aggregations only. See, e.g.,
Securities Exchange Act Release Nos. 43679
(December 5, 2000), 65 FR 77949 (December 13,
2000) (File No. SR–NYSE–00–46); 50505 (October 8,
2004), 69 FR 61280 (October 15, 2004) (File No. SR–
NYSE–2004–55); 50189 (August 12, 2004), 69 FR
51723 (August 20, 2004) (File No. SR–Amex–2004–
05); 52178 (July 29, 2005), 70 FR 46244 (August 9,
2005) (File No. SR–NYSE–2005–41).
29 15 U.S.C. 78s(b)(2).
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19:12 Nov 29, 2005
Jkt 208001
Calculator will determine and
disseminate at least every 15 seconds
the IOPV for each Fund, and the Index
values will be calculated and
disseminated at least every 15 seconds.
The Commission notes that a variety
of additional information about each
Fund will be readily available.
Information with respect to recent NAV,
shares outstanding, estimated cash
amount and total cash amount per
Creation Unit Aggregation will be made
available prior to the opening of the
Exchange. Information on the Funds,
regarding NAV, premium or discount to
NAV, distributions, shares outstanding
total returns, tracking error, holdings
and other information is available on
https://www.iShares.com. Also, the
closing prices of the Fund’s Deposit
Securities are available from, as
applicable, the relevant exchanges,
automated quotation systems, published
or other public sources in the relevant
country, or on-line information services.
Based on the representations made in
the NYSE proposal, the Commission
believes that pricing and other
important information about the Fund is
adequate and consistent with the Act.
C. Information Memorandum
The Exchange represents that it will
circulate an Information Memorandum
detailing applicable prospectus and
product description delivery
requirements. The memo will also
discuss exemptive, no-action and
interpretive relief granted by the
Commission from certain rules under
the Act. The memo also will address
NYSE members’ responsibility to
deliver a prospectus or product
description to all investors (in
accordance with NYSE Rule 1100(b))
and highlight the characteristics of the
Funds. The memo will also remind
members of their suitability obligations,
including NYSE Rule 405 (Diligence as
to Accounts).30 For example, the
Information Memo will also inform
members and member organizations that
Fund shares are not individually
redeemable, but are redeemable only in
Creation-Unit-size aggregations or
multiples thereof as set forth in the
Fund Prospectus and SAI.31 The
Commission believes that the disclosure
30 NYSE
Rule 405 generally requires that
members use due diligence to learn the essential
facts relative to every customer, order or account
accepted.
31 See discussion under section II.A.1(g)(vi)
‘‘Operation of the Funds,’’ above. The Exchange has
represented that the information memo will also
discuss exemptive, no-action, and interpretive relief
granted by the Commission from certain rules under
the Act.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
71881
included in the information memo is
appropriate and consistent with the Act.
D. Listing and Trading
The Commission finds that adequate
rules and procedures exist to govern the
listing and trading of the Fund’s shares.
Fund shares will be deemed equity
securities subject to NYSE rules
governing the trading of equity
securities, including, among others,
rules governing trading halts,
responsibilities of the specialist,
account opening and customer
suitability requirements,32 and the
election of stop and stop limit orders.
In addition, the Exchange states that
iShares are subject to the criteria for
initial and continued listing of ICUs in
section 703.16 of the NYSE Manual. The
Commission believes that the listing and
delisting criteria for Fund shares should
help to ensure that a minimum level of
liquidity will exist in the Fund to allow
for the maintenance of fair and orderly
markets.
E. Accelerated Approval
The Commission finds good cause,
pursuant to section 19(b)(2) of the Act,33
for approving the proposed rule change
prior to the thirtieth day after the date
of publication of notice in the Federal
Register. The Commission notes that the
proposal is consistent with the listing
and trading standards in NYSE Rule
703.16 (ICUs). The Funds are
substantially identical in structure to
other iShares Funds, which have an
established and active trading history on
the NYSE and other exchanges. The
Commission does not believe that the
proposed rule change raises novel
regulatory issues.
Accordingly, the Commission finds
that there is good cause, consistent with
section 6(b)(5) of the Act,34 to approve
the proposal on an accelerated basis.
V. Conclusion
It Is Therefore Ordered, pursuant to
section 19(b)(2) of the Act, that the
proposed rule change (SR–NYSE–2005–
67), is hereby approved on an
accelerated basis.35
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.36
32 Prior to commencement of trading, the
Exchange states that it will issue an Information
Memo informing members and member
organizations of the characteristics of the Fund and
of applicable Exchange rules, as well as of the
requirements of NYSE Rule 405 (Diligence as to
Accounts).
33 15 U.S.C. 78s(b)(2).
34 15 U.S.C. 78s(b)(5).
35 15 U.S.C. 78s(b)(2).
36 17 CFR 200.30–3(a)(12).
E:\FR\FM\30NON1.SGM
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71882
Federal Register / Vol. 70, No. 229 / Wednesday, November 30, 2005 / Notices
Jonathan G. Katz,
Secretary.
[FR Doc. 05–23496 Filed 11–29–05; 8:45 am]
BILLING CODE 8010–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
Notice of Passenger Facility Charge
(PFC) Approvals and Disapprovals
Federal Aviation
Administration (FAA), DOT.
ACTION: Monthly Notice of PFC
Approvals and Disapprovals. In June
2005, there were six applications
approved. This notice also includes
information on three applications, two
approved in November 2004 and one
approved in May 2005, inadvertently
left off the November 2004 and May
2005 notices, respectively. Additionally,
16 approved amendments to previously
approved applications are listed.
AGENCY:
SUMMARY: The FAA publishes a monthly
notice, as appropriate, of PFC approvals
and disapprovals under the provisions
of the Aviation Safety and Capacity
Expansion Act of 1990 (Title IX of the
Omnibus Budget Reconciliation Act of
1990) (Pub. L. 101–508) and Part 158 of
the Federal Aviation Regulations (14
CFR part 158). This notice is published
pursuant to paragraph d of § 158.29.
PFC Applications Approved
Public Agency: City of Des Moines,
Iowa.
Application Number: 04–07–C–00–
DSM.
Application Type: Impose and use a
PFC.
PFC Level: $4.50.
Total PFC Revenue Approved in This
Decision: $3,957,500.
Earliest Charge Effective Date: April 1,
2008.
Estimated Charge Expiration Date:
April 1, 2009.
Class of Air Carriers Not Required To
Collect PFC’s: Part 135 air taxi/
commercial operators.
Determination: Approved. Based on
information contained in the public
agency’s application, the FAA has
determined that the proposed class
accounts for less than 1 percent of the
total annual enplanements at Des
Moines International Airport.
Brief Description of Projects Approved
for Collection and Use:
Replace snow removal equipment and
airfield snow broom.
Acquire snow removal equipment and
airfield snow broom.
Replace aircraft rescue and
firefighting vehicle.
VerDate Aug<31>2005
19:12 Nov 29, 2005
Jkt 208001
PFC Level: $4.50.
Total PFC Revenue to be Used in This
Decision: $26,410,939.
Lorna K. Sandridge, Central Region
Charge Effective Date: April 1, 2003.
Airports Division, (816) 329–2641.
Class of Air Carriers Not Required to
Public Agency: City of Columbia,
Collect PFC’S: No change from previous
Missouri.
decision.
Application Number: 04–02–U–00–
Brief Description of Project Approved
COU.
for Use: Fire/rescue replacement
Application Type: Use PFC revenue.
facility.
PFC Level: $4.50.
Decision Date: June 22, 2005.
Total PFC Revenue To Be Used in
This Decision: $7,759.
FOR FURTHER INFORMATION CONTACT:
Charge Effective Date: November 1,
Gordon Nelson, Minneapolis Airports
2002.
District Office, (612) 713–4358.
Estimated Charge Expiration Date:
Public Agency: City of Cody,
October 1, 2012.
Wyoming.
Class of Air Carriers Not Required To
Application Number: 05–04–C–00–
Collect PFC’s: No change from previous
COD.
decision.
Application Type: Impose and use a
Brief Description of Project Approved PFC.
for Use: Replacement snow plow/
PFC Level: $4.50.
spreader truck.
Total PFC Revenue Approved in this
Decision Date: November 30, 2004.
Decision: $220,000.
Earliest Charge Effective Date:
FOR FURTHER INFORMATION CONTACT:
September 1, 2005.
Lorna K. Sandridge, Central Region
Estimated Charge Expiration Date:
Airports Division, (816) 329–2641.
Public Agency: Erie Municipal Airport November 1, 2006.
Class of Air Carriers Not Required to
Authority, Erie, Pennsylvania.
Collect PFC’S: Non-scheduled, onApplication Number: 05–04–C–00–
demand air carriers filing FAA Form
ERI.
1800–31.
Application Type: Impose and use a
Determination: Approved. Based on
PFC.
information contained in the public
PFC Level: $4.50.
agency’s application, the FAA has
Total PFC Revenue Approved in This
determined that the proposed class
Decision: $837,953.
accounts for less than 1 percent of the
Earliest Charge Effective Date: July 1,
total annual enplanements at
2005.
Yellowstone Regional Airport.
Estimated Charge Expiration Date:
Brief Description of Projects Approved
August 1, 2006.
for Collection and Use:
Class of Air Carriers Not Required to
Terminal area study (phase I).
Collect PFC’s: None.
Environmental assessment for
Brief Description of Projects Approved
midfield terminal.
for Collection and Use:
PFC consulting services.
Environmental assessment for runway
Decision Date: June 22, 2005.
6/24 extension.
Site security phase II.
FOR FURTHER INFORMATION CONTACT: 6
Command vehicle.
Chris Schaffer, Denver Airports District
Airfield access road.
Office, (303) 342–1258.
Acquire Orchard Park mobile home
Public Agency: County of Humboldt,
estates.
Arcata, California.
Replace high intensity runway
Application Number: 05–07–C–00–
lighting system.
ACV.
9/11 security costs.
Application Type: Impose and use a
Construct two passenger loading
PFC.
bridges.
PFC Level: $4.50.
Aircraft rescue and firefighting
Total PFC Revenue Approved in this
vehicle (pumper).
Decision: $392,265.
Acquire runway friction tester
Earliest Charge Effective Date: July 1,
vehicle.
2005.
Decision Date: May 31, 2005.
Estimated Charge Expiration Date:
October 1, 2005.
FOR FURTHER INFORMATION CONTACT: Lori
Class of Air Carriers Not Required to
Ledebohm, Harrisburg Airports District
Collect PFC’S: Non-scheduled, onOffice, (717) 730–2835.
Public Agency: Metropolitan Airports demand air carriers filing FAA Form
1800–31.
Commission, Minneapolis, Minnesota.
Determination: Approved. Based on
Application Number: 05–07–U–00–
information contained in the public
MSP.
agency’s application, the FAA has
Application Type: Use PFC revenue.
Decision Date: November 30, 2004.
FOR FURTHER INFORMATION CONTACT:
PO 00000
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Fmt 4703
Sfmt 4703
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]]>Agencies
[Federal Register Volume 70, Number 229 (Wednesday, November 30, 2005)]
[Notices]
[Pages 71874-71882]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23496]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52826; File No. SR-NYSE-2005-67]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Relating to iShares[reg] Dow Jones U.S. Energy Sector Index
Fund and iShares Dow Jones U.S. Telecommunications Sector Index Fund
November 22, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on September 30, 2005 the New York Stock Exchange,
Inc. (``NYSE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons and is
approving the proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NYSE proposes to list and trade the iShares[reg] Dow Jones U.S.
Energy Sector Index Fund and iShares Dow Jones U.S. Telecommunications
Sector Index Fund, both exchange-traded
[[Page 71875]]
funds, which the Exchange denominates as Investment Company Units
(``ICUs'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NYSE included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item III, below, and is set forth in sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange has adopted listing standards applicable to ICUs that
are consistent with the listing criteria currently used by other
national securities exchanges, and trading standards pursuant to which
the Exchange may either list and trade ICUs, or trade such ICUs on the
Exchange on an unlisted trading privileges (``UTP'') basis.\3\
---------------------------------------------------------------------------
\3\ In 1996, the Commission approved section 703.16 of the NYSE
Listed Company Manual (``Manual''), which sets forth the rules
related to the listing of ICUs. See Securities Exchange Act Release
No. 36923 (March 5, 1996), 61 FR 10410 (March 13, 1996) (SR-NYSE-95-
23). In 2000, the Commission also approved the Exchange's generic
listing standards for listing and trading, or the trading pursuant
to UTP, of ICUs under section 703.16 of the Manual and NYSE Rule
1100. See Securities Exchange Act Release No. 43679 (December 5,
2000), 65 FR 77949 (December 13, 2000) (SR-NYSE-00-46).
---------------------------------------------------------------------------
The Exchange now proposes to list and trade under Section 703.16 of
the NYSE Listed Company Manual (``Manual'') and NYSE Rule 1100 et seq.
shares of the iShares[reg] \4\ Dow Jones U.S. Energy Sector Index Fund
based on the Dow Jones U.S. Oil and Gas Index and iShares Dow Jones
U.S. Telecommunications Sector Index Fund based on the Dow Jones
Telecommunications Index (collectively, the ``Funds''). The Funds are a
series of the iShares Trust (the ``Trust'').\5\ The Funds are currently
listed and traded on the American Stock Exchange LLC, and the issuer
intends to move the listing of the Funds to the NYSE. As described
below, the Funds do not meet the ``generic'' listing requirements of
Section 703.16 of the Manual applicable to listing of ICUs (permitting
listing in reliance upon Rule 19b-4(e) under the Act) and cannot be
listed without a filing pursuant to Rule 19b-4 \6\ under the Act.
Section 703.16(B)(2)(c) provides that the most heavily weighted
component stock may not exceed 25% of the weight of the index or
portfolio, and the five most heavily weighted component stocks may not
exceed 65% of the weight of the index or portfolio. As of September 23,
2005, one stock in the Dow Jones U.S. Oil and Gas Index-- Exxon Mobil
Corp.--accounted for 31.91% of the index weight and thus exceeded the
25% criterion. In addition, as of September 23, 2005, the five most
heavily weighted stocks in the Dow Jones U.S. Telecommunications Sector
Index exceeded the 65% weighting criterion. The following five stocks
accounted for 83.24% of the index weight: Verizon Communications Inc.
(24.17%), SBC Communications Inc. (21.32%), Sprint Nextel Corp.
(18.60%), BellSouth Corp. (12.91%), and Alltel Corp. (6.24%).
---------------------------------------------------------------------------
\4\ iShares is a registered trademark of Barclays Global
Investors, N.A.
\5\ The Trust is registered under the Investment Company Act of
1940 (15 U.S.C. 80a), (the ``Investment Company Act''). On April 15,
2005, the Trust filed with the Commission a Registration Statement
for the Funds on Form N-1A under the Securities Act of 1933 (15
U.S.C. 77a), and under the Investment Company Act relating to the
Funds (File Nos. 333-92935 and 811-09729) (as amended, the
``Registration Statement'').
On March 3, 2004, the Trust filed with the Commission an Amended
and Restated Application for an Amended Order under sections 6(c)
and 17(b) of the Investment Company Act and on September 8, 2004,
the Trust filed with the Commission a Second Amended and Restated
Application to Amend Orders under sections 6(c) and 17(b) of the
Investment Company Act for the purpose of exempting the Fund from
various provisions of the Investment Company Act and the rules
thereunder (the ``Application''). The Application requested that the
Commission amend a prior Order received by the Advisor, the Trust
and the Distributor on August 15, 2001, as amended (the ``Prior
Order''). On October 5, 2004, the SEC acted on the Application by
approving an order amending certain prior orders under section 6(c)
of the Investment Company Act for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Investment Company Act and
Rule 22c-1 under the Investment Company Act, and under sections 6(c)
and 17(b) of the Investment Company Act for an exemption from
sections 17(a)(1) and (a)(2) thereof. Investment Company Act Release
No. 26626 (October 5, 2004) (``Amended Order''). See also In the
Matter of iShares Trust, et al., Investment Company Act Release No.
25111 (August 15, 2001) as amended by In the Matter of iShares,
Inc., et al., Investment Company Act Release No. 25623 (June 25,
2002) and In the Matter of iShares Trust, et al., Investment Company
Act Release No. 26006 (April 15, 2003). The Amended Order permits
the Trust to offer the Funds and permits the Funds to invest in
certain depository receipts.
\6\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
As set forth in detail below, the Funds will hold certain
securities (``Component Securities'') selected to correspond generally
to the performance of the Dow Jones U.S. Oil and Gas Index and the Dow
Jones U.S. Telecommunications Sector Index (the ``Underlying
Indexes''), respectively. Each Fund intends to qualify as a ``regulated
investment company'' (a ``RIC'') under the Internal Revenue Code (the
``Code''). Barclays Global Fund Advisors (the ``Advisor'' or ``BGFA'')
is the investment advisor to the Funds. The Advisor is registered under
the Investment Advisers Act of 1940.\7\ The Advisor is the wholly owned
subsidiary of Barclays Global Investors, N.A. (``BGI''), a national
banking association. BGI is an indirect subsidiary of Barclays Bank PLC
of the United Kingdom. SEI Investments Distribution Co. (``SEI `` or
the ``Distributor''), a Pennsylvania corporation and broker-dealer
registered under the Act, is the principal underwriter and distributor
of Creation Unit Aggregations of iShares (see ``Issuance of Creation
Units Aggregations,'' below). The Distributor is not affiliated with
the Exchange or the Advisor. The Trust has appointed Investors Bank &
Trust Co. (``IBT'') to act as administrator (the ``Administrator''),
custodian, fund accountant, transfer agent, and dividend disbursing
agent for the Funds. The Exchange expects that performance of the
Administrator's duties and obligations will be conducted within the
provisions of the Investment Company Act \8\ and the rules thereunder.
There is no affiliation between the Administrator and the Trust, the
Advisor, or the Distributor.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 80b.
\8\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------
(a) Operation of the Funds \9\
---------------------------------------------------------------------------
\9\ The Exchange states that the information provided herein is
based on information included in the application, Prior Order and
the Prior Application as well as on the prospectus and Statement of
Additional Information for the Funds. (See note 5, supra.) While the
Advisor would manage the Funds, the Funds' Board of Directors would
have overall responsiblity for the Funds' operations. The
composition of the Board is, and would be, in compliance with the
requirements of section 10 of the Investment Company Act. The Funds
are subject to and must comply with Section 303A.06 of the Manual,
which requires that the Funds have an audit committee that complies
with SEC Rule 10A-3, 17 CFR 240.10A-3.
---------------------------------------------------------------------------
The investment objective of the Funds will be to provide investment
results that correspond generally to the price and yield performance of
the Underlying Indexes.\10\ In seeking to achieve their investment
objective, the Funds will utilize ``passive'' indexing investment
strategies. The Funds utilize a ``representative sampling'' strategy to
track the applicable Underlying Index. A Fund utilizing a
representative sampling strategy generally will hold a basket of the
Component Securities of
[[Page 71876]]
its Underlying Index, but it may not hold all of the Component
Securities of its Underlying Index. The Application states that the
representative sampling techniques that will be used by the Advisor to
manage the Funds do not differ from the representative sampling
techniques it uses to manage the funds that were the subject of the
Prior Order.
---------------------------------------------------------------------------
\10\ The Funds' investment objectives, policiies and investment
stategies will be fully disclosed in their prospectus
(``Prospectus'') and statement of additional information (``SAI'').
---------------------------------------------------------------------------
From time to time, adjustments may be made in the portfolio of the
Funds in accordance with changes in the composition of the Underlying
Indexes or to maintain compliance with requirements applicable to a
``registered investment company'' (``RIC'') under the Internal Revenue
Code.\11\ For example, if at the end of a calendar quarter a Fund would
not comply with the RIC diversification tests, the Advisor would make
adjustments to the portfolio to ensure continued RIC status. In order
to maintain RIC status, the Funds may not hold Underlying Index stocks
in the same percentage weightings as in the Underlying Index, and the
individual stock weightings in such indexes could be more concentrated
than the index securities held by the Funds.
---------------------------------------------------------------------------
\11\ In order for the Funds to qualify for tax treatment as a
RIC, they must meet several requirements under the Code. Among these
is a requirement that, at the close of each quarter of the Funds'
taxable year, (1) at least 50% of the market value of the Funds'
total assets must be represented by cash items, U.S. government
securities, securities of other RICs and other securities, with such
other securities limited for the purpose of this calculation with
respect to any one issuer to an amount not greater than 5% of the
value of the Funds' assets and not greater than 10% of the
outstanding voting securities of such issuer; and (2) not more than
25% of the value of their total assets may be invested in securities
of any one issuer, or two or more issuers that are controlled by the
Funds (within the meaning of section 851(b)(4)(B) of the Code) and
that are engaged in the same or similar trades or business (other
than U.S. government securities of other RICs).
---------------------------------------------------------------------------
The Exchange states that an index is a theoretical financial
calculation, while each Fund is an actual investment portfolio. The
performance of the Funds and the Underlying Indexes will vary somewhat
due to transaction costs, market impact, corporate actions (such as
mergers and spin-offs) and timing variances. It is expected that, over
time, the correlation between each Funds' performance and that of its
respective Underlying Index, before fees and expenses, will be 95% or
better. A figure of 100% would indicate perfect correlation. Any
correlation of less than 100% is called ``tracking error.'' \12\ As
stated in the Application under the Investment Company Act applicable
to the Funds, the Funds are expected to have a tracking error relative
to the performance of the applicable Underlying Index of no more than
5%. The Funds' board of directors reviews the tracking error of the
Funds on a quarterly basis and, based upon its review, will consider if
any action might be appropriate.\13\
---------------------------------------------------------------------------
\12\ The Web site for the Funds, https://www.iShares.com,
contains detailed information on the performance and the tracking
error for each Fund. Telephone conversation between Florence Harmon,
Senior Special Counsel, Division of Market Regulation, Commission,
and Michael Cavalier, Assistant General Counsel, NYSE, on November
15, 2005.
\13\ The price at which the Funds' shares trade should be
disciplined by arbitrage opportunities created by the ability to
purchase or redeem shares of the Funds in Creation Unit Aggregations
throughout the trading day. This should help ensure that the Funds'
shares will not trade at a material discount or premium to their net
asset value or redemption value.
---------------------------------------------------------------------------
The Funds will not concentrate their investments (i.e., hold 25% or
more of their assets) in a particular industry or group of industries,
except that the Funds will concentrate their investments to
approximately the same extent that the respective Underlying Index is
so concentrated. For purposes of this limitation, securities of the
U.S. Government (including its agencies and instrumentalities),
repurchase agreements collateralized by U.S. Government securities, and
securities of state or municipal governments and their political
subdivisions are not considered to be issued by members of any
industry.
Each Fund will invest at least 90% of its assets in the securities
of its Underlying Index or in American Depositary Receipts (``ADRs'')
based on securities in the Underlying Index. A fund may invest the
remainder of its assets in securities not included in its Underlying
Index, which BGFA believes will help the Fund track its Underlying
Index. For example, a Fund may invest in securities not included in its
Underlying Index in order to reflect various corporate actions (such as
mergers) and other changes in its Underlying Index (such as
reconstitutions, additions and deletions). A Fund also may invest its
other assets in futures contracts, options on futures contracts,
options, and swaps related to its Underlying Index, as well as cash and
cash equivalents, including shares of money market funds affiliated
with BGFA.
The Exchange believes that these requirements and policies prevent
the Funds from being excessively weighted in any single security or
small group of securities.\14\
---------------------------------------------------------------------------
\14\ Both of the Funds hold securities and ADRs (for at least
90% of their assets) that are registered under Section 12 of the
Exchange Act and listed on a national securities exchange or traded
through the facilities of Nasdaq and that are ``NMS stocks'' as
defined in Rule 600 of Regulation NMS of the Exchange Act. Telephone
conversation between Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, and Michael Cavalier,
Assistant General Counsel, NYSE, on November 22, 2005.
---------------------------------------------------------------------------
(b) Description of the Funds and the Underlying Indexes
Index Description
The Dow Jones U.S. Oil and Gas Index measures the performance of
the oil and gas sector of the U.S. equity market. The Index includes
companies in the following sectors: oil and gas producers and oil
equipment, services and distribution. The Fund will concentrate its
investments in a particular industry or group of industries to
approximately the same extent as the Index is so concentrated. As of
the close of business on December 17, 2004, the Index was concentrated
in the integrated oil and gas industry group which comprised 56% of the
market capitalization of the Index.
As of September 23, 2005, the Dow Jones U.S. Oil and Gas Index's
top three holdings were Exxon Mobil Corp., Chevron Corp., and
ConocoPhillips. The Index's top industries were Energy Equipment and
Services, and Oil, Gas & Consumable Fuels.
As of September 23, 2005, the Dow Jones U.S. Oil and Gas Index
components had a total market capitalization of approximately $1.27
trillion. The average total market capitalization was approximately
$15.3 billion; the lowest market capitalization figure was $529.6
million. The ten largest constituents represented approximately 68.2%
of the Index weight while the five highest weighted stocks represented
56.4% of the Index weight. During the past two months (from September
23, 2005), the five highest weighted stocks had an average daily
trading volume in excess of 8.1 million shares. From March 23, 2005
through September 23, 2005, 91.8% of the component stocks traded at
least 1.8 million shares. During August 23, 2005 through September 23,
2005, the minimum monthly trading volume for the lowest performing
Index component was at least 1.9 million shares.
The Dow Jones U.S. Telecommunications Sector Index measures the
performance of the telecommunications sector of the U.S. equity market.
The Index includes companies in the following sectors: fixed-line
telecommunications and mobile telecommunications.
The Fund will concentrate its investments in a particular industry
or group of industries to approximately the same extent as the Index is
so concentrated. As of the close of business
[[Page 71877]]
on December 12, 2004, the Index was concentrated in the fixed line
telecommunications industry group, which comprised 84% of the market
capitalization of the Index.
As of September 23, 2005, the Dow Jones U.S. Telecommunications
Sector Index's top three holdings were Verizon Communications Inc., SBC
Communications Inc., and Sprint Nextel Corp. The Index's top industry
was Telecommunication Services.
As of September 23, 2005, the Dow Jones U.S. Telecommunications
Sector Index components had a total market capitalization of
approximately $368.2 billion. The average total market capitalization
was approximately $16.7 billion; the lowest market capitalization
figure was $209.3 million. The ten largest constituents represented
approximately 93.5% of the Index weight while the five highest weighted
stocks represented approximately 83.3% of the Index weight. For July
23, 2005 through September 23, 2005, the five highest weighted stocks
had an average daily trading volume in excess of 7.1 million shares.
From March 23, 2005 through September 23, 2005, 99.9% of the component
stocks traded at least 850,000 shares. During August 23, 2005 through
September 23, 2005, the minimum monthly trading volume for the lowest
performing Index component was at least 1.2 million shares.
The Dow Jones Indexes
Component Selection Criteria. Securities of companies listed on a
U.S. exchange (such as the NYSE, the Amex or the Nasdaq) are considered
for inclusion in the indexes, with the following general rules and
exceptions. Stocks must have a minimum trade history of six months on
the rebalancing date to be eligible for inclusion. Foreign issues,
including ADRs and GDRs, non-common equity issues such as preferred
stocks, convertible notes, warrants, rights, closed-end funds, trust
receipts, limited liabilities companies, royalty trusts, units, limited
partnerships, over-the-counter bulletin boards and pink sheet stocks
generally are not eligible for inclusion in the indexes.
Issue Changes. Each index is reviewed and rebalanced quarterly to
maintain accurate representation of the market segment represented by
the Index. Securities that leave an index between reconstitution dates
are not replaced. Thus, the number of securities in an index between
rebalancing dates fluctuates according to corporate activity. When a
stock is acquired, delisted, or moves to the pink sheets or OTC
bulletin board, the stock is deleted from the index. The only additions
between rebalancing dates are as a result of spin-offs.
Index Maintenance. Maintaining the Dow Jones Indexes includes
monitoring and completing the adjustments for additions and deletions
to each Index, share changes, stock splits, stock dividends, and stock
price adjustments due to restructuring and spin-offs. Generally, each
component security in an Index is limited to a maximum market
capitalization of 25% of the Index weight, and sum of the weights of
all component securities greater than 5% of the index is limited to 50%
of the Index total. If components fail either rule, their market
capitalization will be reduced to meet the set guidelines. However, as
noted, the Indexes (upon which the Funds are based) are subsets of the
Dow Jones Total Market Index and contain components whose weighting
exceeds these general parameters.\15\
---------------------------------------------------------------------------
\15\ Telephone conversation between Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, and
Michael Cavalier, Assistant General Counsel, NYSE, on November 22,
2005.
---------------------------------------------------------------------------
The Dow Jones U.S. Oil & Gas Index is a subset of the Dow Jones
U.S. Total Market Index. The Index is capitalization weighted and
includes companies in the oil and gas industries of the Dow Jones U.S.
Total Market Index.\16\ The component stocks are weighted according to
the total market value of their outstanding shares. The impact of a
component's price change is proportional to the issue's total market
value, which is the share price multiplied by the number of shares
outstanding. The Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and
other capital events.
---------------------------------------------------------------------------
\16\ Id.
---------------------------------------------------------------------------
The Dow Jones U.S. Telecommunications Index is also a subset of the
Dow Jones U.S. Total Market Index. The Index is capitalization-weighted
and includes only companies in the telecommunications industry of the
Dow Jones U.S. Total Market Index. The component stocks are weighted
according to the total market value of their outstanding shares. The
impact of a component's price change is proportional to the issue's
total market value, which is the share price multiplied by the number
of shares outstanding. The Index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events.
The Dow Jones Indexes are calculated continuously, and real-time
index values are available from major data vendors at least every 15
seconds during the hours that the Shares trade on the Exchange.\17\
---------------------------------------------------------------------------
\17\ See infra note 24 and accompanying text.
---------------------------------------------------------------------------
(c) Issuance of Creation Unit Aggregations
(i) In General. Shares of the Funds (the ``iShares'') will be
issued on a continuous offering basis in groups of 50,000 iShares, or
multiples thereof. These ``groups'' of shares are called ``Creation
Unit Aggregations.'' The Funds will issue and redeem iShares only in
Creation Unit Aggregations.\18\
---------------------------------------------------------------------------
\18\ As of September 20, 2005, a Creation Unit Aggregation for
the iShares Dow Jones Energy Sector Index Fund and the iShares Dow
Jones Telecommunications Sector Index Fund had a value of
approximately $4,536,000 and $1,179,500, respectively.
---------------------------------------------------------------------------
As with other open-end investment companies, iShares will be issued
at the net asset value (``NAV'') per share next determined after an
order in proper form is received.
The NAV per share of the Funds is determined as of the close of the
regular trading session on the Exchange on each day that the Exchange
is open. The Trust sells Creation Unit Aggregations of the Funds only
on business days at the next determined NAV of the Fund. Creation Unit
Aggregations generally will be issued by the Funds in exchange for the
in-kind deposit of equity securities designated by the Advisor to
correspond generally to the price and yield performance of the Fund's
Underlying Index (the ``Deposit Securities'') and a specified cash
payment. Creation Unit Aggregations generally will be redeemed by the
Fund in exchange for portfolio securities of the Fund (``Fund
Securities'') and a specified cash payment. Fund Securities received on
redemption may not be identical to Deposit Securities deposited in
connection with creations of Creation Unit Aggregations for the same
day.
All orders to purchase iShares in Creation Unit Aggregations must
be placed through an Authorized Participant. An Authorized Participant
must be either a ``Participating Party,'' i.e., a broker-dealer or
other participant in the clearing process through the National
Securities Clearing Corporation (``NSCC'') Continuous Net Settlement
System (the ``Clearing Process''), a clearing agency that is registered
with the SEC, or a Depository Trust Company (``DTC'') participant, and
in each case, must enter into a Participant Agreement.
The Funds impose a transaction fee in connection with the issuance
and
[[Page 71878]]
redemption of iShares to offset transfer and other transaction costs.
The transaction fee in connection with the issuance and redemption of
Creation Unit Aggregations of the Funds are estimated to be
approximately $500-$2000 for the iShares Dow Jones Energy Sector Index
Fund and between $250-$1000 for the iShares Dow Jones
Telecommunications Sector Index Fund.
(ii) In-Kind Deposit of Portfolio Securities. Payment for Creation
Unit Aggregations will be made by the purchasers generally by an in-
kind deposit with the applicable Fund of the Deposit Securities
together with an amount of cash (the ``Balancing Amount'') specified by
the Advisor in the manner described below. The Balancing Amount is an
amount equal to the difference between (1) the NAV (per Creation Unit
Aggregation) of the Fund and (2) the total aggregate market value (per
Creation Unit Aggregation) of the Deposit Securities (such value
referred to herein as the ``Deposit Amount''). The Balancing Amount
serves the function of compensating for differences, if any, between
the NAV per Creation Unit Aggregation and that of the Deposit Amount.
The deposit of the requisite Deposit Securities and the Balancing
Amount are collectively referred to herein as a ``Fund Deposit.'' The
Advisor will make available to the market through the NSCC on each
business day, prior to the opening of trading on the Exchange
(currently 9:30 a.m. Eastern Time), the list of the names and the
required number of shares of each Deposit Security included in the
current Fund Deposit (based on information at the end of the previous
business day) for each Fund. The Fund Deposit will be applicable to the
relevant Fund (subject to any adjustments to the Balancing Amount, as
described below) in order to effect purchases of Creation Unit
Aggregations of such Fund until such time as the next-announced Fund
Deposit composition is made available.
The identity and number of shares of the Deposit Securities
required for the Fund Deposit for each Fund will change from time to
time. The composition of the Deposit Securities may change in response
to adjustments to the weighting or composition of the Component
Securities in the Underlying Index. In addition, the Trust reserves the
right to permit or require the substitution of an amount of cash--i.e.,
a ``cash in lieu'' amount--to be added to the Balancing Amount to
replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not otherwise be eligible for
transfer. The Trust also reserves the right to permit or require a
``cash in lieu'' amount where the delivery of the Deposit Security by
the Authorized Participant would be restricted under the securities
laws or where the delivery of the Deposit Security to the Authorized
Participant would result in the disposition of the Deposit Security by
the Authorized Participant becoming restricted under the securities
laws, or in certain other situations. The adjustments described above
will reflect changes known to the Advisor on the date of announcement
to be in effect by the time of delivery of the Fund Deposit, in the
composition of the applicable Underlying Index or resulting from
certain corporate actions.
(d) Redemption of iShares
Creation Unit Aggregations of the Funds will be redeemable at the
NAV next determined after receipt of a request for redemption. Creation
Unit Aggregations of the Funds generally will be redeemed in-kind,
together with a balancing cash payment (although, as described below,
Creation Unit Aggregations may sometimes be redeemed for cash). The
value of the Funds' redemption payments on a Creation Unit Aggregation
basis will equal the NAV per the appropriate number of iShares of the
Funds. Owners of iShares may sell their iShares in the secondary
market, but must accumulate enough iShares to constitute a Creation
Unit Aggregation in order to redeem through the Funds. Redemption
orders must be placed by or through an Authorized Participant.
Shares may be redeemed only in Creation Unit Aggregations at their
NAV next determined after receipt of a redemption request in proper
form by the Fund through IBT and only on a business day. A Fund will
not redeem shares in amounts less than Creation Unit Aggregations.
With respect to each Fund, BGFA, through the NSCC and through the
Distributor, makes available prior to the opening of business on the
Exchange (currently 9:30 a.m., Eastern time) on each business day, the
identity of the Fund securities that will be applicable (subject to
possible amendment or correction) to redemption requests received in
proper form (as described below) on that day (``Fund Securities'').
Fund Securities received on redemption may not be identical to Deposit
Securities that are applicable to creations of Creation Unit
Aggregations.
Unless cash redemptions are available or specified for a Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist
of Fund Securities--as announced on the business day of the request for
redemption received in proper form--plus cash in an amount equal to the
difference between the NAV of the shares being redeemed, as next
determined after a receipt of a request in proper form, and the value
of the Fund Securities (the ``Cash Redemption Amount''), less a
redemption transaction fee as noted above. In the event that the Fund
Securities have a value greater than the NAV of the shares, a
compensating cash payment equal to the difference is required to be
made by or through an Authorized Participant by the redeeming
shareholder.
(e) Availability of Information Regarding iShares and the Underlying
Index
Prior to the opening of business on the Exchange (currently 9:30
a.m. Eastern time) on each business day, BGFA, through NSCC, will make
available the list of names and amount of each security constituting
the current Deposit Securities of the Fund Deposit (subject to possible
amendment or correction) and the Balancing Amount effective as of the
previous business day, per outstanding share of each Fund.\19\
---------------------------------------------------------------------------
\19\ BGFA will similarly make available the identity of the Fund
securities for redemption requests. See ``Redemption of iShares,''
supra.
---------------------------------------------------------------------------
The NAV for the Fund will be calculated and disseminated daily. The
Funds' NAV will be published in a number of places, including https://
www.iShares.com and on the Consolidated Tape.\20\
---------------------------------------------------------------------------
\20\ Telephone conversation between Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, and
Michael Cavalier, Assistant General Counsel, NYSE, on November 15,
2005.
---------------------------------------------------------------------------
An amount per iShare representing the sum of the estimated
Balancing Amount effective through and including the previous business
day, plus the current value of the Deposit Securities in U.S. dollars,
on a per iShare basis (the ``Intra-day Optimized Portfolio Value'' or
``IOPV'') will be calculated by a third party independent of the issuer
(the ``Value Calculator''), at least every 15 seconds during the
Exchange's regular trading hours and disseminated at least every 15
seconds on the Consolidated Tape. In addition, the values of the
Underlying Indexes will be disseminated by one or more major market
vendors at least every 15 seconds during the Exchange's regular trading
hours.\21\ The last sale prices of
[[Page 71879]]
Fund shares traded in the secondary market will be disseminated on the
Consolidated Tape on a real-time basis.
---------------------------------------------------------------------------
\21\ The Exchange will commence delisting proceedings of a
series of ICUs if the value of the index or portfolio of securities
on which the series is based is no longer calculated or available.
See section 703.16 of the Manual. Section 703.16 requires that, for
ICUs listed in reliance upon Rule 19b-4(e) under the Act, the
underlying index value and the IOPV be disseminated by one or more
major market data vendors or over the consolidated tape at least
every 15 seconds. See Release No. 34-52081 (July 20, 2005), 70 FR
43488 (July 27, 2005) (SR-NYSE-2005-44).
---------------------------------------------------------------------------
The IOPV reflects the current value of the Deposit Securities and
the Balancing Amount. Since the Funds will utilize a representative
sampling strategy, the IOPV may not reflect the value of all securities
included in the Underlying Indexes. In addition, the IOPV does not
necessarily reflect the precise composition of the current portfolio of
securities held by the Funds at a particular point in time. Therefore,
the IOPV on a per Fund share basis disseminated during the Exchange's
trading hours should not be viewed as a real time update of the NAV of
the Funds, which is calculated only once a day. While the IOPV
disseminated by the Exchange at 9:30 a.m. is expected to be generally
very close to the most recently calculated Fund NAV on a per Fund share
basis, it is possible that the value of the portfolio of securities
held by each Fund may diverge from the Deposit Securities values during
any trading day. In such case, the IOPV will not precisely reflect the
value of each Fund's portfolio.
However, during the trading day, the IOPV can be expected to
closely approximate the value per Fund share of the portfolio of
securities for each Fund except under unusual circumstances (e.g., in
the case of extensive rebalancing of multiple securities in a Fund at
the same time by the Advisor).
The Exchange believes that dissemination of the IOPV based on the
Deposit Securities provides additional information regarding the Funds
that is not otherwise available to the public and is useful to
professionals and investors in connection with Fund shares trading on
the Exchange or the creation or redemption of Fund shares.
As noted, the Dow Jones Indexes are calculated continuously, and
real-time index values are available from major data vendors at least
every 15 seconds during the hours that the Shares trade on the
Exchange.\22\
---------------------------------------------------------------------------
\22\ See infra note 24 and accompanying text.
---------------------------------------------------------------------------
Other information on the Funds, regarding NAV, premium or discount
to NAV, distributions, shares outstanding total returns, tracking
error, holdings and other information is available on https://
www.iShares.com.
(f) Dividends and Distributions
General Policies. Accrued dividends from net investment income, if
any, are declared and paid at least annually by each Fund.
Distributions of net realized securities gains, if any, generally are
declared and paid once a year, but the Trust may make distributions on
a more frequent basis for certain Funds. The Trust reserves the right
to declare special distributions if, in its reasonable discretion, such
action is necessary or advisable to preserve the status of each Fund as
a RIC or to avoid imposition of income or excise taxes on undistributed
income.
Dividends and other distribution in shares are distributed on a pro
rata basis to Beneficial Owners of such shares. Dividend payments are
made through DTC Participants and Indirect Participants to Beneficial
Owners then of record with proceeds received from the Funds.
Dividend Reinvestment Service. No dividend reinvestment service is
provided by the Trust. Broker-dealers may make available the DTC book-
entry Dividend Reinvestment Service for use by Beneficial Owners of
Funds for reinvestment of their dividend distributions. Beneficial
Owners should contact their broker to determine the availability and
costs of the service and the details of participation therein. Brokers
may require Beneficial Owners to adhere to specific procedures and
timetables. If this service is available and used, dividend
distributions of both income and realized gains will be automatically
reinvested in additional whole shares of the same Fund purchased in the
secondary market.
Beneficial owners of the Funds will receive all of the statements,
notices, and reports required under the Investment Company Act and
other applicable laws. They will receive, for example, annual and semi-
annual reports, written statements accompanying dividend payments,
proxy statements, annual notifications detailing the tax status of
distributions, IRS Form 1099-DIVs, etc. Because the Trust's records
reflect ownership of iShares by DTC only, the Trust will make available
applicable statements, notices, and reports to the DTC Participants
who, in turn, will be responsible for distributing them to the
beneficial owners.
(g) Other Issues
(i) Criteria for Initial and Continued Listing. The Funds are
subject to the criteria for initial and continued listing of ICUs in
section 703.16 of the Manual. A minimum of two Creation Units (100,000
iShares) was required to be outstanding at the start of trading. This
minimum number of shares of each Fund required to be outstanding at the
start of trading will be comparable to requirements that have been
applied to previously traded series of ICUs. The Exchange notes that
the number of shares outstanding as of September 20, 2005 for the
iShares Dow Jones U.S. Energy Sector Index Fund and the Dow Jones U.S.
Telecommunications Sector Index Fund were 9,800,000 and 22,150,000
shares, respectively.
(ii) Original and Annual Listing Fees. The original listing fees
applicable to the Funds for listing on the Exchange is $5,000 for each
Fund, and the continuing fees will be $2,000 for each Fund.
(iii) Stop and Stop Limit Orders. Commentary .30 to NYSE Rule 13
provides that stop and stop limit orders in an ICU shall be elected by
a quotation, but specifies that if the electing bid on an offer is more
than 0.10 points away from the last sale and is for the specialist's
dealer account, prior Floor Official approval is required for the
election to be effective. This rule applies to ICUs generally.
(iv) Rule 460.10. NYSE Rule 460.10 generally precludes certain
business relationships between an issuer and the specialist or its
affiliates in the issuer's securities. Exceptions in the Rule permit
specialists in Fund shares to enter into Creation Unit transactions
through the Distributor to facilitate the maintenance of a fair and
orderly market. A specialist or affiliate Creation Unit transaction may
only be effected on the same terms and conditions as any other
investor, and only at the net asset value of the Fund shares. A
specialist or affiliate may acquire a position in excess of 10% of the
outstanding issue of the Funds' shares, provided, however, that a
specialist registered in a security issued by an investment company may
purchase and redeem the investment company unit or securities that can
be subdivided or converted into such unit from the investment company
as appropriate to facilitate the maintenance of a fair and orderly
market in the subject security.
(v) Prospectus or Product Description Delivery. The Commission has
granted the Trust an exemption from certain prospectus delivery
requirements under section 24(d) of the Investment Company Act.\23\ Any
product description used in reliance on the section 24(d) exemptive
order will
[[Page 71880]]
comply with all representations made therein and all conditions
thereto. The Exchange, in an Information Memo to Exchange members and
member organizations, will inform members and member organizations,
prior to commencement of trading, of the prospectus or product
description delivery requirements applicable to the Funds and will
refer members and member organizations to NYSE Rule 1100(b). The
Information Memo will also advise members and member organizations that
delivery of a prospectus to customers in lieu of a product description
would satisfy the requirements of NYSE Rule 1100(b).
---------------------------------------------------------------------------
\23\ 15 U.S.C. 80a-24. See In the Matter of iShares, Inc., et
al., Investment Company Act Release No. 25623 (June 25, 2002).
---------------------------------------------------------------------------
(vi) Information Memo. The Exchange will distribute an Information
Memo to its members in connection with the trading of the Funds. The
Memo will discuss the special characteristics and risks of trading this
type of security. Specifically, the Memo, among other things, will
discuss what the Funds are, how the Funds' shares are created and
redeemed, the requirement that members and member firms deliver a
prospectus or product description to investors purchasing shares of the
Funds prior to or concurrently with the confirmation of a transaction,
applicable Exchange rules, dissemination information, trading
information and the applicability of suitability rules (including NYSE
Rule 405). The circular will also discuss exemptive, no-action and
interpretive relief granted by the Commission certain rules under the
Act.
(vii) Trading Halts. In order to halt the trading of the Funds, the
Exchange may consider, among other things, factors such as the extent
to which trading is not occurring in underlying security(s) and whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. In addition,
trading in the Funds' shares is subject to trading halts caused by
extraordinary market volatility pursuant to NYSE Rule 80B. The Exchange
will halt trading in a Fund if the Index value or IOPV applicable to
such Fund is no longer calculated or disseminated.\24\
---------------------------------------------------------------------------
\24\ In the even an Index value of IOPV is no longer calculated
or disseminated, the Exchange would immediately contact the
Commission to discuss measures that may be appropriate under the
circumstances. Telephone conversation between Florence Harmon,
Senior Special Counsel, Division of Market Regulation, Commission,
and Michael Cavalier, Assistant General Counsel, NYSE, on November
22, 2005.
---------------------------------------------------------------------------
(viii) Due Diligence/Suitability. The Exchange represents that the
Information Memo to members will note, for example, Exchange
responsibilities, including that before an Exchange member, member
organization, or employee thereof recommends a transaction in the
Funds, a determination must be made that the recommendation is in
compliance with all applicable Exchange and Federal rules and
regulations, including due diligence obligations under NYSE Rule 405
(Diligence as to Accounts).
(ix) Purchases and Redemptions in Creation Unit Size. In the Memo
referenced above, members and member organizations will be informed
that procedures for purchases and redemptions of shares of the Funds in
Creation Unit Size are described in the Funds' Prospectus and SAI, and
that shares of the Funds are not individually redeemable but are
redeemable only in Creation Unit Size aggregations or multiples
thereof.
(x) Surveillance. Exchange surveillance procedures applicable to
trading in the proposed iShares are comparable to those applicable to
other ICUs currently trading on the Exchange. The Exchange represents
that its surveillance procedures are adequate to properly monitor the
trading of the Funds.
(xi) Hours of Trading/Minimum Price Variation. The Funds will trade
on the Exchange until 4:15 p.m. (Eastern time). The minimum price
variation for quoting will be $.01.
2. Statutory Basis
NYSE believes that the proposed rule change is consistent with
section 6(b)(5) of the Act \25\ requiring that an exchange have rules
that are designed, among other things, to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to, and perfect the
mechanism of a free and open market and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\25\ 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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
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-NYSE-2005-67 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-NYSE-2005-67. 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 Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the NYSE. 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-NYSE-2005-67 and should be submitted on or before
December 21, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder,
[[Page 71881]]
applicable to a national securities exchange.\26\ In particular, the
Commission finds that the proposed rule change is consistent with
section 6(b)(5) of the Act \27\ and will promote just and equitable
principles of trade, and facilitate transactions in securities, and, in
general, protect investors and the public interest.
---------------------------------------------------------------------------
\26\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission believes that the proposed rule change raises no
issues that have not been previously considered by the Commission.\28\
The Fund is similar in structure and operation to exchange-traded index
funds that the Commission has previously approved for listing and
trading on national securities exchanges under section 19(b)(2) of the
Act.\29\ Further, with respect to each of the following key issues, the
Commission believes that the Fund satisfies established standards.
---------------------------------------------------------------------------
\28\ The Commission notes that, as is the case with similar
previously approved exchange traded funds, investors in the Fund can
redeem shares in Creation-Unit-size aggregations only. See, e.g.,
Securities Exchange Act Release Nos. 43679 (December 5, 2000), 65 FR
77949 (December 13, 2000) (File No. SR-NYSE-00-46); 50505 (October
8, 2004), 69 FR 61280 (October 15, 2004) (File No. SR-NYSE-2004-55);
50189 (August 12, 2004), 69 FR 51723 (August 20, 2004) (File No. SR-
Amex-2004-05); 52178 (July 29, 2005), 70 FR 46244 (August 9, 2005)
(File No. SR-NYSE-2005-41).
\29\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
A. Surveillance
Given the market capitalization and liquidity of the Underlying
Indexes and Funds' component securities, the Commission does not
believe that the Funds' shares will be susceptible to manipulation,
despite the concentration of individual components. Nevertheless, the
Exchange represents that its surveillance procedures are adequate to
properly monitor the trading of the Funds, taking into account the
concentration of the individual components. The Commission expects the
Exchange to employ adequate surveillance for detecting manipulations of
both the Shares and the underlying components, especially given the
concentration of individual components.
B. Dissemination of Fund Information
With respect to pricing, once each day, the NAV for the Fund will
be calculated and disseminated by IBT, to various sources, including
the NYSE, and made available on https://www.iShares.com and the
Consolidated Tape. Also, during the Exchange's regular trading hours,
the IOPV Calculator will determine and disseminate at least every 15
seconds the IOPV for each Fund, and the Index values will be calculated
and disseminated at least every 15 seconds.
The Commission notes that a variety of additional information about
each Fund will be readily available. Information with respect to recent
NAV, shares outstanding, estimated cash amount and total cash amount
per Creation Unit Aggregation will be made available prior to the
opening of the Exchange. Information on the Funds, regarding NAV,
premium or discount to NAV, distributions, shares outstanding total
returns, tracking error, holdings and other information is available on
https://www.iShares.com. Also, the closing prices of the Fund's Deposit
Securities are available from, as applicable, the relevant exchanges,
automated quotation systems, published or other public sources in the
relevant country, or on-line information services.
Based on the representations made in the NYSE proposal, the
Commission believes that pricing and other important information about
the Fund is adequate and consistent with the Act.
C. Information Memorandum
The Exchange represents that it will circulate an Information
Memorandum detailing applicable prospectus and product description
delivery requirements. The memo will also discuss exemptive, no-action
and interpretive relief granted by the Commission from certain rules
under the Act. The memo also will address NYSE members' responsibility
to deliver a prospectus or product description to all investors (in
accordance with NYSE Rule 1100(b)) and highlight the characteristics of
the Funds. The memo will also remind members of their suitability
obligations, including NYSE Rule 405 (Diligence as to Accounts).\30\
For example, the Information Memo will also inform members and member
organizations that Fund shares are not individually redeemable, but are
redeemable only in Creation-Unit-size aggregations or multiples thereof
as set forth in the Fund Prospectus and SAI.\31\ The Commission
believes that the disclosure included in the information memo is
appropriate and consistent with the Act.
---------------------------------------------------------------------------
\30\ NYSE Rule 405 generally requires that members use due
diligence to learn the essential facts relative to every customer,
order or account accepted.
\31\ See discussion under section II.A.1(g)(vi) ``Operation of
the Funds,'' above. The Exchange has represented that the
information memo will also discuss exemptive, no-action, and
interpretive relief granted by the Commission from certain rules
under the Act.
---------------------------------------------------------------------------
D. Listing and Trading
The Commission finds that adequate rules and procedures exist to
govern the listing and trading of the Fund's shares. Fund shares will
be deemed equity securities subject to NYSE rules governing the trading
of equity securities, including, among others, rules governing trading
halts, responsibilities of the specialist, account opening and customer
suitability requirements,\32\ and the election of stop and stop limit
orders.
---------------------------------------------------------------------------
\32\ Prior to commencement of trading, the Exchange states that
it will issue an Information Memo informing members and member
organizations of the characteristics of the Fund and of applicable
Exchange rules, as well as of the requirements of NYSE Rule 405
(Diligence as to Accounts).
---------------------------------------------------------------------------
In addition, the Exchange states that iShares are subject to the
criteria for initial and continued listing of ICUs in section 703.16 of
the NYSE Manual. The Commission believes that the listing and delisting
criteria for Fund shares should help to ensure that a minimum level of
liquidity will exist in the Fund to allow for the maintenance of fair
and orderly markets.
E. Accelerated Approval
The Commission finds good cause, pursuant to section 19(b)(2) of
the Act,\33\ for approving the proposed rule change prior to the
thirtieth day after the date of publication of notice in the Federal
Register. The Commission notes that the proposal is consistent with the
listing and trading standards in NYSE Rule 703.16 (ICUs). The Funds are
substantially identical in structure to other iShares Funds, which have
an established and active trading history on the NYSE and other
exchanges. The Commission does not believe that the proposed rule
change raises novel regulatory issues.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
Accordingly, the Commission finds that there is good cause,
consistent with section 6(b)(5) of the Act,\34\ to approve the proposal
on an accelerated basis.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78s(b)(5).
---------------------------------------------------------------------------
V. Conclusion
It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change (SR-NYSE-2005-67), is hereby approved on
an accelerated basis.\35\
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\35\ 15 U.S.C. 78s(b)(2).
\36\ 17 CFR 200.30-3(a)(12).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\36\
[[Page 71882]]
Jonathan G. Katz,
Secretary.
[FR Doc. 05-23496 Filed 11-29-05; 8:45 am]
BILLING CODE 8010-01-P
