Securities: Suspension of trading— , 3570-3578 [E6-700]
Agencies
[Federal Register: January 23, 2006 (Volume 71, Number 14)]
[Notices]
[Page 3570-3578]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ja06-103]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53130; File No. SR-Amex-2005-072]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Listing and Trading of Shares of the iShares[supreg]
Silver Trust
January 17, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 30, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Amex. On September
15, 2005, the Exchange submitted Amendment No. 1 to the proposed rule
change.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 to the proposed rule change clarifies the
valuation procedure that would be used by the Bank of New York to
determine the daily value of the silver contained in the
iShares[supreg] Silver Trust.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade under Amex Rules 1200A et
seq.,
[[Page 3571]]
the iShares[reg] Silver Trust shares (the ``Silver Shares'' or
``Shares'').\4\
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\4\ iShares[supreg] is a registered trademark of Barclays Global
Investors, N.A.
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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 Amex included statements
concerning the purpose of, and basis for, the proposed rule change, as
amended, and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The Exchange has prepared summaries, set
forth in sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the iShares Silver Trust
(the ``Silver Trust'' or ``Trust'') shares that represent beneficial
ownership interests in the net assets of the Trust consisting primarily
of silver bullion (``silver''). The Exchange states that the Trust will
not be actively managed, and therefore, a holder of Silver Shares will
not be hedged to protect against the price volatility of the underlying
silver.
Under Amex Rule 1201A, the Exchange may approve for listing and
trading Commodity-Based Trust Shares on an underlying commodity.\5\
Accordingly, the Amex proposes to list for trading Silver Shares under
Exchange Rule 1200A et. seq.\6\
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\5\ Amex Rule 1200A(b)(2) defines ``commodity'' as set forth in
Section 1(a)(4) of the Commodity Exchange Act (``CEA'').
\6\ See applicable Amex Rules 1200A, 1201A, 1202A, 1203A, 1204A,
and 1205A.
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Introduction. In January 2005, the Exchange adopted rules for the
listing and trading of ``Commodity-Based Trust Shares.'' \7\ Commodity-
Based Trust Shares (the ``Commodity Shares'') are securities issued by
a trust that represent investors'' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
trust. Commodity Shares are a form of trust issued receipt (``TIR'')
\8\ that instead of holding one or more discrete securities will hold
one or more physical commodities. The Exchange has listed the iShares
COMEX Gold Trust \9\ and trades pursuant to unlisted trading privileges
(``UTP''), the streetTRACKS Gold Trust,\10\ as Commodity-Based Trust
Shares pursuant to Exchange Rules 1200A et seq.
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\7\ See Securities Exchange Act Release No. 51058 (January 19,
2005), 70 FR 3749 (January 26, 2005) (approving the listing and
trading of the iShares COMEX Gold Trust).
\8\ A Trust Issued Receipt or ``TIR'' is defined in Exchange
Rule 1200(b) as a security (a) that is issued by a trust that holds
specified securities deposited with the trust; (b) that, when
aggregated in some specified minimum number, may be surrendered to
the trust by the beneficial owner to receive the securities; and (c)
that pays beneficial owners dividends and other distributions on the
deposited securities, if any are declared and paid to the trustee by
an issuer of the deposited securities. Under Amex Rule 1201, the
Exchange may approve for listing and trading TIRs based on one or
more securities. The Exchange defines a ``security'' or
``securities'' to include stocks, bonds, options, and other
interests or instruments commonly known as securities. See Article
I, Section 3(j) of the Amex Constitution.
\9\ See supra note 7.
\10\ See Securities Exchange Act Release No. 51446 (March 29,
2005), 70 FR 17272 (April 5, 2005) (approving the UTP trading of the
streetTRACKS Gold Shares).
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The Exchange may list and trade the Silver Shares pursuant to Amex
Rules 1200A et seq. subject to Commission review and approval. The
Silver Shares will conform to the initial and continued listing
criteria under Amex Rule 1202A.\11\ The Silver Trust will be formed
under a depositary trust agreement, among Bank of New York, as Trustee;
Barclays Global Investors International, Inc. (``Barclays'' or
``Sponsor''), the Sponsor; all depositors, if any; and the holders of
Silver Shares.\12\
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\11\ The initial listing standards set forth in Amex Rule
1202A(a) provide that the Exchange establish a minimum number of
TIRs required to be outstanding at the time of the commencement of
trading on the Exchange. As set forth in the section ``Criteria for
Initial and Continued Listing,'' the Exchange expects the minimum
number of Silver Shares required to be outstanding at the time of
trading to be 150,000. This section, infra, specifically details the
initial and continued listing standards for the Silver Trust.
\12\ The trust is not an investment company as defined in
Section 3(a) of the Investment Company Act of 1940 (the ``1940
Act'').
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The Exchange notes that the Commission has permitted the listing
and trading of products linked to the performance of an underlying
commodity or commodities.\13\
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\13\ See Securities Exchange Act Release Nos. 51058 (January 19,
2005), 70 FR 3749 (January 26, 2005) (approving the listing and
trading of the iShares COMEX Gold Trust); 50603 (October 28, 2004),
69 FR 64614 (November 5, 2004) (approving the listing and trading of
streetTRACKS Gold Shares); 43427 (October 10, 2000), 65 FR 62783
(October 19, 2000) (approving the listing and trading of inflation
indexed securities); 39402 (December 4, 1997), 62 FR 65459 (December
12, 1997) (approving the listing and trading of commodity index
preferred or debt securities (ComPS) on various agricultural futures
contracts and commodities indexes); 36885 (February 26, 1996), 61 FR
8315 (March 4, 1996) (approving the listing and trading of ComPS
linked to the value of single commodity); and 35518 (March 21,
1995), 60 FR 15804 (March 27, 1995) (approving the listing and
trading of commodity indexed notes or COINS). See also Central Fund
of Canada (Registration No. 033-15180) (closed-end fund listed and
traded on the Amex that invests in silver) and Salmon Phibro Oil
Trust (Registration No. 033-33823) (trust units listed and traded on
the Amex that held the right to a forward contract for the delivery
of crude oil).
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Description of the Silver Market. The silver market is a global
marketplace consisting of both over-the-counter (``OTC'') transactions
and exchange-traded products. The OTC market generally consists of
transactions in spot, forwards, options and other derivatives, while
exchange-traded transactions consist of futures and options. Set forth
below, the Exchange has provided a description of each of the OTC and
exchange-traded markets for silver as well as a summary of their
respective regulatory structures.
The OTC Market. The OTC market trades on a 24-hour continuous basis
and accounts for the substantial portion of global silver trading.
Specifically, the London OTC market is the largest silver clearing
market. Liquidity in the OTC market can vary from time to time during
the course of the 24-hour trading day. Fluctuations in liquidity are
reflected in adjustments to dealing spreads--the differential between a
dealer's buy and sell prices. The Exchange believes the period of
greatest liquidity in the silver market is typically that time of day
when trading in the European time zone overlaps with trading in the
United States. This occurs when the OTC market trading in New York,
London, Zurich and other centers coincides with futures and options
trading on the Commodity Exchange, Inc. (``COMEX'').\14\ This period
lasts for approximately five (5) hours \15\ each New York business day,
from 8:25 a.m.-1:25 p.m. Eastern Time (``ET'').\16\
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\14\ COMEX is a division of the New York Mercantile Exchange,
Inc. (``NYMEX'') where silver futures contracts and related options
are traded.
\15\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
\16\ The Exchange submits that Silver Shares may be used as a
price discovery mechanism for silver from 1:25 p.m. to 4:15 p.m. ET.
The open outcry trading hours of the COMEX silver futures contract
is from 8:25 a.m. to 1:25 p.m. ET Monday through Friday. NYMEX
ACCESS(r), an electronic trading system, is open for price discovery
on COMEX silver futures contracts from 2 p.m. Monday afternoon until
8 a.m. Friday morning ET; and from 7 p.m. Sunday night until Monday
morning at 8 a.m. ET.
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Market makers, as well as others in the OTC market, trade with each
other and with their clients on a principal-to-principal basis. All
risks and issues of credit are between the parties directly involved in
the transaction. Market makers include the market-making
[[Page 3572]]
members of the London Bullion Market Association (``LBMA''), the trade
association that acts as the coordinator for activities conducted on
behalf of its members and other participants in the London bullion
market.\17\ The current market-making members of the LBMA are: Bank of
Nova Scotia-ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC
Bank USA (London branch), Goldman Sachs International, JPMorganChase
Bank, Royal Bank of Canada Ltd., Societe Generale, and UBS AG.
JPMorganChase Bank NA (London branch) is an affiliate of the custodian
for the Trust. Barclays Bank Plc is an affiliate of the Sponsor and the
Initial Purchaser, Barclays Capital, Inc. The OTC market provides a
relatively flexible market in terms of quotes, price, size,
destinations for delivery, and other factors. Bullion dealers customize
transactions to meet clients' requirements. The OTC market has no
formal structure and no open-outcry meeting place. The main centers of
the OTC market are London (the largest market), New York, and Zurich.
Bullion dealers have offices around the world, and most of the world's
major bullion dealers are either members or associate members of the
LBMA.
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\17\ Further information about the LBMA may be found at https://www.lbma.org.uk.
There are currently nine (9) market-making members
of the LBMA, five of which offer clearing services, and 51 full
members.
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The Exchange indicates that there are no authoritative published
figures for overall worldwide volume in silver trading. There are
published sources that do suggest the significant size of the overall
market. The LBMA publishes statistics compiled from the five (5)
members offering clearing services.\18\ The Exchange notes that the
monthly average daily volume figures published by the LBMA for 2004
range from, a high of 143.4 million to a low of 75.5 million troy
ounces per day. Through May 2005, the monthly average daily volume has
ranged from a high of 152.1 million to a low of 76.9 million. The COMEX
also publishes price and volume statistics for exchange-traded
transactions in contracts for the future delivery of silver (and
related options).\19\
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\18\ Information regarding clearing volume estimates by the LBMA
can be found at https://www.lbma.org.uk/clearing_table.htm. The
three measures published by the LBMA are: volume, the amount of
metal transferred on average each day measured in millions of troy
ounces; value, measured in U.S. dollars, using the monthly average
London PM fixing price; and the number of transfers, which is the
average number recorded each day. The statistics exclude allocated
and unallocated balance transfers where the sole purpose is for
overnight credit and physical movements arranged by clearing members
in locations other than London.
\19\ Information regarding price and average daily volume on the
COMEX can be found at https://www.nymex.com/jsp/markets.md_annual_volume.jsp
.
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The London Bullion Market and the London ``Fix'' Process. Although
the market for physical silver is distributed globally, most OTC market
trades are cleared through London. In addition to coordinating market
activities, the Exchange notes that the LBMA acts as the principal
point of contact between the market and its regulators. A primary
function of the LBMA is its involvement in the promotion of refining
standards by maintenance of the ``London Good Delivery Lists,'' which
are the lists of LBMA accredited melters and assayers of silver. The
LBMA also coordinates market clearing and vaulting, promotes good
trading practices, and develops standard documentation for such
clearing and warehousing activities. The LBMA also publishes ``The Good
Delivery Rules for Gold and Silver Bars,'' the specifications for gold
and silver bars acceptable for delivery in settlement of a transaction
on the London market. Silver bars meeting these requirements are
referred to herein as ``London Good Delivery Bars.'' The silver spot
price always refers to that of a London Good Delivery Bar, unless
otherwise specified. In the OTC market, business is generally conducted
over the phone and through a widely used electronic dealing system.
A London silver ``fix'' is conducted each trading day at 12 p.m.
London time (7 a.m. ET) providing reference silver prices for that
day's trading.\20\ The Exchange notes that many long-term contracts are
priced on the basis of the London silver fix and market participants
will usually refer to the London silver fix when looking for a basis
for valuation. The Exchange believes that the London fix is the most
widely used benchmark for daily silver prices and is quoted by various
financial information sources.
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\20\ Formal participation in the London silver fix is limited to
three (3) LBMA members, each of which is a bullion dealer. The
chairmanship of the London silver fix committee is The Bank of Nova
Scotia--ScotiaMocatta. The fix takes place by telephone at 12:00
p.m. London time and also has a web-based commentary. The other
members of the London silver fix are currently Deutsche Bank AG and
HSBC Bank USA, NA. Any other market participant wishing to
participate in trading on the fix is required to do so through one
of these three (3) dealers. Clients place orders either with one of
the three (3) fixing members or with another bullion dealer who will
then be in contact with a fixing member during the fixing. The
fixing members net-off all orders when communicating their net
interest at the fixing. The fix begins with the fixing chairman
suggesting a ``trying price,'' reflecting the market price
prevailing at the opening of the fix. This is relayed by the fixing
members to their dealing rooms that have direct communication with
all interested parties. Any market participant may enter the fixing
process at any time, or adjust or withdraw his order. The silver
price is adjusted up or down until all the buy and sell orders are
matched, at which time the price is declared fixed. All fixing
orders are transacted on the basis of this fixed price, which is
instantly relayed to the market through various media. Barclays and
the Exchange believe that the London fix is widely viewed as a full
and fair representation of all market interest at the time of the
fix.
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Futures Exchanges. The Exchange states that the most significant
silver futures exchanges are the COMEX and the Tokyo Commodity Exchange
(``TOCOM'').\21\ Trading on these exchanges is based on fixed delivery
dates and transaction sizes for the futures and options contracts
traded. Trading costs on these exchanges are negotiable. The Exchange
represents that as a matter of practice, only a small percentage of the
future market turnover ever comes to physical delivery of the silver
represented by the contracts traded. Both COMEX and TOCUM permit
trading on margin. COMEX operates through a central clearance system.
TOCOM has a similar clearance system. In each case, the exchange acts
as a counterparty for each member for clearing purposes.
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\21\ There are other silver exchange markets, such as the London
Metals Exchange, the Istanbul Gold Exchange, the Shanghai Gold
Exchange, and the Hong Kong Chinese Gold & Silver Exchange Society.
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Silver Market Regulation. There is no direct regulation of the
global OTC market in silver. However, indirect regulation of some of
the overseas participants does occur. In the United Kingdom,
responsibility for the regulation of financial market participants,
including the major participating members of the LBMA, falls under the
authority of the Financial Services Authority (``FSA'') as provided by
the Financial Services and Market Act of 2000 (``FSM Act''). The
Exchange states that under the FSM Act, all UK-based banks, together
with other investment firms, are subject to a range of requirements,
including fitness and properness, capital adequacy, liquidity, and
systems and controls. The FSA is responsible for regulating investment
products, including derivatives, and those who deal in investment
products. Regulation of spot, commercial forwards and deposits of
silver not covered by the FSM Act is provided for by The London Code of
Conduct for Non-Investment Products, which was established by market
participants in conjunction with the Bank of England, and is a
voluntary code of conduct among market participants.
The Exchange states that participants in the U.S. OTC market for
silver are
[[Page 3573]]
generally regulated by their institutional supervisors, which regulate
their activities in the other markets in which they operate. For
example, participating banks are regulated by the banking authorities.
In the U.S., the Commodities Futures Trading Commission (``CFTC''), an
independent governmental agency with the mandate to regulate commodity
futures and options markets in the U.S., regulates market participants
and has established rules designed to prevent market manipulation,
abusive trade practices and fraud.
The Exchange states that TOCOM has authority to perform financial
and operational surveillance on its members' trading activities,
scrutinize positions held by members and large-scale customers, and
monitor price movements of futures markets by comparing them with cash
and other derivative markets' prices.
Product Description. 1. Creation and Redemption Process. Issuances
of Silver Shares will be made only in baskets of 50,000 shares or
multiples thereof (the ``Basket Aggregations'' or ``Baskets'').\22\ The
Trust will issue and redeem Basket Aggregations on a continuous basis,
by or through registered broker-dealers that have entered into
participant agreements (each, an ``Authorized Participant'') \23\ with
the Sponsor and the Trustee, Bank of New York (``BNY'').\24\ Following
issuance, the Shares will be traded on the Exchange similar to other
equity securities, such as shares of the iShares COMEX Gold Trust and
the streetTRACKS Gold Trust.\25\
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\22\ Initially, each Share represents 10 ounces of silver.
Telephone conference between Jeffrey Burns, Associate General
Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division
of Market Regulation, Commission, on January 13, 2006.
\23\ An ``Authorized Participant'' is a person, who at the time
of submitting to the Trustee an order to create or redeem one or
more Baskets, (i) is a registered broker-dealer, (ii) is a
Depository Trust Company (``DTC'') Participant or an Indirect
Participant and (iii) has in effect a valid Authorized Participant
Agreement.
\24\ BNY will charge a transaction fee in connection with the
redemption and/or creation of Baskets. In addition, Barclays
Capital, Inc., the Initial Purchaser, will purchase 150,000 shares
of the Trust that compose the initial Baskets.
\25\ See supra notes 7 and 10.
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Basket Aggregations of Shares will be issued as an in-kind exchange
for a corresponding amount of silver. The basket amount of silver,
measured in ounces (the ``Basket Silver Amount'') will be determined on
each business day by the Trustee, BNY.\26\ Authorized Participants that
wish to purchase a Basket must transfer the Basket Silver Amount to the
Trust in exchange for a Basket of Shares. Authorized Participants that
wish to redeem a Basket of Shares will receive the Basket Silver Amount
in exchange for each Basket surrendered. JP Morgan Chase Bank, N.A.,
London Branch (``JP Morgan Chase'' or ``Custodian'') will be the
custodian for the Trust and responsible for safekeeping the silver.\27\
Silver deposited with JP Morgan Chase must meet the specifications for
weight, dimensions, fineness (or purity), identifying marks and
appearance of silver bars as set forth in ``The Good Delivery Rules for
Silver and Silver Bars'' published by the LBMA.
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\26\ A troy ounce, equal to 1.0971428 ounces avoirdupois, with a
minimum fineness of 0.999. ``Avoirdupois'' is the system of weights
used in the U.S. and U.K. for goods other than precious metals, gems
and drugs. In that system, a pound is 16 ounces and an ounce is 16
drams.
\27\ If the total value of the Trust's silver held by the
Custodian exceeds $1 billion, then the Custodian will be under no
obligation to accept additional silver deliveries. In such a case,
the trustee will retain an additional custodian.
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On each business day, BNY will make available immediately prior to
the opening of trading on the Amex, the Indicative Basket Silver Amount
for the creation of a Basket.\28\ BNY will adjust the quantity of
silver included in the Basket Silver Amount (determined shortly after 4
p.m.) to reflect sales of silver to cover expenses and any loss of
deposited silver that may occur since the previous calculation. The
Amex will disseminate at least every 15 seconds throughout the trading
day, via the facilities of the CTA, an amount representing on a per
share basis, the current value of the Basket Silver Amount, known as
the ``Indicative Trust Amount.'' It is anticipated that the deposit of
silver in exchange for Silver Shares will be made primarily by
institutional investors, arbitrageurs, and the Exchange specialist.
Baskets are then separable upon issuance into identical shares that
will be listed and traded on the Amex.\29\ Silver Shares are expected
to be traded on the Exchange by professionals, as well as institutional
and retail investors. Silver Shares may be acquired in two (2) ways:
(1) Through a deposit of the Basket Silver Amount with BNY during
normal business hours by Authorized Participants, or (2) through a
purchase on the Exchange by investors.
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\28\ The Sponsor will also make the next day's Indicative Basket
Silver Amount available on the Trust Web site (https://www.iShares.com
) shortly after 4 p.m. ET each business day. The
Basket Silver Amount, Indicative Basket Silver Amount, and net asset
value (``NAV'') will be publicly available simultaneously to all
market participants (to avoid any informational advantage) on either
the Trust Web site or Amex Web site. These items will also be
communicated to Authorized Participants via facsimile or electronic
mail message. Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
\29\ Silver Shares are separate and distinct from the underlying
silver comprising the portfolio of the Silver Trust. The Exchange
expects that the number of outstanding Silver Shares will increase
and decrease as a result of in-kind deposits and withdrawals of the
underlying silver.
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The Shares will not be individually redeemable but will only be
redeemable in Basket Aggregations. To redeem, an Authorized Participant
will be required to accumulate enough Silver Shares to constitute a
Basket Aggregation (i.e., 50,000 shares). An Authorized Participant
redeeming a Basket Aggregation will receive the silver amount of the
Basket Silver Amount announced by the Trustee. Upon the surrender of
the Shares and payment of applicable Trustee's fee and any expenses,
taxes or charges, BNY will deliver to the redeeming Authorized
Participant the amount of silver corresponding to the redeemed Baskets.
Unless otherwise requested by the Authorized Participants, silver will
then be delivered to the redeeming Authorized Participants in the form
of physical bars only. Silver Shares will be registered in book entry
form through DTC.
The Exchange states that the Basket Silver Amount necessary for the
creation of a Basket will slightly diminish each day depending on the
Trust's daily expense accrual. The initial Basket Silver Amount is
500,000 ounces of silver (with each Share initially representing 10
ounces of Silver). On each day that the Amex is open for regular
trading, BNY will adjust the quantity of silver constituting the Basket
Silver Amount as appropriate to reflect sales of silver needed for
payment of the Sponsor's fee (which is similar to an expense ratio)
\30\ and any extraordinary expenses or liabilities not assumed by the
Sponsor. BNY will determine the Basket Silver Amount for a given
business day by subtracting the daily expense accrual from the previous
day's total ounces of silver in the Trust and then dividing by the
number of Baskets outstanding. Fractions of an
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ounce of silver smaller than .001 will be disregarded.
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\30\ The Sponsor has agreed to assume the following
administrative and marketing expenses incurred by the Trust: The
Trustee's fee, the Custodian's fee, Amex listing fees, SEC
registration fees, printing and mailing costs, audit fees and
expenses and up to $100,000 per annum in legal fees and expenses.
The Sponsor will also pay the costs of the Trust's organization and
the initial sale of the iShares, including applicable SEC
registration fees. Telephone conference between Jeffrey Burns,
Associate General Counsel, Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, on January 13,
2006.
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The creation/redemption process in connection with the Silver
Shares is an in-kind exchange of silver for Shares, rather than an
exchange of silver for cash. Except for the accrual of the Sponsor's
fee or extraordinary expenses or liabilities, the process is based
entirely on the delivery of silver in exchange for Shares. Thus,
throughout each business day, the Exchange states that the actual
number of ounces required for the Basket Silver Amount usually will not
change even though the value of the Basket Silver Amount may change
based on the market price of silver.
2. Determination of NAV, Basket Silver Amount, and Indicative
Basket Amount. Shortly after 4 p.m. (ET) each business day, the BNY
will determine the NAV of the Trust, utilizing that day's announced
London silver fix price (unless the Sponsor, in consultation with the
Trustee, determines that an alternative publicly available pricing
benchmark more fairly represents the commercial value of the silver
held by the Trust).\31\ Once the value of the silver is determined, BNY
will then determine an ``adjusted NAV'' by subtracting all accrued fees
(other than the fees to be computed by reference to the value of the
Trust or its assets (i.e., the Sponsor's fee)), expenses, and other
liabilities of the Trust from the total value of silver and all other
assets of the Trust. This adjusted NAV is then used to compute the
Sponsor's fees that are calculated from the value of Trust assets. Then
to determine the final NAV, BNY will subtract from the adjusted NAV the
amount of accrued fees from the value of Trust assets. BNY will
calculate the NAV per share by dividing the NAV by the number of Silver
Shares outstanding.
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\31\ In Amendment No. 1, Amex clarified that if there is no
London silver fix price on that day, the BNY will use the most
recently announced London silver fix price unless the BNY, in
consultation, with Barclays Global Investors International, Inc.
(``Barclays''), determines such London silver fix price to be
inappropriate.
Barclays, in consultation with the BNY, may determine that an
alternative publicly available pricing benchmark more fairly
represents the commercial value of silver held by the Trust. In the
case of a temporary disruption of the London silver fix price, the
Exchange believes that it is unnecessary for a filing pursuant to
Section 19(b) under the Act to be submitted to the Commission. The
Exchange submits that for a temporary disruption of the London
silver fix, a determination by Barclays, in consultation with the
BNY, to use an alternative pricing source for silver, is
appropriate. However, the Exchange represents that if the use of an
alternative pricing source for the London silver fix price is more
than of a temporary nature, a rule filing will be submitted pursuant
to Section 19(b) of the Act.
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After the NAV is determined, at or about 4 p.m. each business day,
BNY will then determine the Basket Silver Amount for orders placed by
Authorized Participants received before 4 p.m. that day. BNY will also
at the same time determine an ``Indicative Basket Silver Amount'' that
Authorized Participants can use as an indicative amount of silver to be
deposited for issuance of the Silver Shares on the next business day.
Thus, although Authorized Participants place orders to purchase Silver
Shares throughout the trading day, the actual Basket Silver Amount is
determined at 4 p.m. or shortly thereafter.
Shortly after 4 p.m. each business day, BNY and the Sponsor will
disseminate the NAV for the Silver Shares, the Basket Silver Amount
(for orders properly placed by 4 p.m. during the day), and the next
day's Indicative Basket Silver Amount. The Basket Silver Amount, the
Indicative Basket Silver Amount, and the NAV are communicated by BNY to
all Authorized Participants via facsimile or electronic mail message
and on the Trust's Web site at https://www.ishares.com. The Amex will
also disclose the NAV, Basket Silver Amount, and Indicative Basket
Silver Amount on its Web site.
The Sponsor fee, in the absence of any extraordinary expenses and
liabilities, is established at 0.50% of the net assets of the Trust. As
a result, assuming there is no extraordinary movement in the intra-day
market price of silver, the amount of silver by which the Basket Silver
Amount will decrease each day will be predictable (i.e., \1/365\ of the
net asset value of the Trust multiplied by 0.50%). Given the
anticipated predictability of the daily decline in the Basket Silver
Amount, as stated, BNY will disclose and disseminate the Indicative
Basket Silver Amount for the next business day shortly after 4 p.m.
Authorized Participants may use the Indicative Basket Silver Amount as
guidance regarding the amount of silver expected to be deposited with
the custodian, JP Morgan Chase, in connection with the issuance of
Silver Shares on the next business day.
As a result, the amount of silver required for the Basket Silver
Amount is not disseminated during the trading day to correspond to
changes in the value of silver as measured by spot silver prices.\32\
Before 4 p.m., the Authorized Participants may use the Indicative
Basket Silver Amount published by the Sponsor and BNY the day before as
guidance in respect of the amount of silver that they may expect to be
required to deposit. But if the Indicative Basket Silver Amount
published by the Sponsor and BNY turns out to be incorrect (for
example, because the Trust incurred an extraordinary expense such as
legal fees in excess of the amount assumed by the Sponsor), the amount
actually determined by BNY will control.
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\32\ The Amex will disseminate an ``Indicative Trust Value'' at
least every 15 seconds during the trading day that represents an
indicative value for the Silver Shares based on the silver spot
price.
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3. Liquidity. The Exchange states that the amount of the discount
or premium in the trading price relative to the NAV per Share may be
influenced by the non-concurrent trading hours between the major silver
markets and the Amex. While the Silver Shares will trade on the
Exchange until 4:15 p.m. ET, liquidity in the OTC market for silver
will be reduced after the close of the major world silver markets,
including London, Zurich, and the COMEX. As a result, trading spreads
and the resulting premium or discount on the Silver Shares may widen as
a result of reduced liquidity.\33\
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\33\ As noted above in the section titled ''Description of the
Silver Market,'' the period of greatest liquidity in the silver
market is typically that time of the day when trading in the
European time zones overlaps with trading in the United States,
which is when OTC market trading in New York, London, Zurich and
other centers coincides with futures and options trading on the
COMEX division of the NYMEX. This period lasts for approximately
four hours each New York business day morning.
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The Exchange believes that Silver Shares will not trade at a
material discount or premium to the underlying silver held by the Trust
based on potential arbitrage opportunities. Due to the fact that the
Shares can be created and redeemed only in Basket Aggregations, the
Exchange submits that arbitrage opportunities should provide a
mechanism to mitigate the effect of any premiums or discounts that may
exist from time to time. If the price of the Shares deviates enough
from the price of silver to create a material discount or premium, an
arbitrage opportunity is created. If the Shares are inexpensive
compared to the silver that underlies them, an arbitrageur may buy the
Shares at a discount, immediately redeem them in exchange for silver,
and sell the silver in the cash market at a profit. If the Shares are
expensive compared to the silver that underlies them, an arbitrageur
may sell the Shares short, buy enough silver to acquire the number of
Shares sold short, acquire the Shares through the creation process, and
[[Page 3575]]
deliver the Shares to close out the short position. In both instances,
the arbitrageur serves efficiently to correct price discrepancies
between the Shares and the underlying silver.
Availability of Information Regarding Silver Prices. Although the
spot price of silver will not be disseminated over the facilities of
CTA, the last sale price for the Shares, as is the case for all equity
securities traded on the Exchange will be disseminated over the CTA's
Network B. In addition, there is a considerable amount of silver price
and market information available on public Web sites and through
professional and subscription services.
Investors may obtain on a 24-hour basis silver pricing information
based on the spot price of an ounce of silver from various financial
information service providers, such as Reuters and Bloomberg. In
addition, the daily London silver fix is also disseminated by various
market data vendors and is available from the LBMA's Web site. Reuters
and Bloomberg provide at no charge on their Web sites delayed
information regarding the spot price of silver and last sale prices of
silver futures contracts and related options, as well as information
about news and developments in the silver market. Reuters and Bloomberg
also offer a professional service to subscribers for a fee that
provides information on silver prices directly from market
participants.\34\ Complete real-time data for silver futures contracts
and options prices traded on the COMEX (a division of the NYMEX) is
available by subscription from Reuters and Bloomberg and also on a
delayed basis free of charge on the NYMEX Web site at https://www.nymex.com.
The Exchange also notes that there are a variety of
other public Web sites providing information on silver, ranging from
those specializing in precious metals to sites maintained by major
newspapers, such as The Wall Street Journal. Current silver spot prices
are also generally available with bid/ask spreads from silver bullion
dealers.
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\34\ In addition, EBS also provides an electronic trading
platform to institutions such as bullion banks and dealers for the
trading of spot silver, as well as a feed of live streaming prices
to Reuters and Moneyline Telerate subscribers. EBS was launched in
September 1993 by a group of the world's largest foreign exchange
market making banks. The Exchange states that EBS is the pre-eminent
provider of precious metals and foreign exchange trading solutions
to the precious metals and interbank spot foreign exchange
community. Approximately 500,000 ounces in gold, 4 million ounces in
silver and $110 billion a day in spot foreign exchange transactions
is traded each day over the EBS trading platform. The shareholders
of EBS include the subsidiaries of the following organizations: ABN
AMRO, Bank of America, Barclays, Citibank, Commerzbank, Credit
Suisse First Boston, Lehman Brothers, HSBC, JPMorgan Chase, The
Royal Bank of Scotland, S-E-Banken, UBS AG and the Minex Corporation
of Japan. See https://www.ebs.com.
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The Amex, via a link to the Trust's Web site, will provide at no
charge continuously updated bids and offers indicative of the spot
price (i.e., real time information) of silver on its own public Web
site at https://www.amex.com. \35\
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\35\ The Trust Web site's silver spot price will be provided by
The Bullion Desk at https://www.thebulliondesk.com. The Amex will
provide a link to the Trust Web site. The Bullion Desk is not
affiliated with the Trust, Sponsor, Custodian or the Exchange. The
silver spot price is indicative only, constructed using a variety of
sources to compile a spot price that is intended to represent a
theoretical quote that might be obtained from a market maker from
time to time. The Trust Web site will indicate, as noted above in
the discussion titled ``Availability of Information Regarding Silver
Prices,'' that there are other sources for obtaining the silver spot
price. In the event that the Trust Web site should cease to provide
this indicative spot price from an unaffiliated source and the
intraday indicative value of the Shares, the Exchange will delist
the shares. See ``Criteria for Initial and Continued Listing,''
below.
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Availability of Information Regarding Silver Shares. The Web site
for the Trust, which will be publicly accessible at no charge, will
contain the following information: (a) The prior business day's NAV and
the reported closing price; (b) the mid-point of the bid-ask price \36\
in relation to the NAV as of the time the NAV is calculated (the ``Bid-
Asked Price''); (c) calculation of the premium or discount of such
price against such NAV; (d) data in chart form displaying the frequency
distribution of discounts and premiums of the Bid-Ask Price against the
NAV, within appropriate ranges for each of the four (4) previous
calendar quarters; (e) the Basket Silver Amount; (f) the Indicative
Basket Silver Amount; (g) the Prospectus; and (h) other applicable
quantitative information.
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\36\ The bid-ask price of Shares is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------
As described above, the NAV for the Trust will be calculated and
disseminated daily. The Amex also intends to disseminate for the Trust
on a daily basis by means of CTA/CQ High Speed Lines information with
respect to the Indicative Trust Value (as discussed below), recent NAV,
and shares outstanding. As stated, the Trust Web site will also provide
a real time indicative silver spot price through The Bullion Desk at
https://www.thebulliondesk.com, which will be used to calculate the
Indicative Trust Value.\37\ Notwithstanding that they will be provided
free of charge, the indicative spot price from BullionDesk.com and the
Indicative Trust Value per Share will be provided essentially on a
real-time basis.\38\ The Exchange will also make available on its Web
site daily trading volume, closing prices, NAV, and the Basket Silver
Amount. The London silver fix price is readily available from the LBMA
at https://www.lbma.org.uk, automated quotation systems, published or
other public sources, or on-line information services such as Bloomberg
or Reuters. In addition, the Exchange will provide a hyperlink on its
Web site at https://www.amex.com to the Trust's Web site at https://www
.ishares.com.
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\37\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
\38\ The Trust Web site is expected to indicate that these
values are subject to an average delay of 5 to 10 seconds.
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Dissemination of Indicative Trust Value. As noted above, BNY
calculates the NAV of the Silver Trust once each trading day. In
addition, BNY causes to be made available on a daily basis the required
amount of silver to be deposited in connection with the issuance of
Silver Shares in Basket Aggregations. In addition, other investors can
request such information directly from the BNY.
In order to provide updated information relating to the Trust for
use by investors, professionals, and Authorized Persons wishing to
create or redeem Silver Shares, the Exchange will disseminate through
the facilities of CTA an updated Indicative Trust Value (the
``Indicative Trust Value''). The Indicative Trust Value will be
disseminated on a per Silver Share basis at least every 15 seconds
during regular Amex trading hours of 9:30 a.m. to 4:15 p.m. ET. The
Indicative Trust Value will be calculated based on the amount of silver
required for creations and redemptions and a price of silver derived
from updated bids and offers indicative of the spot price of
silver.\39\ The Indicative Trust Value on a per Silver Share basis
disseminated during Amex trading hours should not be viewed as a real
time update of the NAV, which is calculated only once a day.
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\39\ See supra note 29.
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The Exchange believes that dissemination of the Indicative Trust
Value based on the amount of silver required for a Basket Aggregation
provides additional information that is not otherwise available to the
public and is useful to professionals and investors in connection with
Silver Shares trading on the Exchange or the creation or redemption of
Silver Shares.
[[Page 3576]]
In addition, the Trust's Web site at https://www.ishares.com will also
provide from The Bullion Desk continuously updated bids and offers
indicative of the spot price of silver in the OTC market for the
purpose of disclosing to investors on a real-time basis the underlying
or spot price of silver.
Termination Events. The Trust will be terminated if any of the
following circumstances occur: (1) The Silver Shares are delisted from
the Amex and are not listed for trading on another national securities
exchange within five business days from the date the Silver Shares are
delisted; (2) holders of at least 75% of the outstanding Silver Shares
notify the Trustee that they elect to terminate the trust; (3) the
Trustee resigns and no successor trustee is appointed within 60 days
from the date the trustee provides notice to the Sponsor of its intent
to resign; (4) the Commission finds that the Trust should be registered
as an investment company under the Investment Company Act of 1940, and
the Trustee has actual knowledge of the Commission finding; (5) the
aggregate market capitalization of the Trust, based upon the closing
price for the Silver Trust, was less than $350 million on each of five
(5) consecutive trading days and the Trustee receives, within six (6)
months from the last of those trading days, notice that the Sponsor has
decided to terminate the Trust; (6) the CFTC determines that the Trust
is a commodity pool under the Commodity Exchange Act and the Trustee
has actual knowledge of that determination; or (7) the Trust fails to
qualify for treatment, or ceases to be treated, as a grantor trust for
U.S. federal income tax purposes and the Trustee receives notice that
the Sponsor has determined that the termination of the Trust is
advisable.
If not terminated earlier by the trustee, the Trust will terminate
in 2045 on a date to be determined once the Trust is established. Upon
termination of the Trust, holders of the Silver Shares will surrender
their shares and receive from the Trustee their portion of the
underlying silver.
Criteria for Initial and Continued Listing. The Trust will be
subject to the criteria in Amex Rules 1201A and 1202A for initial and
continued listing of Silver Shares. The continued listing criteria
provides for the delisting or removal from listing of the Silver Shares
under any of the following circumstances:
Following the initial twelve month period from the date of
commencement of trading of the Silver Shares: (i) If the Trust has more
than 60 days remaining until termination and there are fewer than 50
record and/or beneficial holders of the Silver Shares for 30 or more
consecutive trading days; (ii) if the Trust has fewer than 50,000
Silver Shares issued and outstanding; or (iii) if the market value of
all Silver Shares is less than $1,000,000.
If the value of the underlying silver is no longer
calculated or available on at least a 15-second delayed basis from a
source unaffiliated with the sponsor, Trust, custodian or the Exchange
or the Exchange stops providing a hyperlink on its Web site to any such
unaffiliated silver value.
The Indicative Trust Value is no longer made available on
at least a 15-second delayed basis.
If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
It is anticipated that a minimum of 150,000 Silver Shares will be
required to be outstanding at the start of trading. The minimum number
of shares required to be outstanding at the start of trading is
comparable to requirements that have been applied to previously listed
series of the iShares COMEX Gold Trust, the streetTRACKS Gold Trust,
trust issues receipts and exchange-traded funds (``ETFs''). It is
anticipated that the initial price of a Silver Share will be
approximately $91.\40\ The Exchange believes that the anticipated
minimum number of Silver Shares outstanding at the start of trading is
sufficient to provide adequate market liquidity and to further the
Trust's objective to seek to provide a simple and cost effective means
of making an investment similar to an investment in silver.
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\40\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006
(updating initial price of a Silver Share that initially will
represent 10 ounces of silver).
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The Exchange represents that it prohibits the initial and/or
continued listing of any security that is not in compliance with Rule
10A-3 under the Securities Exchange Act of 1934 (the ``1934 Act'').\41\
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\41\ See Rule 10A-3(c)(7) under the 1934 Act.
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Original and Annual Listing Fees. The Amex original listing fee
applicable to the listing of the Silver Trust is $5,000. In addition,
the annual listing fee applicable under section 141 of the Amex Company
Guide (``Company Guide'') will be based upon the year-end aggregate
number of shares in all series of Silver Trusts outstanding at the end
of each calendar year.
Trading Rules. Silver Shares are equity securities subject to Amex
Rules governing the trading of equity securities, including, among
others, rules governing priority, parity and precedence of orders,
specialist responsibilities and account opening and customer
suitability (Amex Rule 411). Initial equity margin requirements of 50%
will apply to transactions in Silver Shares. Silver Shares will trade
on the Amex until 4:15 p.m. ET each business day and will trade in a
minimum price variation of $0.01 pursuant to Amex Rule 127. Trading
rules pertaining to odd-lot trading in Amex equities (Amex Rule 205)
will also apply.
Amex Rule 154, Commentary .04(c) provides that stop and stop limit
orders to buy or sell a security (other than an option, which is
covered by Amex Rule 950(f) and Commentary thereto), the price of which
is derivatively priced based upon another security or index of
securities, may with the prior approval of a Floor Official, be elected
by a quotation, as set forth in Commentary .04(c)(i-v). The Exchange
has designated Silver Shares as eligible for this treatment.\42\
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\42\ See Securities Exchange Act Release No. 29063 (April 10,
1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the
Exchange's designation of equity derivative securities as eligible
for such treatment under Amex Rule 154, Commentary .04(c).
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Silver Shares will be deemed ``Eligible Securities'', as defined in
Amex Rule 230, for purposes of the Intermarket Trading System Plan and
therefore will be subject to the trade through provisions of Amex Rule
236, which require that Amex members avoid initiating trade-throughs
for ITS securities.
Specialist transactions of Silver Shares made in connection with
the creation and redemption of Silver Shares will not be subject to the
prohibitions of Amex Rule 190.\43\ Unless exemptive or no-action relief
is available, Silver Shares will be subject to the short sale rule,
Rule 10a-1 and Regulation SHO under the Act.\44\ If exemptive or no-
action relief is provided, the Exchange will issue a notice detailing
the terms of the exemption or relief. The Silver Shares will generally
be subject to the Exchange's stabilization rule, Amex Rule 170, except
that specialists may buy on ``plus ticks'' and sell on ``minus ticks,''
in order to bring the Silver Shares into parity with the underlying
[[Page 3577]]
silver and/or futures price. Commentary .01 to Amex Rule 1203A sets
forth this limited exception to Amex Rule 170.
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\43\ See Commentary .05 to Amex Rule 190.
\44\ The Silver Trust has requested relief in connection with
the trading of Silver Shares from the operation of the short sale
rule, Rule 10a-1 and Regulation SHO under the Act.
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Amex Rule 1203A relating to certain specialist prohibitions
addresses potential conflicts of interest in connection with acting as
a specialist in the Silver Shares. Specifically, Amex Rule 1203A
provides that the prohibitions in Amex Rule 175(c) apply to a
specialist in the Silver Shares so that the specialist or affiliated
person may not act or function as a market maker in the underlying
silver, related silver futures contract or option or any other related
silver derivative. An affiliated person of the specialist consistent
with Amex Rule 193 may be afforded an exemption to act in a market
making capacity, other than as a specialist in the Silver Shares on
another market center, in the underlying silver, related silver futures
or options, or any other related silver derivative. In particular, Amex
Rule 1203A provides that an approved person of an equity specialist
that has established and obtained Exchange approval for procedures
restricting the flow of material, non-public market information between
itself and the specialist member organization, and any member, officer,
or employee associated therewith, may act in a market making capacity,
other than as a specialist in the Silver Shares on another market
center, in the underlying commodity, related commodity futures or
options on commodity futures, or any other related commodity
derivatives.
Amex Rule 1204A(a) provides that the member organization acting as
specialist in Commodity-Based Trust Shares is obligated to conduct all
trading in the Shares in its specialist account, subject only to the
ability to have one or more investment accounts, all of which must be
reported to the Exchange (see Rule 170). In addition, the member
organization acting as specialist in Commodity-Based Trust Shares must
file, with the Exchange, in a manner prescribed by the Exchange, and
keep current a list identifying all accounts for trading the underlying
physical commodity, related commodity futures or options on commodity
futures, or any other related commodity derivatives, which the member
organization acting as specialist may have or over which it may
exercise investment discretion. No member organization acting as
specialist in Commodity-Based Trust Shares shall trade in the
underlying physical commodity, related commodity futures or options on
commodity futures, or any other related commodity derivatives, in an
account in which a member organization acting as specialist, directly
or indirectly, controls trading activities, or has a direct interest in
the profits or losses thereof, which has not been reported to the
Exchange as required by this Rule.\45\
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\45\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006
(inserting discussion of Amex Rule 1204A(a)).
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Amex Rule 1204A(b) also ensures that specialists handling the
Silver Shares provide the Exchange with all the necessary information
relating to their trading in physical silver, related silver futures
contracts and options thereon or any other silver derivative. As a
general matter, the Exchange has regulatory jurisdiction over its
members, member organizations, and approved persons of a member
organization. The Exchange also has regulatory jurisdiction over any
person or entity controlling a member organization, as well as a
subsidiary or affiliate of a member organization that is in the
securities business. A subsidiary or affiliate of a member organization
that does business only in commodities would not be subject to Exchange
jurisdiction, but the Exchange could obtain information regarding the
activities of such subsidiary or affiliate through surveillance sharing
agreements with regulatory organizations of which such subsidiary or
affiliate is a member.
Amex Rule 1204A(c) also prohibits the specialist in the Silver
Shares from using any material nonpublic information received from any
person associated with a member or employee of such person regarding
trading by such person or employee in physical silver, silver futures
contracts, options on silver futures, or any other silver derivative
(including the Silver Shares).\46\
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\46\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006
(inserting discussion of Amex Rule 1204A(c)).
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Prior to the commencement of trading, the Exchange will issue an
Information Circular (described below) to members informing them of,
among other things, Exchange policies regarding trading halts in Silver
Shares. First, the Circular will advise that trading will be halted in
the event the market volatility trading halt parameters set forth in
Amex Rule 117 have been reached. Second, the Circular will advise that,
in addition to the parameters set forth in Amex Rule 117, the Exchange
may halt trading in Silver Shares if conditions in the underlying
silver market have caused disruptions and/or lack of trading. Third,
with respect to a halt in trading that is not specified above, the
Exchange may also consider other relevant factors and the existence of
unusual conditions or circumstances that may be detrimental to the
maintenance of a fair and orderly market. The Exchange will halt
trading in the Shares if the Trust Web site (to which Amex will link)
ceases to provide: (1) The value of the silver updated at least every
15 seconds from a source not affiliated with the Sponsor, Trust, or the
Exchange, or (2) the Indicative Trust Value per Share updated at least
every 15 seconds.\47\
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\47\ In the event such spot price of silver or Indicative Trust
Value is no lo
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