Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Listing and Trading of Shares of the iShares® Silver Trust, 14967-14975 [E6-4268]
Download as PDF
<![CDATA[
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
February 28, 2006 available at https://
www.sec.gov/rules/other/33–8666.pdf
and published in the Federal Register
[71 FR 11090] on March 3, 2006
available at https://www.sec.gov/rules/
other/33–8666fr.pdf. The public is
invited to submit written statements for
the meeting.
DATES: Written statements should be
received on or before April 5, 2006.
ADDRESSES: Written statements may be
submitted by any of the following
methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Statements
• Use the Commission’s Internet
submission form (https://www.sec.gov/
info/smallbus/acspc.shtml); or
• Send an e-mail message to rulecomments@sec.gov. Please include File
Number 265–23 on the subject line; or
I . Introduction
On June 30, 2005, the American Stock
Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (the ‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade under Amex Rules 1200A
et seq. iShares Silver Trust shares (the
‘‘Silver Shares’’ or ‘‘Shares’’).3 On
September 15, 2005, the Exchange
submitted Amendment No. 1 to the
proposed rule change.4 The proposed
rule change, as amended, was published
for comment in the Federal Register on
January 23, 2006.5 The Commission
received 255 comment letters regarding
the proposed rule change.6 On February
28, 2006, the Exchange filed a response
to these comments.7 This order
approves the proposed rule change, as
amended.
wwhite on PROD1PC61 with NOTICES
Paper Statements
• Send paper statements in triplicate
to Nancy M. Morris, Committee
Management Officer, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
All submissions should refer to File
No. 265–23. This file number should be
included on the subject line if e-mail is
used. To help us process and review
your statement more efficiently, please
use only one method. The Commission
staff will post all statements on the
Advisory Committee’s Web site (https://
www.sec.gov./info/smallbus/
acspc.shtml).
Statements also will be available for
public inspection and copying in the
Commission’s Public Reference Room,
100 F Street, NE., Room 1580,
Washington, DC 20549. All statements
received will be posted without change;
we do not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT:
Kevin M. O’Neill, Special Counsel, at
(202) 551–3260, Office of Small
Business Policy, Division of Corporation
Finance, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–3628.
SUPPLEMENTARY INFORMATION: In
accordance with Section 10(a) of the
Federal Advisory Committee Act, 5
U.S.C.-App. 1, § 10(a), and the
regulations thereunder, Gerald J.
Laporte, Designated Federal Officer of
the Committee, has ordered publication
of this notice.
Dated: March 20, 2006.
Nancy M. Morris,
Committee Management Officer.
[FR Doc. E6–4278 Filed 3–23–06; 8:45 am]
BILLING CODE 8010–01–P
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
[Release No. 34–53521; File No. SR–Amex–
2005–072]
Self-Regulatory Organizations;
American Stock Exchange LLC; Order
Granting Approval of Proposed Rule
Change and Amendment No. 1 Thereto
Relating to the Listing and Trading of
Shares of the iShares Silver Trust
March 20, 2006.
II. Description of Proposal
In January 2005, the Exchange
adopted rules for the listing and trading
of ‘‘Commodity-Based Trust Shares.’’ 8
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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 iShares is a registered trademark of Barclays
Global Investors, N.A.
4 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 Silver
Trust.
5 See Securities Exchange Act Release No. 53130
(January 17, 2006), 71 FR 3570 (January 23, 2006)
(‘‘Notice’’).
6 These comment letters are available for review
on the Commission’s Web site at https://
www.sec.gov/rules/sro/amex/amex2005072.shtml.
7 See letter from Neal L Wolkoff, Chairman and
Chief Executive Officer, Amex, to Nancy M. Morris,
Secretary, Commission, dated February 28, 2006
(‘‘Wolkoff Letter’’).
8 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).
2 17
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
14967
trust. Commodity Shares are a form of
trust issued receipt (‘‘TIR’’) 9 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 10 and trades pursuant to unlisted
trading privileges (‘‘UTP’’), the
streetTRACKS Gold Trust,11 as
Commodity-Based Trust Shares
pursuant to Exchange Rules 1200A et
seq.
Pursuant to Amex Rule 1201A, the
Exchange may approve for listing and
trading Commodity Shares on an
underlying commodity.12 Accordingly,
the Amex proposes to list for trading
Silver Shares under Exchange Rule
1200A et. seq.13
The Exchange proposes to list and
trade the Silver Shares, which represent
beneficial ownership interests in the net
assets of the iShares Silver Trust 14 (the
‘‘Silver Trust’’ or ‘‘Trust’’) consisting
primarily of silver bullion. Each Silver
Share will initially correspond to 10
ounces of silver.15 The Silver Shares
will meet the initial and continued
listing criteria under Amex Rule
1202A.16
9 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.
10 See supra note 8.
11 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).
12 Amex Rule 1200A(b)(2) defines ‘‘commodity’’
as set forth in Section 1(a)(4) of the Commodity
Exchange Act (‘‘CEA’’).
13 See applicable Amex Rules 1200A, 1201A,
1202A, 1203A, 1204A, and 1205A.
14 The Trust is not an investment company as
defined in Section 3(a) of the Investment Company
Act of 1940. 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.
15 The amount of silver associated with each
basket (and individual Silver Share) is expected to
decrease over time as the Trust incurs and pays
maintenance fees and other expenses.
16 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
E:\FR\FM\24MRN1.SGM
Continued
24MRN1
14968
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
In effect, purchasing Silver Shares
will provide investors a new mechanism
to participate in the silver market.
Information about the liquidity, depth,
and pricing mechanisms of the
international silver market, management
and structure of the Trust, and
description of the Silver Shares follows
below.
A. Description of the Silver Market
The silver market is a global
marketplace consisting of both over-thecounter (‘‘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. In its filing with the
Commission, Amex provided a
description of the silver market.17
1. The OTC Market
wwhite on PROD1PC61 with NOTICES
The OTC market trades on a 24-hour
continuous basis and accounts for the
substantial portion of global silver
trading. The London OTC market is the
largest silver clearing market. 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’’).18 This period lasts for
approximately five (5) hours 19 each
New York business day, from 8:25 a.m.–
1:25 p.m. Eastern Time (‘‘ET’’).
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
Exchange expects the minimum number of Silver
Shares required to be outstanding at the time of
trading to be 150,000.
17 See Notice, supra note 5.
18 COMEX is a division of the New York
Mercantile Exchange, Inc. (‘‘NYMEX’’) where silver
futures contracts and related options are traded.
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, 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.
19 Telephone conference between Jeffrey Burns,
Associate General Counsel, Amex, and Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, on January 13,
2006.
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
the London Bullion Market Association
(‘‘LBMA’’).20
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.21
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).22
2. Futures Exchanges
The Exchange states that the most
significant silver futures exchanges are
the COMEX and the Tokyo Commodity
Exchange (‘‘TOCOM’’).23 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
20 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.
21 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.
22 Information regarding price and average daily
volume on the COMEX can be found at https://
www.nymex.com/jsp/markets.md_annual_
volume.jsp.
23 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.
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
as a counterparty for each member for
clearing purposes.
3. 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 UKbased 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
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.
B. 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
E:\FR\FM\24MRN1.SGM
24MRN1
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
wwhite on PROD1PC61 with NOTICES
Aggregations’’ or ‘‘Baskets’’).24 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’’) 25 with the Sponsor and
the Trustee, Bank of New York
(‘‘BNY’’).26 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.27
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.28 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.29
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.30 BNY will adjust
24 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.
25 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.
26 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.
27 See supra notes 8 and 11.
28 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.
29 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.
30 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
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
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 Consolidated Tape
Association (‘‘CTA’’), an amount
representing on a per share basis, the
current value of the Basket Silver
Amount, known as the ‘‘Indicative Trust
Amount.’’
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) 31 and any
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.
31 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
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
14969
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
ounce of silver smaller than .001 will be
disregarded.
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).32 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
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.
32 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 the Sponsor (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.
E:\FR\FM\24MRN1.SGM
24MRN1
wwhite on PROD1PC61 with NOTICES
14970
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
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.
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 intraday market price of silver, the amount
of silver by which the Basket Silver
Amount will decrease each day will be
predictable (i.e., 1⁄365th 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.
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
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.33 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.
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 nonconcurrent 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, the
Exchange states that 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.34
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
33 The Amex will disseminate via the facilities of
the CTA an ‘‘Indicative Trust Value’’ at least every
15 seconds during the trading day that represents
an indicative value for the Silver Shares based
silver dealer pricing. Telephone conference
between Jeffrey Burns, Associate General Counsel,
Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation,
Commission, on March 9, 2006.
34 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.
PO 00000
Frm 00139
Fmt 4703
Sfmt 4703
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
deliver the Shares to close out the short
position. In both instances, the
Exchange states that the arbitrageur
serves efficiently to correct price
discrepancies between the Shares and
the underlying silver.
C. 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, the Exchange states that
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.35 Complete real-time data
35 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 preeminent 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,
E:\FR\FM\24MRN1.SGM
24MRN1
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
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.
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.36
D. Availability of Information Regarding
Silver Shares
wwhite on PROD1PC61 with NOTICES
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 37 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: (h) the
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.
36 The Trust Web site’s silver spot price will be
provided by TheBullionDesk at https://
www.thebulliondesk.com. The Amex will provide a
link to the Trust Web site. TheBullionDesk 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, during Amex trading hours, the
Trust Web site should cease to provide this
indicative silver spot price from an unaffiliated
source and the intraday ‘‘Indicative Trust Value’’ of
the Shares is not disseminated via the CTA, the
Exchange will delist the shares. See ‘‘Criteria for
Initial and Continued Listing,’’ below.
37 The bid-ask price of Shares is determined using
the highest bid and lowest offer as of the time of
calculation of the NAV.
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
Prospectus; and (g) other applicable
quantitative information.
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
TheBullionDesk at https://
www.thebulliondesk.com.38
Notwithstanding that they will be
provided free of charge, the indicative
spot price from TheBullionDesk on the
Trust Web site and the Indicative Trust
Value per Share disseminated via the
CTA will be provided essentially on a
real-time basis.39 The Exchange will
also make available on its Web site daily
trading volume, closing prices, NAV,
and the Basket Silver Amount, and the
Indicative 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.
E. 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 Participants wishing to
create or redeem Silver Shares, the
Exchange will disseminate through the
facilities of CTA an updated Indicative
Trust Value (the ‘‘Indicative Trust
38 Telephone conference between Jeffrey Burns,
Associate General Counsel, Amex, and Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, on January 13,
2006.
39 These values are subject to an average delay of
5 to 10 seconds. The Indicative Trust Value per
Share will not be posted on the Trust’s Web site but
will be disseminated via the facilities of the CTA.
Telephone conference between Jeffrey Burns,
Associate General Counsel, Amex, and Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, on March 8, 2006.
PO 00000
Frm 00140
Fmt 4703
Sfmt 4703
14971
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
from silver dealer pricing.40 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.
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.
In addition, the Trust’s Web site at
https://www.iShares.com will also
provide from TheBullionDesk
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.
G. 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.
40 See
E:\FR\FM\24MRN1.SGM
supra note 33.
24MRN1
14972
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
• The Indicative Trust Value is no
longer made available on at least a 15second 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 exchangetraded funds (‘‘ETFs’’). It is anticipated
that the initial price of a Silver Share
will be approximately $91.41 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.
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
Act.42
H. 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.
I. Trading Rules
wwhite on PROD1PC61 with NOTICES
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
41 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).
42 See The Exchange represents that Silver Shares
qualifies for the exemption in Rule 10A–3(c)(7)
under the Act.
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
$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.43
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 190.44
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.45 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
silver and/or futures price. Commentary
.01 to Amex Rule 1203A sets forth this
limited exception to Amex Rule 170.
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
43 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).
44 See Commentary .05 to Amex Rule 190.
45 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.
PO 00000
Frm 00141
Fmt 4703
Sfmt 4703
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.46
Amex Rule 1204A(b) also ensures that
specialists handling the Silver Shares
provide the Exchange with all the
necessary information relating to their
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(a)).
E:\FR\FM\24MRN1.SGM
24MRN1
wwhite on PROD1PC61 with NOTICES
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
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).47
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
the value of the silver updated at least
every 15 seconds from a source not
affiliated with the Sponsor, Trust, or the
Exchange, or the Exchange ceases to
provide via the CTA the Indicative Trust
47 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)).
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
Value per Share updated at least every
15 seconds.48
J. Information Circular
The Amex will distribute an
Information Circular (the ‘‘Circular’’) to
its members in connection with the
trading of Silver Shares. The Circular,
will discuss the special characteristics
and risks of trading this type of security.
Specifically, the Circular, among other
things, will discuss what the Silver
Shares are, notify members and member
organizations about the procedures for
creation and redemption of Silver
Shares in a basket, the requirement, as
described below, that members and
member firms deliver a prospectus to
investors purchasing the Silver Shares
prior to or concurrently with the
confirmation of a transaction, applicable
Amex rules, dissemination of
information regarding the per share
Indicative Trust Value, NAV, and other
information pertaining to the Shares,
including trading information, trading
halt procedures, and applicable
suitability rules. For example, in the
Information Circular, members and
member organizations will be informed
that procedures for purchases and
redemptions of Silver Shares in Basket
Aggregations are described in the
Prospectus and that Silver Shares are
not individually redeemable but are
redeemable only in Basket Aggregations
or multiples thereof. Similarly, the
Information Circular will advise
members and member organizations,
prior to commencement of trading, of
the prospectus delivery requirements
applicable to the Trust. The Exchange
notes that investors purchasing Silver
Shares directly from the Trust (by
delivery of the Basket Silver Amount)
will receive a prospectus. Amex
members purchasing Silver Shares from
the Trust for resale to investors will
deliver a prospectus to such investors.
The Circular will also explain that the
Silver Trust is subject to various fees
and expenses described in the
Registration Statement and that the
number of ounces of silver required to
create a basket or to be delivered upon
a redemption of a basket will gradually
decrease over time because the Silver
Shares comprising a basket will
represent a decreasing amount of silver
48 In the event such spot price of silver or
Indicative Trust Value is no longer calculated or
disseminated during the time the Silver Shares
trade on Amex, the Exchange would immediately
contact the Commission to discuss measures that
may be appropriate under the circumstances.
Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, on January 13,
2006.
PO 00000
Frm 00142
Fmt 4703
Sfmt 4703
14973
due to the sale of the Silver Trust’s
silver to pay Trust expenses. The
Circular will also reference the fact that
there is no regulated source of last sale
information regarding physical silver,
that the Commission has no jurisdiction
over the trading of silver as a physical
commodity, and that the CFTC has
regulatory jurisdiction over the trading
of silver futures contracts and options
on silver futures contracts.
The Circular will advise members of
their suitability obligations with respect
to recommended transactions to
customers in the Silver Shares. The
Exchange notes that pursuant to Amex
Rule 411 (Duty to Know and Approve
Customers), members and member
organizations are required in connection
with recommending transactions in the
Silver Shares to have a reasonable basis
to believe that a customer is suitable for
the particular investment given
reasonable inquiry concerning the
customer’s investment objectives,
financial situation, needs, and any other
information known by such member.
The Circular will also discuss any
relief, if granted, by the Commission or
the staff from any rules under the Act.
K. Surveillance
The Exchange represents that its
surveillance procedures applicable to
trading in the proposed Silver Shares
will be similar to those applicable to the
iShares COMEX Gold Trust, the
streetTRACKS Gold Trust, trust issued
receipts, Portfolio Depository Receipts
and Index Fund Shares currently
trading on the Exchange. For
intermarket surveillance purposes, the
Exchange currently has in place an
Information Sharing Agreement with the
NYMEX for the purpose of providing
information in connection with trading
in or related to COMEX silver futures
contracts. The Exchange submits that its
surveillance procedures are adequate to
properly monitor the trading of the
Shares.
Also, as noted above, the Exchange
states that Amex Rule 1204A(b), which
requires that the specialist handling the
Silver Shares provide the Exchange with
information relating to its trading in
physical silver, silver futures contracts,
options on silver futures, or any other
silver derivative, will facilitate
surveillance of specialist handling
Silver Shares.
III. Discussion
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
E:\FR\FM\24MRN1.SGM
24MRN1
14974
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
with the Act 49 and the rules and
regulations thereunder applicable to a
national securities exchange.50
The Commission received a total of
255 comment letters on the Exchange’s
proposed rule change. Of these 255
comment letters, 248 comments
supported the proposed rule change and
7 comments opposed the proposed rule
change. In general, those commenters
opposed to the proposed rule change
argued that approval of the Silver
Shares would result in serious liquidity
problems in the silver market.51 In
particular, these commenters contended
that the Silver Shares would negatively
impact the silver market because their
creation would require the holding of
silver in allocated accounts, which
would drain large amounts of silver
from the open market and cause higher
prices for silver products.52
Furthermore, the commenters asserted
that the higher silver prices caused by
the creation of the Silver Shares would
cause the loss of jobs specific to the
silver industry.53
The Exchange responded to these
comments by stating that it believes that
the listing and trading of Silver Shares
will make the market for silver more
efficient and transparent by providing
investors with an easier and more costeffective alternative for investing in
silver. The Exchange asserts that a
transparent marketplace for Silver
Shares will allow for a more accurate
representation of the supply and
demand for silver, and therefore, a more
accurate market price.54 The Exchange
also disagrees with some commenters’
assertions that the Trust will reduce the
amount of silver in the marketplace. In
this regard, the Exchange notes that, at
the commencement of trading, the
Exchange will require 150,000 Silver
49 15
U.S.C. 78f(b).
approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
51 See letters from Congressman J. Gresham
Barrett (3rd District, SC) to Christopher Cox,
Chairman, Commission, dated February 16, 2006;
Paul A. Miller, Executive Director, Silver Users
Association, to Nancy M. Morris, Secretary,
Commission, dated February 13, 2006; John Patrick,
Vice President, Fujifilm America, Inc., to Nancy M.
Morris, Secretary, Commission, dated February 7,
2006; James F. Kirsch, President and Chief
Executive Officer, Ferro Corporation, to Nancy M.
Morris, Secretary, Commission, dated February 2,
2006; a Memorandum from the CPM Group
regarding Silver Inventories, dated January 30,
2006; a Web Comment from Justin D. Reynolds,
dated January 29, 2006; and a Web Comment from
George Bloom, Jr., dated January 29, 2006. A Web
Comment from Theodore Butler, dated February 6,
2006, made positive and negative conclusions about
the proposed rule change.
52 Id.
53 Id.
54 See Wolkoff Letter, supra note 7.
wwhite on PROD1PC61 with NOTICES
50 In
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
Shares to be outstanding, which will
require 1.5 million ounces of silver to be
deposited with the custodian of the
Trust. The Exchange states that Trust
assets will grow only to the extent that
demand for the Silver Shares grows and
that a wide variety of factors are capable
of influencing supply and demand for
silver.55
The Commission agrees with Amex
that, like other derivative products, the
Silver Shares will increase the
efficiency and transparency of the
market for the underlying instrument,
i.e., silver. In this regard, the
Commission finds that the proposed
rule change is in the public interest.56
The Commission also does not believe
that the Silver Shares are likely to cause
serious liquidity problems in the silver
market such that approval of the
proposed rule change is not consistent
with the Act.57
A. Surveillance
The Commission also finds that the
rules of the Exchange are designed to
prevent fraudulent and manipulative
acts and practices.58 In its response to
comment letters, the Amex represents
that it has safeguards to ensure that the
trading of the Silver Shares is fair and
consistent with the operation of a public
marketplace and the protection of
investors and that surveillance
procedures at the Exchange serve to
deter and detect potential misconduct
and manipulative acts by members and
investors.59
In addition, the Exchange has an
information sharing agreement with
NYMEX for the purpose of providing
information in connection with trading
in or related to silver futures contracts.60
Information sharing agreements with
markets trading securities underlying a
derivative product are an important part
of a self-regulatory organization’s ability
to monitor for trading abuses in
derivative products. Although an
information sharing agreement with the
OTC silver market is not possible, the
Commission believes that Amex’s
information sharing agreement with
NYMEX (of which COMEX is a division)
and Exchange Rules 1203A and 1204A,
create the basis for Amex to monitor for
fraudulent and manipulative practices
in the trading of the Silver Shares.
The Exchange also represents that it
will review firms that have been
actively acquiring or selling Silver
55 Id.
56 15
U.S.C. 78f(b)(5).
U.S.C. 78f(b)(5).
58 15 U.S.C. 78f(b)(5).
59 See Wolkoff Letter, supra note 7.
60 Id.
57 15
PO 00000
Frm 00143
Fmt 4703
Sfmt 4703
Shares.61 Moreover, Amex Rule 1204A
will require that the specialist handling
the Silver Shares provide the Exchange
with information relating to its trading
in physical silver, silver futures
contracts, options on silver futures, or
any other silver derivative. The
Commission believes these reporting
and record-keeping requirements will
assist the Exchange in identifying
situations potentially susceptible to
manipulation. Amex Rule 1204A will
also prohibit 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 derivatives (including the Silver
Shares). In addition, Amex Rule 1203A
will prohibit the specialist in the Silver
Shares from being affiliated with a
market maker in physical silver, silver
futures, or options on silver futures
unless adequate information barriers are
in place and approved by the Exchange.
B. Dissemination of Information About
the Silver Shares
The Commission finds that sufficient
venues for obtaining reliable silver price
information exist so that investors in the
Silver Shares can adequately monitor
the underlying spot market in silver
relative to the NAV of their Silver
Shares. As discussed more fully above,
the Commission notes that there is a
considerable amount of silver price and
silver market information available 24
hours per day on public Web sites and
through professional and subscription
services. The Trust at its Web site
(https://www.iShares.com) will provide a
real time indicative silver spot price
through TheBullionDesk at https://
www.thebuilliondesk.com. In addition,
the Trustee will disseminate each day
an estimated amount representing the
Basket Silver Amount. The Exchange
will also disseminate through the CTA
the Indicative Trust Value on a per
share basis at least every 15 seconds
during regular Amex trading hours of
9:30 a.m. to 4:15 p.m. New York time.
The last sale price for Silver Shares will
also be disseminated on a real-time
basis over the CTA.
The Commission also notes that the
Trust’s Web site at https://
www.iShares.com is and will be
publicly accessible at no charge and will
contain the NAV of the Silver Shares
and the Basket Silver Amount as of the
prior business day, the Indicative Basket
Amount, the Bid-Ask Price, and a
61 See
E:\FR\FM\24MRN1.SGM
Wolkoff Letter, supra note 7.
24MRN1
Federal Register / Vol. 71, No. 57 / Friday, March 24, 2006 / Notices
calculation of the premium or discount
of the Bid-Ask Price in relation to the
closing NAV. Additionally, the Trust’s
Web site, to which the Amex will link,
will also provide data in chart form
displaying the frequency distribution of
discounts and premiums of the Bid-Ask
Price against the NAV, within
appropriate ranges for each of the four
previous calendar quarters, the
Prospectus, and other applicable
quantitative information. The
Commission believes that dissemination
of this information will facilitate
transparency with respect to the Silver
Shares and diminish the risk of
manipulation or unfair informational
advantage.
C. Listing and Trading
Further, the Commission finds that
the Exchange’s proposed rules and
procedures for the listing and trading of
the proposed Silver Shares are
consistent with the Act. For example,
Silver Shares will be subject to Amex
rules governing trading halts,
responsibilities of the specialist, and
customer suitability requirements. In
addition, the Silver Shares will be
subject to Amex Rules 1201A and
1202A for initial and continued listing
of Silver Shares.
The Commission believes that listing
and delisting criteria for the Silver
Shares should help to maintain a
minimum level of liquidity and
therefore minimize the potential for
manipulation of the Silver Shares.
Finally, the Commission believes that
the Exchange’s Information Circular
adequately will inform members and
member organizations about the terms,
characteristics, and risks in trading the
Silver Shares.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,62 that the
proposed rule change (SR–Amex–2005–
072), as amended, is hereby approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.63
Nancy M. Morris,
Secretary.
[FR Doc. E6–4268 Filed 3–23–06; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53522; File No. SR–ISE–
2006–09]
Self-Regulatory Organizations;
International Securities Exchange, Inc.;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change and Amendment No. 1 Thereto
Relating to Session/API Fees
March 20, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
1, 2006, the International Securities
Exchange, Inc. (‘‘ISE’’ 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 ISE. On
March 15, 2006, ISE filed Amendment
No. 1 to the proposed rule change.3 The
ISE has designated this proposal as one
establishing or changing a due, fee, or
other charge imposed by the ISE under
Section 19(b)(3)(A)(ii) of the Act,4 and
Rule 19b–4(f)(2) thereunder,5 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE is proposing to amend its
Schedule of Fees to adopt a new method
for charging Session/API Fees. The text
of the proposed rule change, as
amended, is available on the ISE’s Web
site (https://www.iseoptions.com/legal/
proposed_rule_changes.asp), at the
principal office of the ISE, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
ISE included statements concerning the
purpose of, and basis for, the proposed
rule change and discussed any
comments it received on the proposed
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Amendment No. 1 added clarifying language to
the purpose section of the filing and made a
technical change to the text of Exhibit 5 (ISE’s
Schedule of Fees). The correction to Exhibit 5 does
not affect the fees covered by this filing.
4 15 U.S.C. 78s(b)(3)(A)(ii).
5 17 CFR 240.19b–4(f)(2).
BILLING CODE 8010–01–P
wwhite on PROD1PC61 with NOTICES
2 17
62 15
63 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
VerDate Aug<31>2005
18:26 Mar 23, 2006
Jkt 208001
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
14975
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The ISE 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 purpose of this proposed rule
change is to establish a new method for
charging Session/API (‘‘login’’) fees to
members.6 ISE currently charges
members a fee for each authorized login
that a member utilizes for quoting or
order entry, with a lesser charge for
authorized logins used for the limited
purpose of ‘‘listening’’ to system
broadcasts.7 This proposed rule change
seeks to further differentiate authorized
logins in an effort to promote and
encourage more efficient quoting. The
Exchange proposes the following three
categories of authorized logins: (1)
Quoting, order entry and listening
(allowing the user to enter quotes,
orders, and perform all other
miscellaneous functions, such as setting
parameters, pulling quotes and
performing linkage functions (e.g.,
sending and receiving P and P/A orders,
laying off orders, etc.)); (2) order entry
and listening (allowing the user to enter
orders and perform all other
miscellaneous functions, such as setting
parameters, pulling quotes and
performing linkage functions (but not
quote)); and (3) listening (allowing the
user only to query the system and to
respond to other broadcasts).8
6 ISE represents that the fees proposed in this
filing only apply to ISE members. The ISE Central
Exchange System uses an open Application
Programming Interface (API). ISE Members program
to ISE’s API in order to develop applications that
send trading commands and/or queries to and
receive broadcasts and/or transactions from the
trading system. The ISE Central Exchange System
is the heart of ISE’s marketplace, processing quotes
from market makers, receiving orders from
Electronic Access Members, tracking activity in the
underlying markets, executing trades in the
matching engine, and broadcasting trade details to
the participating members.
7 Prior to this filing, members were charged a fee
of $250 to ‘‘listen’’ to system broadcasts. This fee
as it applied to market makers, which was
previously listed under ‘‘EAM / Trade Review
Terminal,’’ now appears under ‘‘Market Makers’’—
‘‘Listening.’’
8 The Exchange issued a Market Information
Circular and a Technical Bulletin on February 3,
2006 and February 9, 2006, respectively, to notify
members of the change that is the subject of this
filing. The Exchange further notes that this filing
was considered and approved by the ISE’s Market
Maker Advisory Committee. The Exchange believes
that the proposed fee changes are reasonable in that
they are closely tailored to ISE’s technology costs.
E:\FR\FM\24MRN1.SGM
24MRN1
]]>Agencies
[Federal Register Volume 71, Number 57 (Friday, March 24, 2006)]
[Notices]
[Pages 14967-14975]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-4268]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53521; File No. SR-Amex-2005-072]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Listing and Trading of Shares of the iShares[supreg]
Silver Trust
March 20, 2006.
I . Introduction
On June 30, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade under Amex
Rules 1200A et seq. iShares[supreg] Silver Trust shares (the ``Silver
Shares'' or ``Shares'').\3\ On September 15, 2005, the Exchange
submitted Amendment No. 1 to the proposed rule change.\4\ The proposed
rule change, as amended, was published for comment in the Federal
Register on January 23, 2006.\5\ The Commission received 255 comment
letters regarding the proposed rule change.\6\ On February 28, 2006,
the Exchange filed a response to these comments.\7\ This order approves
the proposed rule change, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ iShares[supreg] is a registered trademark of Barclays Global
Investors, N.A.
\4\ 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.
\5\ See Securities Exchange Act Release No. 53130 (January 17,
2006), 71 FR 3570 (January 23, 2006) (``Notice'').
\6\ These comment letters are available for review on the
Commission's Web site at https://www.sec.gov/rules/sro/amex/
amex2005072.shtml.
\7\ See letter from Neal L Wolkoff, Chairman and Chief Executive
Officer, Amex, to Nancy M. Morris, Secretary, Commission, dated
February 28, 2006 (``Wolkoff Letter'').
---------------------------------------------------------------------------
II. Description of Proposal
In January 2005, the Exchange adopted rules for the listing and
trading of ``Commodity-Based Trust Shares.'' \8\ 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'') \9\ 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 \10\ and trades pursuant to unlisted trading privileges
(``UTP''), the streetTRACKS Gold Trust,\11\ as Commodity-Based Trust
Shares pursuant to Exchange Rules 1200A et seq.
---------------------------------------------------------------------------
\8\ 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).
\9\ 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.
\10\ See supra note 8.
\11\ 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).
---------------------------------------------------------------------------
Pursuant to Amex Rule 1201A, the Exchange may approve for listing
and trading Commodity Shares on an underlying commodity.\12\
Accordingly, the Amex proposes to list for trading Silver Shares under
Exchange Rule 1200A et. seq.\13\
---------------------------------------------------------------------------
\12\ Amex Rule 1200A(b)(2) defines ``commodity'' as set forth in
Section 1(a)(4) of the Commodity Exchange Act (``CEA'').
\13\ See applicable Amex Rules 1200A, 1201A, 1202A, 1203A,
1204A, and 1205A.
---------------------------------------------------------------------------
The Exchange proposes to list and trade the Silver Shares, which
represent beneficial ownership interests in the net assets of the
iShares Silver Trust \14\ (the ``Silver Trust'' or ``Trust'')
consisting primarily of silver bullion. Each Silver Share will
initially correspond to 10 ounces of silver.\15\ The Silver Shares will
meet the initial and continued listing criteria under Amex Rule
1202A.\16\
---------------------------------------------------------------------------
\14\ The Trust is not an investment company as defined in
Section 3(a) of the Investment Company Act of 1940. 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.
\15\ The amount of silver associated with each basket (and
individual Silver Share) is expected to decrease over time as the
Trust incurs and pays maintenance fees and other expenses.
\16\ 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.
---------------------------------------------------------------------------
[[Page 14968]]
In effect, purchasing Silver Shares will provide investors a new
mechanism to participate in the silver market. Information about the
liquidity, depth, and pricing mechanisms of the international silver
market, management and structure of the Trust, and description of the
Silver Shares follows below.
A. 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. In its filing with the Commission, Amex
provided a description of the silver market.\17\
---------------------------------------------------------------------------
\17\ See Notice, supra note 5.
---------------------------------------------------------------------------
1. The OTC Market
The OTC market trades on a 24-hour continuous basis and accounts
for the substantial portion of global silver trading. The London OTC
market is the largest silver clearing market. 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'').\18\
This period lasts for approximately five (5) hours \19\ each New York
business day, from 8:25 a.m.-1:25 p.m. Eastern Time (``ET'').
---------------------------------------------------------------------------
\18\ COMEX is a division of the New York Mercantile Exchange,
Inc. (``NYMEX'') where silver futures contracts and related options
are traded. 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[supreg], 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.
\19\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
---------------------------------------------------------------------------
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 London Bullion Market Association
(``LBMA'').\20\
---------------------------------------------------------------------------
\20\ 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.
---------------------------------------------------------------------------
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.\21\ 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).\22\
---------------------------------------------------------------------------
\21\ 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.
\22\ Information regarding price and average daily volume on the
COMEX can be found at https://www.nymex.com/jsp/markets.md_annual_
volume.jsp.
---------------------------------------------------------------------------
2. Futures Exchanges
The Exchange states that the most significant silver futures
exchanges are the COMEX and the Tokyo Commodity Exchange
(``TOCOM'').\23\ 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.
---------------------------------------------------------------------------
\23\ 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.
---------------------------------------------------------------------------
3. 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 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.
B. 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
[[Page 14969]]
Aggregations'' or ``Baskets'').\24\ 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'') \25\ with the Sponsor and the Trustee, Bank
of New York (``BNY'').\26\ 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.\27\
---------------------------------------------------------------------------
\24\ 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.
\25\ 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.
\26\ 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.
\27\ See supra notes 8 and 11.
---------------------------------------------------------------------------
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.\28\ 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.\29\
---------------------------------------------------------------------------
\28\ 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.
\29\ 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.
---------------------------------------------------------------------------
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.\30\ 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 Consolidated Tape Association (``CTA''),
an amount representing on a per share basis, the current value of the
Basket Silver Amount, known as the ``Indicative Trust Amount.''
---------------------------------------------------------------------------
\30\ 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.
---------------------------------------------------------------------------
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)
\31\ 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 ounce of silver smaller
than .001 will be disregarded.
---------------------------------------------------------------------------
\31\ 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.
---------------------------------------------------------------------------
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).\32\
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
[[Page 14970]]
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.
---------------------------------------------------------------------------
\32\ 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 the Sponsor (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.
---------------------------------------------------------------------------
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\th 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.\33\
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.
---------------------------------------------------------------------------
\33\ The Amex will disseminate via the facilities of the CTA an
``Indicative Trust Value'' at least every 15 seconds during the
trading day that represents an indicative value for the Silver
Shares based silver dealer pricing. Telephone conference between
Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon,
Senior Special Counsel, Division of Market Regulation, Commission,
on March 9, 2006.
---------------------------------------------------------------------------
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, the Exchange states that 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.\34\
---------------------------------------------------------------------------
\34\ 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.
---------------------------------------------------------------------------
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
deliver the Shares to close out the short position. In both instances,
the Exchange states that the arbitrageur serves efficiently to correct
price discrepancies between the Shares and the underlying silver.
C. 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, the Exchange states that 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.\35\ Complete real-time data
[[Page 14971]]
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.
---------------------------------------------------------------------------
\35\ 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.
---------------------------------------------------------------------------
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.\36\
---------------------------------------------------------------------------
\36\ The Trust Web site's silver spot price will be provided by
TheBullionDesk at https://www.thebulliondesk.com. The Amex will
provide a link to the Trust Web site. TheBullionDesk 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, during Amex trading hours, the Trust Web
site should cease to provide this indicative silver spot price from
an unaffiliated source and the intraday ``Indicative Trust Value''
of the Shares is not disseminated via the CTA, the Exchange will
delist the shares. See ``Criteria for Initial and Continued
Listing,'' below.
---------------------------------------------------------------------------
D. 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 \37\ 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: (h) the Prospectus; and (g)
other applicable quantitative information.
---------------------------------------------------------------------------
\37\ 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 TheBullionDesk at
https://www.thebulliondesk.com.\38\ Notwithstanding that they will be
provided free of charge, the indicative spot price from TheBullionDesk
on the Trust Web site and the Indicative Trust Value per Share
disseminated via the CTA will be provided essentially on a real-time
basis.\39\ The Exchange will also make available on its Web site daily
trading volume, closing prices, NAV, and the Basket Silver Amount, and
the Indicative 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.
---------------------------------------------------------------------------
\38\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
\39\ These values are subject to an average delay of 5 to 10
seconds. The Indicative Trust Value per Share will not be posted on
the Trust's Web site but will be disseminated via the facilities of
the CTA. Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on March 8, 2006.
---------------------------------------------------------------------------
E. 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 Participants 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
from silver dealer pricing.\40\ 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.
---------------------------------------------------------------------------
\40\ See supra note 33.
---------------------------------------------------------------------------
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. In addition, the Trust's Web site at https://
www.iShares.com will also provide from TheBullionDesk 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.
G. 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.
[[Page 14972]]
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.\41\ 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.
---------------------------------------------------------------------------
\41\ 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).
---------------------------------------------------------------------------
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 Act.\42\
---------------------------------------------------------------------------
\42\ See The Exchange represents that Silver Shares qualifies
for the exemption in Rule 10A-3(c)(7) under the Act.
---------------------------------------------------------------------------
H. 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.
I. 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.\43\
---------------------------------------------------------------------------
\43\ 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).
---------------------------------------------------------------------------
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.\44\ 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.\45\ 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
silver and/or futures price. Commentary .01 to Amex Rule 1203A sets
forth this limited exception to Amex Rule 170.
---------------------------------------------------------------------------
\44\ See Commentary .05 to Amex Rule 190.
\45\ 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.
---------------------------------------------------------------------------
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.\46\
---------------------------------------------------------------------------
\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(a)).
---------------------------------------------------------------------------
Amex Rule 1204A(b) also ensures that specialists handling the
Silver Shares provide the Exchange with all the necessary information
relating to their
[[Page 14973]]
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).\47\
---------------------------------------------------------------------------
\47\ 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)).
---------------------------------------------------------------------------
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 the value of the silver updated at least every 15
seconds from a source not affiliated with the Sponsor, Trust, or the
Exchange, or the Exchange ceases to provide via the CTA the Indicative
Trust Value per Share updated at least every 15 seconds.\48\
---------------------------------------------------------------------------
\48\ In the event such spot price of silver or Indicative Trust
Value is no longer calculated or disseminated during the time the
Silver Shares trade on Amex, the Exchange would immediately contact
the Commission to discuss measures that may be appropriate under the
circumstances. Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, on January 13,
2006.
---------------------------------------------------------------------------
J. Information Circular
The Amex will distribute an Information Circular (the ``Circular'')
to its members in connection with the trading of Silver Shares. The
Circular, will discuss the special characteristics and risks of trading
this type of security. Specifically, the Circular, among other things,
will discuss what the Silver Shares are, notify members and member
organizations about the procedures for creation and redemption of
Silver Shares in a basket, the requirement, as described below, that
members and member firms deliver a prospectus to investors purchasing
the Silver Shares prior to or concurrently with the confirmation of a
transaction, applicable Amex rules, dissemination of information
regarding the per share Indicative Trust Value, NAV, and other
information pertaining to the Shares, including trading information,
trading halt procedures, and applicable suitability rules. For example,
in the Information Circular, members and member organizations will be
informed that procedures for purchases and redemptions of Silver Shares
in Basket Aggregations are described in the Prospectus and that Silver
Shares are not individually redeemable but are redeemable only in
Basket Aggregations or multiples thereof. Similarly, the Information
Circular will advise members and member organizations, prior to
commencement of trading, of the prospectus delivery requirements
applicable to the Trust. The Exchange notes that investors purchasing
Silver Shares directly from the Trust (by delivery of the Basket Silver
Amount) will receive a prospectus. Amex members purchasing Silver
Shares from the Trust for resale to investors will deliver a prospectus
to such investors.
The Circular will also explain that the Silver Trust is subject to
various fees and expenses described in the Registration Statement and
that the number of ounces of silver required to create a basket or to
be delivered upon a redemption of a basket will gradually decrease over
time because the Silver Shares comprising a basket will represent a
decreasing amount of silver due to the sale of the Silver Trust's
silver to pay Trust expenses. The Circular will also reference the fact
that there is no regulated source of last sale information regarding
physical silver, that the Commission has no jurisdiction over the
trading of silver as a physical commodity, and that the CFTC has
regulatory jurisdiction over the trading of silver futures contracts
and options on silver futures contracts.
The Circular will advise members of their suitability obligations
with respect to recommended transactions to customers in the Silver
Shares. The Exchange notes that pursuant to Amex Rule 411 (Duty to Know
and Approve Customers), members and member organizations are required
in connection with recommending transactions in the Silver Shares to
have a reasonable basis to believe that a customer is suitable for the
particular investment given reasonable inquiry concerning the
customer's investment objectives, financial situation, needs, and any
other information known by such member.
The Circular will also discuss any relief, if granted, by the
Commission or the staff from any rules under the Act.
K. Surveillance
The Exchange represents that its surveillance procedures applicable
to trading in the proposed Silver Shares will be similar to those
applicable to the iShares COMEX Gold Trust, the streetTRACKS Gold
Trust, trust issued receipts, Portfolio Depository Receipts and Index
Fund Shares currently trading on the Exchange. For intermarket
surveillance purposes, the Exchange currently has in place an
Information Sharing Agreement with the NYMEX for the purpose of
providing information in connection with trading in or related to COMEX
silver futures contracts. The Exchange submits that its surveillance
procedures are adequate to properly monitor the trading of the Shares.
Also, as noted above, the Exchange states that Amex Rule 1204A(b),
which requires that the specialist handling the Silver Shares provide
the Exchange with information relating to its trading in physical
silver, silver futures contracts, options on silver futures, or any
other silver derivative, will facilitate surveillance of specialist
handling Silver Shares.
III. Discussion
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent
[[Page 14974]]
with the Act \49\ and the rules and regulations thereunder applicable
to a national securities exchange.\50\
---------------------------------------------------------------------------
\49\ 15 U.S.C. 78f(b).
\50\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission received a total of 255 comment letters on the
Exchange's proposed rule change. Of these 255 comment letters, 248
comments supported the proposed rule change and 7 comments opposed the
proposed rule change. In general, those commenters opposed to the
proposed rule change argued that approval of the Silver Shares would
result in serious liquidity problems in the silver market.\51\ In
particular, these commenters contended that the Silver Shares would
negatively impact the silver market because their creation would
require the holding of silver in allocated accounts, which would drain
large amounts of silver from the open market and cause higher prices
for silver products.\52\ Furthermore, the commenters asserted that the
higher silver prices caused by the creation of the Silver Shares would
cause the loss of jobs specific to the silver industry.\53\
---------------------------------------------------------------------------
\51\ See letters from Congressman J. Gresham Barrett (3rd
District, SC) to Christopher Cox, Chairman, Commission, dated
February 16, 2006; Paul A. Miller, Executive Director, Silver Users
Association, to Nancy M. Morris, Secretary, Commission, dated
February 13, 2006; John Patrick, Vice President, Fujifilm America,
Inc., to Nancy M. Morris, Secretary, Commission, dated February 7,
2006; James F. Kirsch, President and Chief Executive Officer, Ferro
Corporation, to Nancy M. Morris, Secretary, Commission, dated
February 2, 2006; a Memorandum from the CPM Group regarding Silver
Inventories, dated January 30, 2006; a Web Comment from Justin D.
Reynolds, dated January 29, 2006; and a Web Comment from George
Bloom, Jr., dated January 29, 2006. A Web Comment from Theodore
Butler, dated February 6, 2006, made positive and negative
conclusions about the proposed rule change.
\52\ Id.
\53\ Id.
---------------------------------------------------------------------------
The Exchange responded to these comments by stating that it
believes that the listing and trading of Silver Shares will make the
market for silver more efficient and transparent by providing investors
with an easier and more cost-effective alternative for investing in
silver. The Exchange asserts that a transparent marketplace for Silver
Shares will allow for a more accurate representation of the supply and
demand for silver, and therefore, a more accurate market price.\54\ The
Exchange also disagrees with some commenters' assertions that the Trust
will reduce the amount of silver in the marketplace. In this regard,
the Exchange notes that, at the commencement of trading, the Exchange
will require 150,000 Silver Shares to be outstanding, which will
require 1.5 million ounces of silver to be deposited with the custodian
of the Trust. The Exchange states that Trust assets will grow only to
the extent that demand for the Silver Shares grows and that a wide
variety of factors are capable of influencing supply and demand for
silver.\55\
---------------------------------------------------------------------------
\54\ See Wolkoff Letter, supra note 7.
\55\ Id.
---------------------------------------------------------------------------
The Commission agrees with Amex that, like other derivative
products, the Silver Shares will increase the efficiency and
transparency of the market for the underlying instrument, i.e., silver.
In this regard, the Commission finds that the proposed rule change is
in the public interest.\56\ The Commission also does not believe that
the Silver Shares are likely to cause serious liquidity problems in the
silver market such that approval of the proposed rule change is not
consistent with the Act.\57\
---------------------------------------------------------------------------
\56\ 15 U.S.C. 78f(b)(5).
\57\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
A. Surveillance
The Commission also finds that the rules of the Exchange are
designed to prevent fraudulent and manipulative acts and practices.\58\
In its response to comment letters, the Amex represents that it has
safeguards to ensure that the trading of the Silver Shares is fair and
consistent with the operation of a public marketplace and the
protection of investors and that surveillance procedures at the
Exchange serve to deter and detect potential misconduct and
manipulative acts by members and investors.\59\
---------------------------------------------------------------------------
\58\ 15 U.S.C. 78f(b)(5).
\59\ See Wolkoff Letter, supra note 7.
---------------------------------------------------------------------------
In addition, the Exchange has an information sharing agreement with
NYMEX for the purpose of providing information in connection with
trading in or related to silver futures contracts.\60\ Information
sharing agreements with markets trading securities underlying a
derivative product are an important part of a self-regulatory
organization's ability to monitor for trading abuses in derivative
products. Although an information sharing agreement with the OTC silver
market is not possible, the Commission believes that Amex's information
sharing agreement with NYMEX (of which COMEX is a division) and
Exchange Rules 1203A and 1204A, create the basis for Amex to monitor
for fraudulent and manipulative practices in the trading of the Silver
Shares.
---------------------------------------------------------------------------
\60\ Id.
---------------------------------------------------------------------------
The Exchange also represents that it will review firms th
