Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to iShares® S&P Global Index Funds, 55248-55257 [06-7896]
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Federal Register / Vol. 71, No. 183 / Thursday, September 21, 2006 / Notices
rule change. The text of these statements
may be examined at the places specified
in Item IV below. NSCC has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.4
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The purpose of the proposed rule
change is to further harmonize and
clarify the rules of The Depository Trust
& Clearing Corporation’s clearing agency
subsidiaries. In this filing, NSCC
proposes to conform NSCC Rule 35
concerning providing financial reports
to its members to the equivalent rule of
The Depository Trust Company
(‘‘DTC’’), DTC Rule 15. Specifically, the
rule change would clarify NSCC’s
longstanding practice of providing
unaudited quarterly financial statements
to its members for the first three
quarters of the calendar year only.5
NSCC believes that the proposed rule
change is consistent with the
requirements of Section 17A of the Act 6
and the rules and regulations
thereunder because it constitutes a
stated policy, practice, or interpretation
with respect to the meaning,
administration, or enforcement of an
existing rule of NSCC and as such does
not adversely affect the safeguarding of
securities or funds in the custody or
control of NSCC or for which it is
responsible.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NSCC does not believe that the
proposed rule change will have any
impact or impose any burden on
competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
NSCC has not solicited or received
written comments relating to the
proposed rule change. NSCC will notify
the Commission of any written
comments it receives.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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The foregoing rule change has become
effective pursuant to Section
4 The Commission has modified the text of the
summaries prepared by NSCC.
5 Annual audited financial statements are
provided to members after the last calendar quarter
of the year.
6 15 U.S.C. 78q–1.
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19(b)(3)(A)(i) 7 of the Act and Rule 19b–
4(f)(1) 8 thereunder because it
constitutes a stated policy, practice, or
interpretation with respect to the
meaning, administration, or
enforcement of an existing rule. At any
time within 60 days of the filing of the
proposed rule change, the Commission
may summarily abrogate such rule
change if it appears to the Commission
that such action is necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Act.9
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–NSCC–2006–02 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
No. SR–NSCC–2006–02. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
7 15
U.S.C. 78s(b)(3)(A)(i).
CFR 240.19b–4(f)(1).
9 For purposes of calculating the 60-day period
within which the Commission may summarily
abrogate the proposed rule change under Section
19(b)(3)(C) of the Act, the Commission considers
the period to commence on August 18, 2006, the
date on which the last amendment to the proposed
rule change was filed with the Commission. 15
U.S.C. 78s(b)(3)(C).
8 17
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provisions of 5 U.S.C 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 100 F Street, NE., Washington,
DC 20549. Copies of such filing also will
be available for inspection and copying
at NSCC’s principal office and on
NSCC’s Web site at https://
www.nscc.com/legal/. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File No.
SR–NSCC–2006–02 and should be
submitted on or before October 12,
2006.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.10
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 06–7838 Filed 9–20–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54458; File No. SR–NYSE–
2006–60]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Order Granting Accelerated
Approval of Proposed Rule Change
Relating to iShares S&P Global Index
Funds
September 15, 2006.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 14, 2006, the New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) the proposed
rule changes as described in Items I and
II below, which items have been
substantially prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons, and is granting accelerated
approval to the proposed rule change.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The NYSE proposes to list and trade
the following: iShares S&P Global
Consumer Discretionary Sector Index
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Fund; iShares S&P Global Consumer
Staples Sector Index Fund; iShares S&P
Global Industrials Sector Index Fund;
iShares S&P Global Utilities Sector
Index Fund; iShares S&P Global
Materials Sector Index Fund
(collectively, the Funds’’).3 The Funds
are exchange-traded funds, which are a
type of Investment Company Unit
(‘‘ICU’’).
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
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change. The text of
these statements may be examined at
the places specified in Item III below.
The NYSE has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange has adopted listing
standards applicable to Investment
Company Units (‘‘ICUs’’) that it states
are consistent with the listing criteria
currently used by other national
securities exchanges, and trading
standards pursuant to which the
Exchange may either list and trade ICUs
or trade such ICUs on the Exchange on
an unlisted trading privileges (‘‘UTP’’)
basis.4
The Exchange now proposes to list
and trade under Section 703.16 of the
NYSE Listed Company Manual
(‘‘Manual’’) and NYSE Rule 1100 et seq.
shares of the following, each a series of
the iShares Trust (the ‘‘Trust’’): 5 (1)
iShares S&P Global Consumer
Discretionary Sector Index Fund; (2)
iShares S&P Global Consumer Staples
Sector Index Fund; (3) iShares S&P
Global Industrials Sector Index Fund;
(4) iShares S&P Global Utilities Sector
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3 iShares
is a registered trademark of Barclays
Global Investors, N.A.
4 In 1996, the Commission approved Section
703.16 of the Listed Company Manual, which sets
forth the rules related to the listing of ICUs.
Securities Exchange Act Release No. 36923 (March
5, 1996), 61 FR 10410 (March 13, 1996).
5 The Trust is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a), (the
‘‘Investment Company Act’’). On April 15, 2005, the
Trust filed with the Commission a Registration
Statement for the Funds on Form N–1A under the
Securities Act of 1933 (15 U.S.C. 77a), and under
the Investment Company Act relating to the Funds
(File Nos. 333–92935 and 811–09729) (as amended,
the ‘‘Registration Statement’’).
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Index Fund; and (5) iShares S&P Global
Materials Sector Index Fund. Because
the Funds invest in non-U.S. securities
not listed on a national securities
exchange or the Nasdaq Stock Market,
the Funds do not meet the ‘‘generic’’
listing requirements of Section 703.16 of
the Manual applicable to listing of ICUs
(permitting listing in reliance upon Rule
19b–4(e) 6 under the Act and cannot be
listed without a filing pursuant to Rule
19b–4 under the Act). Therefore, to list
the Funds (or trade pursuant to UTP),
the Exchange must file, and obtain
Commission approval of, a proposed
rule change pursuant to Rule 19b–4
under the Act.7
As set forth in detail below, the Funds
will hold certain securities
(‘‘Component Securities’’) selected to
correspond generally to the performance
of the following indexes, (‘‘Underlying
Indexes’’), respectively: (1) S&P Global
Consumer Discretionary Index; (2) S&P
Global Consumer Staples Index; (3) S&P
Global Industrials Index; (4) S&P Global
Utilities Index; and (5) S&P Global
Materials Index.
Each Fund intends to qualify as a
‘‘regulated investment company’’ (a
‘‘RIC’’) under the Internal Revenue Code
(the ‘‘Code’’). Barclays Global Fund
Advisors (the ‘‘Advisor’’ or ‘‘BGFA’’) is
the investment advisor to the Funds.
The Advisor is registered under the
Investment Advisers Act of 1940.8 The
Advisor is the wholly owned subsidiary
of Barclays Global Investors, N.A.
(‘‘BGI’’), a national banking association.
BGI is an indirect subsidiary of Barclays
Bank PLC of the United Kingdom. SEI
Investments Distribution Co. (‘‘SEI’’ or
‘‘Distributor’’), a Pennsylvania
corporation and broker-dealer registered
under the Act, is the principal
underwriter and distributor of Creation
Unit Aggregations of iShares. The
Distributor is not affiliated with the
Exchange or the Advisor. The Trust has
appointed Investors Bank & Trust Co.
(‘‘IBT’’) to act as administrator
(‘‘Administrator’’), custodian, fund
accountant, transfer agent, and dividend
disbursing agent for the Funds. The
Exchange expects that performance of
the Administrator’s duties and
obligations will be conducted within the
provisions of the Investment Company
Act 9 and the rules thereunder. There is
no affiliation between the Administrator
and the Trust, the Advisor, or the
Distributor.
6 17
CFR 240.19b–4(e).
CFR 240.19b–4.
8 15 U.S.C. 80b–1.
9 15 U.S.C. 80a–1.
7 17
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Operation of the Funds.10
The investment objective of the Funds
will be to provide investment results
that correspond generally to the price
and yield performance of the
Underlying Indexes. In seeking to
achieve their investment objective, the
Funds will utilize ‘‘passive’’ indexing
investment strategies. The Funds may
fully replicate their respective
Underlying Index, but currently intend
to use a ‘‘representative sampling’’
strategy to track the applicable
Underlying Index. A Fund utilizing a
representative sampling strategy
generally will hold a basket of the
Component Securities of its Underlying
Index, but it may not hold all of the
Component Securities of its Underlying
Index.
Each Fund will invest at least 90% of
its assets in the securities of its
Underlying Index or in American
Depositary Receipts (‘‘ADRs’’), Global
Depositary Receipts (‘‘GDRs’’), or
European Depositary Receipts (‘‘EDRs’’)
(collectively ‘‘Depositary Receipts’’)
representing securities in the
Underlying Index. A Fund may invest
the remainder of its assets in securities
not included in its Underlying Index,
but which BGFA believes will help the
Fund track its Underlying Index. For
example, a Fund may invest in
securities not included in its Underlying
Index in order to reflect various
corporate actions (such as mergers) and
other changes in its Underlying Index
(such as reconstitutions, additions and
deletions). A Fund also may invest its
other assets in futures contracts, options
on futures contracts, options, and swaps
related to its Underlying Index, as well
as cash and cash equivalents, including
shares of money market funds affiliated
with BGFA.
From time to time, adjustments may
be made in the portfolio of the Funds in
accordance with changes in the
composition of the Underlying Indexes
or to maintain compliance with
requirements applicable to a RIC under
10 The Exchange states that the information
provided herein is based on information included
in the Registration Statement; however, the
Commission notes that its approval of the listing
and trading of these ICUs is subject to the continued
operation of the Funds and their related Indexes as
described herein by the Exchange. The Exchange
also states that while the Advisor would manage the
Funds, the Funds’ Board of Directors would have
overall responsibility for the Funds’ operations. The
composition of the Board is, and would be, in
compliance with the requirements of Section 10 of
the Investment Company Act. The Funds are
subject to and must comply with Section 303A.06
of the Manual, which requires that the Funds have
an audit committee that complies with SEC Rule
10A–3, 17 CFR 240.10A–3.
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the Code.11 For example, if at the end
of a calendar quarter a Fund would not
comply with the RIC diversification
tests, the Advisor would make
adjustments to the portfolio to ensure
continued RIC status.
To the extent the Funds invest in
ADRs, they will be listed on a national
securities exchange or Nasdaq, and to
the extent the Funds invest in other
Depositary Receipts, they will be listed
on a foreign exchange. The Funds will
not invest in any unlisted Depositary
Receipts or any listed Depositary
Receipts that the Advisor deems to be
illiquid or for which pricing information
is not readily available. In addition, all
Depositary Receipts must be sponsored
(with the exception of certain pre-1984
ADRs that are listed and unsponsored
because they are grandfathered).
Each Fund will not concentrate its
investments (i.e., hold 25% or more of
its total assets in the stocks of a
particular industry or group of
industries), except that a Fund will
concentrate to approximately the same
extent that its Underlying Index
concentrates in the stocks of such
particular industry or group of
industries. In such case, a Fund could
hold 25% or more of its total assets in
the stocks of such industry or group of
industries. For purposes of this
limitation, securities of the U.S.
Government (including its agencies and
11 In order for the Funds to qualify for tax
treatment as a RIC, they must meet several
requirements under the Code. Among these is a
requirement that, at the close of each quarter of the
Funds’ taxable year, (1) at least 50% of the market
value of the Funds’ total assets must be represented
by cash items, U.S. government securities,
securities of other RICs and other securities, with
such other securities limited for the purpose of this
calculation with respect to any one issuer to an
amount not greater than 5% of the value of the
Funds’ assets and not greater than 10% of the
outstanding voting securities of such issuer; and (2)
not more than 25% of the value of their total assets
may be invested in securities of any one issuer, or
two or more issuers that are controlled by the Funds
(within the meaning of Section 851(b)(4)(B) of the
Code) and that are engaged in the same or similar
trades or business (other than U.S. government
securities of other RICs).
Compliance with the above referenced RIC asset
diversification requirements are monitored by the
Advisor and any necessary adjustments to portfolio
issuer weights will be made on a quarterly basis or
as necessary to ensure compliance with RIC
requirements. When an iShares Fund’s Underlying
Index itself is not RIC compliant, the Advisor
generally employs a representative sampling
indexing strategy (as described in the Funds’
prospectus) in order to achieve the Fund’s
investment objective. The Funds’ prospectus also
gives the Funds additional flexibility to comply
with the requirements of the Code and other
regulatory requirements and to manage future
corporate actions and index changes in smaller
markets by investing a percentage of fund assets in
securities that are not included in the Fund’s
Underlying Index or in ADRs and GDRs
representing such securities.
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instrumentalities), repurchase
agreements collateralized by U.S.
Government securities, and securities or
state or municipal governments and
their political subdivisions are not
considered to be issued by members of
any industry.
The Exchange believes that these
requirements and policies prevent the
Funds from being excessively weighted
in any single security or small group of
securities and significantly reduce
concerns that trading in the Funds
could become a surrogate for trading in
unregistered securities.
Description of the Index Methodology
Each of the Indexes is a subset of the
Standard & Poor’s Global 1200 Index
and thus contains the securities of both
domestic and international companies
as Index components. The Indexes are
free float adjusted and market
capitalization weighted. The Standard &
Poor’s Index Committee (which does not
include employees of broker-dealers or
their affiliates) is responsible for the
overall management of these S&P
Indices.
Selection Criteria for Domestic
Components. Companies (i.e., the
‘‘Components’’) selected for the
investments represent a broad range of
industry segments within the U.S.
economy. The starting universe, all
publicly traded U.S. companies (i.e.,
companies listed and traded on a
national securities exchange or the
Nasdaq Stock Market), is screened to
eliminate ADRs, mutual funds, limited
partnerships and royalty trusts. The
following criteria are then analyzed to
determine a company’s eligibility for
inclusion in the investments: (1)
Ownership of a company’s outstanding
common shares, in order to screen out
closely held companies; (2) trading
volume of a company’s stock, in order
to ensure ample liquidity and efficient
share pricing; and (3) the financial and
operating condition of a company.
Selection Criteria for International
Components.12 With respect to non-U.S.
components of the Underlying Indexes,
the eligible universe of Index
components that are considered for
inclusion are from the following S&P
Indexes: (1) The S&P/Toronto Stock
12 S&P determines a stock’s domicile based on a
number of criteria, including the headquarters of
the issuer, its registration, its stock listing, its place
of operations, the residence of the senior officers,
and other criteria. Each region’s Index Committee
reviews all criteria before deciding on the domicile
of a stock. Telephone conversation between
Michael Cavalier, Associate General Counsel,
NYSE, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation,
Commission, on September 15, 2006 (‘‘September
15 Telephone Conference’’).
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Exchange (‘‘TSX’’) 60 Index, which
represents the liquid, large-cap stocks of
the publicly listed companies in the
Canadian equities market; (2) the S&P
Tokyo Stock Price (‘‘TOPIX’’) 150 Index,
which represents the liquid, large-cap
stocks of the publicly listed companies
in the Japanese equities market; (3) the
S&P/ Australia Stock Exchange (‘‘ASX’’)
50 Index, which represents the liquid,
large-cap stocks in the Australian
equities market; (4) the S&P Asia 50
Index, which represents the liquid,
large-cap stocks of four major equities
markets in Asia (Hong Kong, Korea,
Taiwan and Singapore); (5) the S&P
Latin America 40 Index, which
represents the liquid, large-cap stocks
from major sectors of the Mexico, Brazil,
Argentina and Chile equity markets; and
(6) the S&P Europe 350 Index, which
represents the liquid, large-cap stocks of
the publicly listed companies in the
region, covering approximately 70% of
the region’s market capitalization and
spanning 17 exchanges. All stocks
included in these S&P Indexes are in the
S&P Global 1200 Index.13
Where there were multiple classes of
a particular equity, all classes were
deemed eligible if they met the criteria
for size, liquidity and sector
representation. The specific securities
are then screened for industry sector
classification; thus, the eligible
securities are ranked according to
Global Industry Classification Standards
(‘‘GICS’’). Then, the Index components,
now determined, are weighted on the
basis of S&P’s free float, market
capitalization methodology. Generally,
S&P observes a prospective constituent’s
liquidity over a period of at least 6
months before consideration for
inclusion. However, it is recognized that
there may be extraordinary situations
when companies should be added
immediately (e.g., certain
privatizations). When a particular
company dominates its home market, it
may be excluded from the Index if
analysis of the sectors reveals that its
securities are not as liquid as those of
similar companies in other countries.
The International Index components
may include ADRs and GDRs.
Issue Changes. General oversight
responsibility for the S&P Indices,
including overall policy guidelines and
methodology, is handled by the S&P
Global Index Committee (which does
not include employees of broker-dealers
or their affiliates). Maintenance of
component investments, including
additions and deletions to these
investments, is the responsibility of
separate regional index committees
13 September
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15 Telephone Conference.
21SEN1
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composed of S&P staff specialized in the
various regional equity markets and, in
some cases with the assistance of local
stock exchanges. Public announcements
of index changes as the result of
committee decisions will generally be
made two business days in advance of
the anticipate effective date whenever
possible, although for exceptional
corporate events announcements may be
made earlier.
Index Maintenance. Maintaining the
S&P Indices includes monitoring and
completing the adjustments for
company additions and deletions, share
changes, stock splits, stock dividends,
and stock price adjustments due to
restructuring and spin-offs. Share
changes of less than 5% are only
updated on a quarterly basis on the
Friday near the end of the calendar
quarter.
A company will be removed from the
S&P Indices as a result of mergers/
acquisitions, bankruptcy, restructuring,
or if it is no longer representative of its
industry group. A company is removed
from the relevant Index as close as
possible to the actual date on which the
event occurred. A company can be
removed from an Index because it no
longer meets current criteria for
inclusion and/or is no longer
representative of its industry group. All
replacement companies are selected
based on the above component section
criteria.
When calculating index weights,
individual constituents’ shares held by
governments, corporations, strategic
partners, or other control groups are
excluded from the company’s shares
outstanding. Shares owned by other
companies are also excluded regardless
of whether they are index constituents.
In countries with regulated
environments, where a foreign
investment limit exists at the sector or
company level, the constituent’s weight
will reflect either the foreign investment
limit or the percentage float, whichever
is the more restrictive.
Once a year, the float adjustments will
be reviewed and potentially changed
based on such review. Each company’s
financial statements will be used to
update the major shareholders’
ownership for the float adjustments
calculation, as the Indexes are free float
adjusted, market capitalization weighted
for each company’s shares. However,
during the course of the year, S&P also
monitors each company’s Investable
Weight Factor (IWF), which is S&P’s
term for the mathematical float factor
used to calculate the float adjustment. If
a change in the IWF is caused by a
major corporate action (i.e.,
privatization, merger, takeover, or share
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offering) and the change is equal to or
greater than 5%, a float adjustment will
be implemented as soon as reasonably
possible.
Changes in the number of shares
outstanding driven by corporate events
such as stock dividends, splits, and
rights issues will be adjusted on the exdate. Share changes of 5% or greater are
implemented when they occur. All
share changes of less than 5% are
updated on a quarterly basis (third
Friday of March, June, September, and
December or at the close of the
expiration of futures contracts).
Implementation of new additions,
deletions, and changes to the float
adjustment, due to corporate actions,
will be made available at the close of the
third Friday in March, June, September
and December. Generally, index changes
due to rebalancing are announced two
days before the effective date by way of
a news release posted on https://
www.spglobal.com.
The S&P Indices are calculated
continuously and are available from
major data vendors. A current list of the
Index components is attached as Exhibit
3 to the NYSE’s filing.
Index Descriptions
The S&P Global Consumer
Discretionary Index measures the
performance of companies that Standard
& Poor’s deems to be part of the
consumer discretionary sector of the
economy and that Standard & Poor’s
believes are important to global markets.
Component companies include
manufacturing and service companies.
As of the close of business on January
31, 2006, the Index was comprised of
stocks of companies in the following
countries: Australia, Belgium, Canada,
Chile, France, Germany, Hong Kong,
Italy, Japan, Korea, Mexico,
Netherlands, Singapore, Spain, Sweden,
Switzerland, United Kingdom, and the
United States.
The S&P Global Consumer Staples
Index measures the performance of
companies that Standard & Poor’s
deems to be part of the consumer staples
sector of the economy and that Standard
& Poor’s believes are important to global
markets. Component companies include
manufacturers and distributors of food,
producers of non-durable household
goods, and food and drug retailing
companies. As of the close of business
on January 31, 2006, the Index was
comprised of stocks of companies in the
following countries: Australia, Belgium,
Brazil, Canada, Chile, Germany, Japan,
Korea, Mexico, Netherlands, Norway,
Spain, Sweden, Switzerland, United
Kingdom, and the United States.
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The S&P Global Industrials Index
measures the performance of companies
that Standard & Poor’s deems to be part
of the industrials sector of the economy
and that Standard & Poor’s believes are
important to global markets. Component
companies include manufacturers and
distributors of capital goods, providers
of commercial services and supplies,
and transportation service providers. As
of the close of business on January 31,
2006, the Index was comprised of stocks
of companies in the following countries:
Australia, Brazil, Canada, Chile,
Denmark, France, Germany, Hong Kong,
Ireland, Italy, Japan, Korea, Mexico,
Netherlands, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland,
United Kingdom and the United States.
The S&P Global Utilities Index
measures the performance of companies
that Standard & Poor’s deems to be part
of the Utilities sector of the economy
and that Standard & Poor’s believes are
important to global markets. Component
companies include providers of electric,
gas or water utilities, or companies that
operate as independent producers and/
or distributors of power. As of the close
of business on January 31, 2006, the
Index was comprised of stocks of
companies in the following countries:
Australia, Brazil, Canada, Chile,
Finland, France, Germany, Hong Kong,
Italy, Japan, Portugal, Spain, United
Kingdom, and the United States.
The S&P Global Materials Index
measures the performance of companies
that Standard & Poor’s deems to be part
of the materials sector of the economy
and that Standard & Poor’s believes are
important to global markets. Component
companies include those companies
engaged in a wide variety of
commodity-related manufacturing. As of
the close of business on January 31,
2006, the Index was comprised of stocks
of companies in the following countries:
Australia, Belgium, Brazil, Canada,
Chile, Finland, France, Germany,
Ireland, Japan, Korea, Luxembourg,
Mexico, Netherlands, Portugal, Spain,
Sweden, Switzerland, Taiwan, United
Kingdom, and the United States.
As of May 31, 2006, the iShares S&P
Global Consumer Discretionary Sector
Index’s top three holdings were Toyota
Motor Corp., Home Depot, Time Warner
Inc.; the Index’s top three industries
were Consumer Discretionary and Index
components had a total market
capitalization of approximately $2.8
trillion. The average total market
capitalization was approximately $14.6
billion. The 10 largest constituents
represented approximately 28.4% of the
Index weight. The five highest weighted
stocks, which represented 18.2% of the
Index weight, had an average daily
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trading volume in excess of 66.1 million
shares during the period April 1 through
May 31, 2006. 99.98% of the component
stocks traded at least 250,000 shares
monthly from December 2005 through
May 2006.
As of May 31, 2006, the iShares S&P
Global Consumer Staples Sector Index’s
top three holdings were Procter &
Gamble, Altria Group, Inc., Wal-Mart
Stores; the Index’s top three industries
were Consumer Staples and Index
components had a total market
capitalization of approximately $2.3
trillion. The average total market
capitalization was approximately $23.5
billion. The 10 largest constituents
represented approximately 48.3% of the
Index weight. The five highest weighted
stocks, which represented 34.6% of the
Index weight, had an average daily
trading volume in excess of 32.3 million
shares during the period April 1 through
May 31, 2006. 99.6% of the component
stocks traded at least 250,000 shares
monthly from December 2005 through
May 2006.
As of May 31, 2006, the iShares S&P
Global Industrials Sector Index’s top
three holdings were General Electric,
United Parcel Service, Siemens AG; the
Index’s top three industries were
Industrials and Index components had a
total market capitalization of
approximately $2.7 trillion. The average
total market capitalization was
approximately $15.3 billion. The 10
largest constituents represented
approximately 37.1% of the Index
weight. The five highest weighted
stocks, which represented 27.2% of the
Index weight, had an average daily
trading volume in excess of 38.6 million
shares during the period April 1 through
May 31, 2006. 99.65% of the component
stocks traded at least 250,000 shares
monthly from December 2005 through
May 2006.
As of May 31, 2006, the iShares S&P
Global Materials Sector Index’s top
three holdings were BHP Billiton
Limited, Anglo American, Rio Tinto; the
Index’s top three industries were
Materials and Index components had a
total market capitalization of
approximately $1.6 trillion. The average
total market capitalization was
approximately $12.9 billion. The 10
largest constituents represented
approximately 30.7% of the Index
weight. The five highest weighted
stocks, which represented 19.5% of the
Index weight, had an average daily
trading volume in excess of 66.5 million
shares during the period April 1 through
May 31, 2006. 99.31% of the component
stocks traded at least 250,000 shares
monthly from December 2005 through
May 2006.
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As of May 31, 2006, the iShares S&P
Global Utilities Sector Index’s top three
holdings were E.On AG, Suez SA, RWE
AG; the Index’s top three industries
were Utilities and Index components
had a total market capitalization of
approximately $1.2 trillion. The average
total market capitalization was
approximately $16.9 billion. The 10
largest constituents represented
approximately 41.5% of the Index
weight. The five highest weighted
stocks, which represented 25.0% of the
Index weight, had an average daily
trading volume in excess of 47.8 million
shares during the period April 1 through
May 31, 2006. 100% of the component
stocks traded at least 250,000 shares
monthly from December 2005 through
May 2006.
Additional information regarding the
Funds’ holdings is available at https://
www.ishares.com.
Determination of Net Asset Value
IBT calculates the NAV for each Fund
generally once daily Monday through
Friday generally as of the regularly
scheduled close of business of the NYSE
(normally 4 p.m. Eastern time) on each
day that the NYSE is open for trading,
based on prices at the time of closing,
provided that (a) any assets or liabilities
denominated in currencies other than
the U.S. dollar shall be translated into
U.S. dollars at the prevailing market
rates on the date of valuation as quoted
by one or more major banks or dealers
that makes a two-way market in such
currencies (or a major market data
service provider based on quotations
received from such banks or dealers);
and (b) U.S. fixed-income assets may be
valued as of the announced closing time
for trading in fixed-income instruments
on any day that the Bond Market
Association announces an early closing
time. The NAV of each Fund is
calculated by dividing the value of the
net assets of such Fund (i.e., the value
of its total assets less total liabilities) by
the total number of outstanding shares
of the Fund, generally rounded to the
nearest cent. In calculating a Fund’s
NAV, a Fund’s investments are
generally valued using market
valuations. In the event that current
market valuations are not readily
available or such valuations do not
reflect current market values, the
affected investments will be valued
using fair value pricing pursuant to the
pricing policy and procedures approved
by the Board of Trustees. The frequency
with which a Fund’s investments are
valued using fair value pricing is
primarily a function of the types of
securities and other assets in which the
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Fund invests pursuant to its investment
objective, strategies and limitations.
According to the Funds’ prospectus,
valuing the Fund’s investments using
fair value pricing will result in using
prices for those investments that may
differ from current market prices.
Accordingly, fair value pricing could
result in a difference between the prices
used to calculate the Fund’s net asset
value and the prices used by the Fund’s
benchmark index, which, in turn, could
result in a difference between the
Fund’s performance and the
performance of the Fund’s benchmark
index.
Because foreign markets may be open
on different days than the days during
which a shareholder may purchase the
Fund’s shares, the value of the Fund’s
investments may change on days when
shareholders are not able to purchase
the Fund’s shares.
The value of assets denominated in
foreign currencies is converted into U.S.
dollars using exchange rates deemed
appropriate by BGFA as investment
advisor.14
Issuance of Creation Unit Aggregations
In General. Shares of the Funds (the
‘‘iShares’’) will be issued on a
continuous offering basis in groups of
iShares, or multiples thereof. These
‘‘groups’’ of shares are called ‘‘Creation
Unit Aggregations.’’ The Funds will
issue and redeem iShares only in
Creation Unit Aggregations of 50,000
iShares.15
As with other open-end investment
companies, iShares will be issued at the
net asset value (‘‘NAV’’) per share next
determined after an order in proper
form is received. The anticipated price
at which the iShares will initially trade
is approximately $50.
The NAV per share of the Funds is
determined as of the close of the regular
trading session on the Exchange on each
day that the Exchange is open. The
Trust sells Creation Unit Aggregations of
the Funds only on business days at the
next determined NAV of the Fund.
Creation Unit Aggregations generally
will be issued by the Funds in exchange
for the in-kind deposit of equity
securities designated by the Advisor to
correspond generally to the price and
yield performance of the Fund’s
Underlying Index (the ‘‘Deposit
Securities’’) and a specified cash
payment. Creation Unit Aggregations
generally will be redeemed by the Fund
in exchange for portfolio securities of
14 The Fund utilizes foreign exchange rates of
major market data vendors, such as WM/Reuters.
September 15 Telephone Conference.
15 Each Creation Unit Aggregation will have an
estimated initial value of approximately $2,500,000.
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the Fund (‘‘Fund Securities’’) and a
specified cash payment. Fund Securities
received on redemption may not be
identical to Deposit Securities deposited
in connection with creations of Creation
Unit Aggregations for the same day.
All orders to purchase iShares in
Creation Unit Aggregations must be
placed through an Authorized
Participant. An Authorized Participant
must be either a ‘‘Participating Party,’’
i.e., a broker-dealer or other participant
in the clearing process through the
National Securities Clearing Corporation
(‘‘NSCC’’) Continuous Net Settlement
System (the ‘‘Clearing Process’’), a
clearing agency that is registered with
the SEC, or a Depository Trust Company
(‘‘DTC’’) participant, and in each case,
must enter into a Participant Agreement.
The Funds impose a transaction fee in
connection with the issuance and
redemption of iShares to offset transfer
and other transaction costs. The
transaction fee in connection with the
issuance and redemption of Creation
Unit Aggregations of the Funds are
estimated to be approximately between
$2,200 and $8,800.
In-Kind Deposit of Portfolio
Securities. Payment for Creation Unit
Aggregations will be made by the
purchasers generally by an in-kind
deposit with the applicable Fund of the
Deposit Securities together with an
amount of cash (the ‘‘Balancing
Amount’’) specified by the Advisor in
the manner described below. The
Balancing Amount is an amount equal
to the difference between (1) the NAV
(per Creation Unit Aggregation) of the
Fund and (2) the total aggregate market
value (per Creation Unit Aggregation) of
the Deposit Securities (such value
referred to herein as the ‘‘Deposit
Amount’’). The Balancing Amount
serves the function of compensating for
differences, if any, between the NAV per
Creation Unit Aggregation and that of
the Deposit Amount. The deposit of the
requisite Deposit Securities and the
Balancing Amount are collectively
referred to herein as a ‘‘Fund Deposit.’’
The Advisor will make available to the
market through the NSCC on each
business day, prior to the opening of
trading on the Exchange (currently 9:30
a.m. Eastern Time), the list of the names
and the required number of shares of
each Deposit Security included in the
current Fund Deposit (based on
information at the end of the previous
business day) for each Fund. The Fund
Deposit will be applicable to the
relevant Fund (subject to any
adjustments to the Balancing Amount,
as described below) in order to effect
purchases of Creation Unit Aggregations
of such Fund until such time as the
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16:30 Sep 20, 2006
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next-announced Fund Deposit
composition is made available.
The identity and number of shares of
the Deposit Securities required for the
Fund Deposit for each Fund will change
from time to time. The composition of
the Deposit Securities may change in
response to adjustments to the
weighting or composition of the
Component Securities in the Underlying
Index. In addition, the Trust reserves
the right to permit or require the
substitution of an amount of cash—i.e.,
a ‘‘cash in lieu’’ amount—to be added to
the Balancing Amount to replace any
Deposit Security that may not be
available in sufficient quantity for
delivery or that may not otherwise be
eligible for transfer. The Trust also
reserves the right to permit or require a
‘‘cash in lieu’’ amount where the
delivery of the Deposit Security by the
Authorized Participant would be
restricted under the securities laws or
where the delivery of the Deposit
Security to the Authorized Participant
would result in the disposition of the
Deposit Security by the Authorized
Participant becoming restricted under
the securities laws, or in certain other
situations. The adjustments described
above will reflect changes known to the
Advisor on the date of announcement to
be in effect by the time of delivery of the
Fund Deposit, in the composition of the
applicable Underlying Index or
resulting from certain corporate actions.
Redemption of iShares
Creation Unit Aggregations of the
Funds will be redeemable at the NAV
next determined after receipt of a
request for redemption. Creation Unit
Aggregations of the Funds generally will
be redeemed in-kind, together with a
balancing cash payment (although, as
described below, Creation Unit
Aggregations may sometimes be
redeemed for cash). The value of the
Funds’ redemption payments on a
Creation Unit Aggregation basis will
equal the NAV per the appropriate
number of iShares of the Funds. Owners
of iShares may sell their iShares in the
secondary market but must accumulate
enough iShares to constitute a Creation
Unit Aggregation in order to redeem
through the Funds. Redemption orders
must be placed by or through an
Authorized Participant.
Creation Unit Aggregations of the
Funds generally will be redeemable on
any business day in exchange for
applicable Fund Securities and the Cash
Redemption Payment (defined below) in
effect on the date a request for
redemption is made. The Advisor will
publish daily through NSCC the list of
securities which a creator of Creation
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55253
Unit Aggregations must deliver to the
Fund (the ‘‘Creation List’’) and which a
redeemer will receive from the Funds
(the ‘‘Redemption List’’). The Creation
List is identical to the list of the names
and the required numbers of shares of
each Deposit Security included in the
current Fund Deposit.
In addition, just as the Balancing
Amount is delivered by the purchaser of
Creation Unit Aggregations to the
Funds, the Trust will also deliver to the
redeeming beneficial owner in cash the
‘‘Cash Redemption Payment.’’ The Cash
Redemption Payment on any given
business day will be an amount
calculated in the same manner as that
for the Balancing Amount, although the
actual amounts may differ if the Fund
Securities received upon redemption are
not identical to the Deposit Securities
applicable for creations on the same
day. To the extent that the Fund
Securities have a value greater than the
NAV of iShares being redeemed, a cash
payment equal to the differential is
required to be paid by the redeeming
beneficial owner to the applicable Fund.
The Trust may also make redemptions
in cash in lieu of transferring one or
more Fund Securities to a redeemer if
the Trust determines, in its discretion,
that such method is warranted due to
unusual circumstances. An unusual
circumstance could arise, for example,
when a redeeming entity is restrained
by regulation or policy from transacting
in certain Fund Securities, such as the
presence of such Fund Securities on a
redeeming investment banking firm’s
restricted list.
Availability of Information Regarding
iShares and the Underlying Index
On each business day the list of
names and amount of each security
constituting the current Deposit
Securities of the Fund Deposit and the
Balancing Amount effective as of the
previous business day, per outstanding
share of each Fund, will be made
available. An amount per iShare
representing the sum of the estimated
Balancing Amount effective through and
including the previous business day,
plus the current value of the Deposit
Securities in U.S. dollars, on a per
iShare basis (the ‘‘Intra-day Optimized
Portfolio Value’’ or ‘‘IOPV’’) will be
calculated by an independent third
party that is a major market data vendor
(the ‘‘Value Calculator’’), such as
Bloomberg L.P., every 15 seconds
during the Exchange’s regular trading
hours and disseminated every 15
seconds on the Consolidated Tape.
The IOPV reflects the current value of
the Deposit Securities and the Balancing
Amount. The IOPV also reflects changes
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in currency exchange rates between the
U.S. dollar and the applicable home
foreign currency.16
Since the Funds will utilize a
representative sampling strategy, the
IOPV may not reflect the value of all
securities included in the Underlying
Indexes. In addition, the IOPV does not
necessarily reflect the precise
composition of the current portfolio of
securities held by the Funds at a
particular point in time. Therefore, the
IOPV on a per Fund share basis
disseminated during the Exchange’s
trading hours should not be viewed as
a real time update of the NAV of the
Funds, which is calculated only once a
day.
While the IOPV disseminated by the
Exchange at 9:30 a.m. is expected to be
generally very close to the most recently
calculated Fund NAV on a per Fund
share basis, it is possible that the value
of the portfolio of securities held by
each Fund may diverge from the Deposit
Securities values during any trading
day. In such case, the IOPV will not
precisely reflect the value of each
Fund’s portfolio. However, during the
trading day, the IOPV can be expected
to closely approximate the value per
Fund share of the portfolio of securities
for each Fund except under unusual
circumstances (e.g., in the case of
extensive rebalancing of multiple
securities in a Fund at the same time by
the Advisor).
The Exchange believes that
dissemination of the IOPV based on the
Deposit Securities provides additional
information regarding the Funds that is
not otherwise available to the public
and is useful to professionals and
investors in connection with Fund
shares trading on the Exchange or the
creation or redemption of Fund shares.
There is an overlap in trading hours
between the foreign and U.S. markets
with respect to the Funds. Therefore,
the Value Calculator will update the
applicable IOPV every 15 seconds to
reflect price changes in the applicable
foreign market or markets, and convert
such prices into U.S. dollars based on
the currency exchange rate. When the
foreign market or markets are closed but
U.S. markets are open, the IOPV will be
updated every 15 seconds to reflect
changes in currency exchange rates after
the foreign market closes. The IOPV will
also include the applicable cash
component for each Fund.
In addition, there will be
disseminated a value for the Underlying
16 The IOPV ticker is available at
www.ishares.com and Intra-day IOPV is publicly
available utilizing this ticker through various
financial Web sites such as https://
finance.yahoo.com.
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16:30 Sep 20, 2006
Jkt 208001
Indexes once each trading day, based on
closing prices in the relevant exchange
market, utilizing the WM/Reuters (or
other major market information vendor)
currency exchange rates. In each S&P
Index, the prices used to calculate the
S&P Indices are the official exchange
closing prices or those figures accepted
as such. S&P reserves the right to use an
alternative pricing source on any given
day.
The NAV for the Fund will be
calculated and disseminated daily. The
Funds’ NAV will be calculated by IBT.
IBT will disseminate the information to
BGI, SEI and others, including the
NYSE. The Funds’ NAV will be
published in a number of places,
including, https://www.iShares.com and
on the Consolidated Tape. The Advisor
for the Funds has informed the
Exchange that the Funds will make the
NAV for the Funds available to all
market participants at the same time. If
the NAV is not disseminated to all
market participants at the same time,
the Exchange will halt trading in the
Shares of the Funds.17
Closing prices of the Funds’ Deposit
Securities are readily available from, as
applicable, the relevant exchanges,
automated quotation systems, published
or other public sources in the relevant
country, or on-line information services
such as Bloomberg or Reuters. The
exchange rate information required to
convert such information into U.S.
dollars is also readily available in
newspapers and other publications and
from a variety of on-line services.
In addition, the Web site for the Trust,
https://www.iShares.com, which will be
publicly accessible at no charge, will
contain the following information, (1)
the prior business day’s NAV and the
mid-point of the bid-ask price at the
time of calculation of such NAV (‘‘Bid/
Ask Price’’), and a calculation of the
premium or discount of such price
against such NAV; and (2) data in chart
format 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.
make distributions on a more frequent
basis to comply with the distribution
requirements of the Code and consistent
with the Investment Company Act.
Dividends and other distributions on
iShares of the Funds will be distributed
on a pro rata basis to beneficial owners
of such iShares. Dividend payments will
be made through the Depository and the
DTC Participants to beneficial owners
then of record with amounts received
from the Fund.
The Trust currently does not intend to
make the DTC book-entry Dividend
Reinvestment Service (the ‘‘Service’’)
available for use by beneficial owners
for reinvestment of their cash proceeds,
but certain individual brokers may make
the Service available to their clients.
The Statement of Additional
Information (‘‘SAI’’) will inform
investors of this fact and direct
interested investors to contact such
investor’s broker to ascertain the
availability and a description of the
Service through such broker. The SAI
will also caution interested beneficial
owners that they should note that each
broker may require investors to adhere
to specific procedures and timetables in
order to participate in the Service and
such investors should ascertain from
their broker such necessary details. The
Funds acquired pursuant to the Service
will be held by the beneficial owners in
the same manner and subject to the
same terms and conditions, as for
original ownership of the Funds.
Beneficial owners of the Funds will
receive all of the statements, notices,
and reports required under the
Investment Company Act and other
applicable laws. They will receive, for
example, annual and semi-annual
reports, written statements
accompanying dividend payments,
proxy statements, annual notifications
detailing the tax status of distributions,
IRS Form 1099–DIVs, etc. Because the
Trust’s records reflect ownership of
iShares by DTC only, the Trust will
make available applicable statements,
notices, and reports to the DTC
Participants who, in turn, will be
responsible for distributing them to the
beneficial owners.
Dividends and Distributions
Other Issues
Criteria for Initial and Continued
Listing. The Funds are subject to the
criteria for initial and continued listing
of Investment Company Units in Section
703.16 of the Manual. A minimum of
two Creation Units (100,000 iShares)
will be required to be outstanding at the
start of trading. This minimum number
of shares of each Fund required to be
outstanding at the start of trading will
be comparable to requirements that have
Dividends are accrued daily from net
investment income and will be declared
and paid to beneficial owners of record
at least annually by the Funds.
Distributions of realized securities
gains, if any, generally will be declared
and paid once a year, but the Funds may
17 The Exchange will immediately contact the
Commission staff to discuss measures that may be
appropriate under the circumstances. September 15
Telephone Conference.
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been applied to previously traded series
of ICUs.
Prospectus Delivery. The Commission
has granted the Trust an exemption
from certain prospectus delivery
requirements under section 24(d) of the
Investment Company Act.18 Any
product description used in reliance on
a section 24(d) exemptive order will
comply with all representations made
therein and all conditions thereto. The
Exchange, in an Information Memo to
Exchange members and member
organizations, will inform members and
member organizations, prior to
commencement of trading, of the
prospectus or product description
delivery requirements applicable to the
Funds and will refer members and
member organizations to NYSE Rule
1100(b). There is not currently a product
description available for the Funds. The
Information Memo will also advise
members and member organizations that
delivery of a prospectus to customers in
lieu of a product description would
satisfy the requirements of Rule 1100(b).
Information Memo. The Exchange
will distribute an Information Memo to
its members in connection with the
trading of the Funds. The Memo will
discuss the special characteristics and
risks of trading this type of security.
Specifically, the Memo, among other
things, will discuss what the Funds are,
how the Funds’ shares are created and
redeemed, the requirement that
members and member firms deliver a
prospectus or product description to
investors purchasing shares of the
Funds prior to or concurrently with the
confirmation of a transaction, applicable
Exchange rules, dissemination
information, trading information and
the applicability of suitability rules
(including Exchange Rule 405). The
Memo will also discuss exemptive, noaction and interpretive relief, if granted
by the Commission from certain rules
under the Act.
Trading Halts. In order to halt the
trading of the Funds, the Exchange may
consider, among other things, factors
such as the extent to which trading is
not occurring in underlying security(s)
and whether other unusual conditions
or circumstances detrimental to the
maintenance of a fair and orderly
market are present. In addition, trading
in the Funds’ shares is subject to trading
halts caused by extraordinary market
volatility pursuant to Exchange Rule
80B. The Exchange will halt trading in
a Fund if the Index Value or IOPV
applicable to such Fund is no longer
18 See In the Matter of iShares, Inc., et al.,
Investment Company Act Release No. 25623 (June
25, 2002).
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16:30 Sep 20, 2006
Jkt 208001
calculated or disseminated or the NAV
is not disseminated to all market
participants at the same time.19
Due Diligence. The Information Memo
to members will note, for example,
Exchange responsibilities including that
before an Exchange member, member
organization, or employee thereof
recommends a transaction in the Funds,
a determination must be made that the
recommendation is in compliance with
all applicable Exchange and Federal
rules and regulations, including due
diligence obligations under Exchange
Rule 405 (Diligence as to Accounts).
Purchases and Redemptions in
Creation Unit Size. In the Memo
referenced above, members and member
organizations will be informed that
procedures for purchases and
redemptions of shares of the Funds in
Creation Unit Size are described in the
Funds’ Prospectus and SAI 20 and that
Funds’ shares are not individually
redeemable but are redeemable only in
Creation Unit Size aggregations or
multiples thereof.
Surveillance. The Exchange will
utilize its existing surveillance
procedures applicable to ICUs monitor
trading of the shares of the Funds.
Surveillance procedures applicable to
trading in the proposed iShares are
comparable to those applicable to other
ICUs currently trading on the Exchange.
The Exchange represents that these
surveillance procedures are adequate to
properly monitor the trading of the
Funds.21 The Exchange’s current trading
surveillances focus on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations. The Exchange may
obtain trading information via the
Intermarket Surveillance Group (‘‘ISG’’)
from other exchanges who are members
or affiliates of the ISG. For a list of the
current members and affiliate members
of ISG, see https://www.isgportal.com.
Hours of Trading/Minimum Price
Variation. The Funds will trade on the
Exchange until 4:15 p.m. (Eastern time).
19 Under such circumstances, the Exchange
would immediately contact the Commission staff to
discuss appropriate measures that may be
appropriate under the circumstances. September 15
Telephone Conference.
20 See Securities Exchange Act Release Nos.
44990 (October 25, 2001), 66 FR 56869 (November
13, 2001) (SR–Amex–2001–45); 42748 (May 2,
2000), 65 FR 30155 (May 10, 2000) (SR–Amex–98–
49); and 36947 (March 8, 1996), 61 FR 10606
(March 14, 1996) (SR–Amex–95–43).
21 The Exchange states that it submitted such
surveillance procedures to the Commission staff in
the past. September 15 Telephone Conference.
PO 00000
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Fmt 4703
Sfmt 4703
55255
The minimum price variation for
quoting will be $.01.
2. Statutory Basis
NYSE believes that the proposed rule
change is consistent with section 6(b)(5)
of the Act 22 requiring that an exchange
have rules that are designed, among
other things, to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Exchange
Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2006–60 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris Secretary, Securities
and Exchange Commission, Station
Place, 100 F Street, NE., Washington,
DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2006–60. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro/shtml). Copies of the
submission, all subsequent
22 15
E:\FR\FM\21SEN1.SGM
U.S.C. 78f(b)(5).
21SEN1
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Federal Register / Vol. 71, No. 183 / Thursday, September 21, 2006 / Notices
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing will also be
available for inspection and copying at
the principal office of the NYSE. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File number
SR–NYSE–2006–60 and should be
submitted on or before October 12,
2006.
jlentini on PROD1PC65 with NOTICES
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder,
applicable to a national securities
exchange.23 In particular, the
Commission finds that the proposed
rule change is consistent with section
6(b)(5) of the Act 24 and will promote
just and equitable principles of trade,
and facilitate transactions in securities,
and, in general, protect investors and
the public interest.
The Commission believes that the
NYSE’s proposal should advance the
public interest by providing investors
with increased flexibility in satisfying
their investment needs and by allowing
them to purchase and sell Fund shares
at negotiated prices throughout the
business day that generally track the
price and yield performance of the
Underlying Index.
Furthermore, the Commission
believes that the proposed rule change
raises no issues that have not been
previously considered by the
Commission. The Fund is similar in
structure and operation to exchangetraded funds that the Commission has
previously approved for listing and
trading on national securities exchanges
under section 19(b)(2) of the Act.25
Further, with respect to each of the
23 In approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
24 15 U.S.C. 78f(b)(5).
25 15 U.S.C. 78s(b)(2).
VerDate Aug<31>2005
16:30 Sep 20, 2006
Jkt 208001
following issues, the Commission
believes that the listing and trading of
the Funds’ shares satisfies established
standards.
A. Fund Characteristics
The Commission believes that the
proposed Funds are reasonably
designed to provide investors with an
investment vehicle that substantially
reflects in value the performance of the
respective Underlying Indexes and will
provide investors with an alternative to
trading a range of securities on an
individual basis. Investors will be able
to trade shares in the Fund continuously
throughout the business day in
secondary market transactions at
negotiated prices. Accordingly, the
proposed Fund will allow investors to:
(1) Respond quickly to market changes
through intra-day trading opportunities;
(2) engage in hedging strategies similar
to those used by institutional investors;
and (3) reduce transaction costs for
trading a portfolio of securities.
The Commission also notes that the
market capitalization and liquidity of
the underlying Indexes’ component
securities is also a deterrent to
manipulation of the Fund shares.
Because each Fund’s Underlying Index
is broad-based and well diversified, the
Exchange represents that it does not
believe that the Fund will be so highly
concentrated such that it becomes a
surrogate for trading unregistered
foreign securities on the Exchange.
While the Commission believes that
these requirements should help to
reduce concerns that the Funds could
become a surrogate for trading in a
single or a few unregistered stocks, if
the characteristics of the Funds, or their
underlying Indexes, changed materially
from the characteristics described the
Exchange,26 the Fund would not be in
compliance with the listing and trading
standards approved herein, and the
Commission would expect the NYSE to
file a proposed rule change pursuant to
Rule 19b–4 of the Act, which must be
approved to permit continued trading of
the Funds’ shares.
B. Disclosure
The Exchange represents that it will
circulate an information memo detailing
applicable prospectus and product
description delivery requirements. The
memo will also discuss any exemptive,
no-action and interpretive relief granted
by the Commission from certain rules
under the Act. The memo also will
address NYSE members’ responsibility
26 Substitution of an underlying index or
significant alteration of the index methodology
described herein would be a material change.
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
to deliver a prospectus or product
description to all investors (in
accordance with NYSE Rule 1100(b))
and highlight the characteristics of the
Funds. The memo will also remind
members of their suitability obligations,
including NYSE Rule 405 (Diligence as
to Accounts). Additionally, for example,
the information memo will also inform
members and member organizations that
Funds’ shares are not individually
redeemable, but are redeemable only in
Creation-Unit-size aggregations or
multiples thereof as set forth in the
Fund Prospectus and SAI. The
Commission believes that the disclosure
included in the information memo is
appropriate and consistent with the Act.
C. Dissemination of Fund Information
With respect to pricing, once each
day, the NAV for the Fund will be
calculated and disseminated by IBT, to
various sources, including the NYSE,
and made available on https://
www.iShares.com and the Consolidated
Tape. The Exchange represents that the
NAV will be made available to all
market participants at the same time;
otherwise, the Exchange will halt
trading in the Funds’ shares. Also,
during the Exchange’s regular trading
hours, the IOPV Calculator will
determine and disseminate every 15
seconds the IOPV for each Fund. The
IOPV will reflect price changes in the
applicable foreign market or markets
and changes in currency exchange rates.
The Exchange also represents that the
value of the underlying Indexes will be
calculated and disseminated at least
every 15 seconds during the time the
Funds’ shares trade on the Exchange. If
the IOPV and underlying Index values
are not so disseminated, the Exchange
will halt trading in the Funds’ shares.
The Commission notes that a variety
of additional information about each
Fund will be readily available.
Information with respect to recent NAV,
shares outstanding, estimated cash
amount and total cash amount per
Creation Unit Aggregation will be made
available prior to the opening of the
Exchange. In addition, the Web site for
the Trust, https://www.iShares.com,
which will be publicly accessible at no
charge, will contain relevant
information about the Funds and their
shares. Also, the closing prices of the
Fund’s Deposit Securities are available
from, as applicable, the relevant
exchanges, automated quotation
systems, published or other public
sources in the relevant country, or online information services, such as
Bloomberg or Reuters. The exchange
rate information required to convert
such information into U.S. dollars is
E:\FR\FM\21SEN1.SGM
21SEN1
Federal Register / Vol. 71, No. 183 / Thursday, September 21, 2006 / Notices
also readily available in newspapers and
other publications and from a variety of
on-line services.
Based on the representations made in
the NYSE proposal, the Commission
believes that pricing and other
important information about the Fund is
adequate and consistent with the Act.
D. Listing and Trading
The Commission finds that adequate
rules and procedures exist to govern the
listing and trading of the Funds’ shares.
Fund shares will be deemed equity
securities subject to NYSE rules
governing the trading of equity
securities, including, among others,
rules governing trading halts,
responsibilities of the specialist,
account opening and customer
suitability requirements, and the
election of stop and stop limit orders. In
addition, the Exchange states that
iShares are subject to the criteria for
initial and continued listing of ICUs in
Section 703.16 of the NYSE Manual.
E. Surveillance
The Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Funds. The Exchange states that it is
able to obtain trading information from
ISG from other exchanges that are
members or affiliates of the ISG.
F. Accelerated Approval
The Commission finds good cause,
pursuant to section 19(b)(2) of the Act,27
for approving the proposed rule change
prior to the thirtieth day after the date
of publication of notice in the Federal
Register. The Commission notes that the
proposal is consistent with the listing
and trading standards in NYSE Rule
703.16 (ICUs), and the Commission has
previously approved similar products
based on foreign indices.28 The Funds
are substantially identical in structure to
other iShares Funds based on foreign
stock indexes, including the iShares
S&P Global 1200 Index Fund, which has
an established and active trading history
on the NYSE and other exchanges.29
The Commission does not believe that
the proposed rule change, as amended,
raises novel regulatory issues.
Consequently, the Commission believes
that it is appropriate to permit investors
to benefit from the flexibility afforded
27 15
U.S.C. 78s(b)(2).
Securities Exchange Act Release Nos.
44990 (October 25, 2001), 66 FR 56869 (November
13, 2001) (SR–Amex–2001–45); 42748 (May 2,
2000), 65 FR 30155 (May 10, 2000) (SR–Amex–98–
49); and 36947 (March 8, 1996), 61 FR 10606
(March 14, 1996) (SR–Amex–95–43).
29 See Securities Exchange Act Release No. 52178
(July 29, 2005), 70 FR 46244 (August 9, 2005) (SR–
NYSE–2005–41)
jlentini on PROD1PC65 with NOTICES
28 See
VerDate Aug<31>2005
16:30 Sep 20, 2006
Jkt 208001
by trading these products as soon as
possible.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act, that the
proposed rule change (SR–NYSE–2006–
60) is hereby approved on an
accelerated basis.30
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.31
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06–7896 Filed 9–20–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54430; File No. SR–
NYSEArca–2006–20]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and Order
Granting Accelerated Approval to
Amendment No. 4 to a Proposed Rule
Change Relating to the Exchange’s
Schedule of Fees and Charges
September 12, 2006.
I. Introduction
On May 17, 2006, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 the proposed
rule change to amend the Trade Related
Charges portion of its Schedule of Fees
and Charges (‘‘Schedule’’). On May 26,
2006, the Exchange filed Amendment
No. 1 to the proposed rule change. On
June 30, 2006, the Exchange filed
Amendment No. 2 to the proposed rule
change. On July 7, 2006, the Exchange
filed Amendment No. 3 to the proposed
rule change.3 The proposed rule change,
as amended, was published for
comment in the Federal Register on July
20, 2006.4 Two comment letters were
submitted in connection with this
filing.5
30 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Form 19b–4 dated July 7, 2006
(‘‘Amendment No. 3’’). Amendment No. 3 replaced
and superseded the original filing and Amendments
No. 1 and 2 in their entirety.
4 See Securities Exchange Act Release No. 54130
(July 11, 2006), 71 FR 41305.
5 See letter from Arthur J. Gross, Arthur J. Gross
SP, dated August 9, 2006, and letter from Gennaro
J. Lettera, dated August 9, 2006. The Exchange
believes that these commenters intended to address
a separate proposed rule change, SR–NYSE–2006–
31 17
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
55257
On August 31, 2006, the Exchange
filed Amendment No. 4.6 This order
grants accelerated approval of
Amendment No. 4, and solicits
comments from interested persons on
Amendment No. 4.
I. Description of the Proposal
A. Fees for Manually Executed Linkage
Orders
NYSE Arca proposes to combine two
existing fees associated with certain
Linkage Orders.7 Presently, the
Exchange assesses on Linkage Orders a
$0.21 transaction fee and a $0.05
comparison fee.8 To simplify the
Schedule, the Exchange proposes
combining these fees into one
transaction fee of $0.26 for Linkage
Orders executed manually. This fee is
equal to the fee for manually executed
orders from broker-dealers.
B. Fees for Electronically Executed
Linkage Orders
Under the current NYSE Arca
Schedule, electronically executed orders
from broker-dealers are charged $0.50
per contract (‘‘BD Electronic
Transaction Fee’’). The BD Electronic
Transaction Fee was recently revised to
combine a previously assessed
transaction fee of $0.26 and a BD
Surcharge of $0.25.9 The current $0.50
BD Electronic Transaction Fee
represents a $0.01 reduction in the total
fee for electronic executions of orders
from broker-dealers. In Amendment No.
4, the Exchange proposes to modify its
Schedule to make clear that
46, not the instant proposed rule change. See e-mail
from Janet Angstadt, Acting General Counsel, NYSE
Arca, to Timothy Fox, Special Counsel, Division of
Market Regulation, Commission, dated August 16,
2006. The Commission believes that the
commenters’ concerns do not relate to the instant
proposed rule change and, as such, these letters are
not addressed in this order.
6 Amendment No. 4 was filed to reconcile the
original filing, as amended, with the subsequent
immediately effective rule filing, as discussed infra
note 9 and accompanying text. Amendment No. 4
replaces and supersedes the original filing and
subsequent amendments in their entirety.
7 ‘‘Linkage Orders’’ are immediate or cancel
orders containing certain information that are
routed through the Intermarket Linkage System
(‘‘Linkage’’). See Section 2(16) of the Plan for the
Purpose of Creating and Operating an Intermarket
Option Linkage (‘‘Linkage Plan’’). As used in this
approval order, the term, ‘‘Linkage Orders,’’ refers
only to Principal Acting as Agent Orders and
Principal Orders. See Sections 2(16)(a) and 2(16)(b)
of the Linkage Plan.
8 These fees are applicable through an Exchange
Pilot Program due to expire on July 31, 2007. See
Securities Exchange Act Release No. 54230 (July 27,
2006), 71 FR 44757 (August 7, 2006) (SR–
NYSEArca–2006–41).
9 See Securities Exchange Act Release No. 54309
(August 11, 2006), 71 FR 48571 (August 21, 2006)
(SR–NYSEArca–2006–25).
E:\FR\FM\21SEN1.SGM
21SEN1
]]>Agencies
[Federal Register Volume 71, Number 183 (Thursday, September 21, 2006)]
[Notices]
[Pages 55248-55257]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-7896]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54458; File No. SR-NYSE-2006-60]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Relating to iShares[supreg] S&P Global Index Funds
September 15, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 14, 2006, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule changes as described in
Items I and II below, which items have been substantially prepared by
the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons, and is
granting accelerated approval to the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NYSE proposes to list and trade the following: iShares[supreg]
S&P Global Consumer Discretionary Sector Index
[[Page 55249]]
Fund; iShares S&P Global Consumer Staples Sector Index Fund; iShares
S&P Global Industrials Sector Index Fund; iShares S&P Global Utilities
Sector Index Fund; iShares S&P Global Materials Sector Index Fund
(collectively, the Funds'').\3\ The Funds are exchange-traded funds,
which are a type of Investment Company Unit (``ICU'').
---------------------------------------------------------------------------
\3\ iShares is a registered trademark of Barclays Global
Investors, N.A.
---------------------------------------------------------------------------
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 Exchange included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below. The NYSE has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange has adopted listing standards applicable to Investment
Company Units (``ICUs'') that it states are consistent with the listing
criteria currently used by other national securities exchanges, and
trading standards pursuant to which the Exchange may either list and
trade ICUs or trade such ICUs on the Exchange on an unlisted trading
privileges (``UTP'') basis.\4\
---------------------------------------------------------------------------
\4\ In 1996, the Commission approved Section 703.16 of the
Listed Company Manual, which sets forth the rules related to the
listing of ICUs. Securities Exchange Act Release No. 36923 (March 5,
1996), 61 FR 10410 (March 13, 1996).
---------------------------------------------------------------------------
The Exchange now proposes to list and trade under Section 703.16 of
the NYSE Listed Company Manual (``Manual'') and NYSE Rule 1100 et seq.
shares of the following, each a series of the iShares Trust (the
``Trust''): \5\ (1) iShares S&P Global Consumer Discretionary Sector
Index Fund; (2) iShares S&P Global Consumer Staples Sector Index Fund;
(3) iShares S&P Global Industrials Sector Index Fund; (4) iShares S&P
Global Utilities Sector Index Fund; and (5) iShares S&P Global
Materials Sector Index Fund. Because the Funds invest in non-U.S.
securities not listed on a national securities exchange or the Nasdaq
Stock Market, the Funds do not meet the ``generic'' listing
requirements of Section 703.16 of the Manual applicable to listing of
ICUs (permitting listing in reliance upon Rule 19b-4(e) \6\ under the
Act and cannot be listed without a filing pursuant to Rule 19b-4 under
the Act). Therefore, to list the Funds (or trade pursuant to UTP), the
Exchange must file, and obtain Commission approval of, a proposed rule
change pursuant to Rule 19b-4 under the Act.\7\
---------------------------------------------------------------------------
\5\ The Trust is registered under the Investment Company Act of
1940 (15 U.S.C. 80a), (the ``Investment Company Act''). On April 15,
2005, the Trust filed with the Commission a Registration Statement
for the Funds on Form N-1A under the Securities Act of 1933 (15
U.S.C. 77a), and under the Investment Company Act relating to the
Funds (File Nos. 333-92935 and 811-09729) (as amended, the
``Registration Statement'').
\6\ 17 CFR 240.19b-4(e).
\7\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
As set forth in detail below, the Funds will hold certain
securities (``Component Securities'') selected to correspond generally
to the performance of the following indexes, (``Underlying Indexes''),
respectively: (1) S&P Global Consumer Discretionary Index; (2) S&P
Global Consumer Staples Index; (3) S&P Global Industrials Index; (4)
S&P Global Utilities Index; and (5) S&P Global Materials Index.
Each Fund intends to qualify as a ``regulated investment company''
(a ``RIC'') under the Internal Revenue Code (the ``Code''). Barclays
Global Fund Advisors (the ``Advisor'' or ``BGFA'') is the investment
advisor to the Funds. The Advisor is registered under the Investment
Advisers Act of 1940.\8\ The Advisor is the wholly owned subsidiary of
Barclays Global Investors, N.A. (``BGI''), a national banking
association. BGI is an indirect subsidiary of Barclays Bank PLC of the
United Kingdom. SEI Investments Distribution Co. (``SEI'' or
``Distributor''), a Pennsylvania corporation and broker-dealer
registered under the Act, is the principal underwriter and distributor
of Creation Unit Aggregations of iShares. The Distributor is not
affiliated with the Exchange or the Advisor. The Trust has appointed
Investors Bank & Trust Co. (``IBT'') to act as administrator
(``Administrator''), custodian, fund accountant, transfer agent, and
dividend disbursing agent for the Funds. The Exchange expects that
performance of the Administrator's duties and obligations will be
conducted within the provisions of the Investment Company Act \9\ and
the rules thereunder. There is no affiliation between the Administrator
and the Trust, the Advisor, or the Distributor.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 80b-1.
\9\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------
Operation of the Funds.\10\
---------------------------------------------------------------------------
\10\ The Exchange states that the information provided herein is
based on information included in the Registration Statement;
however, the Commission notes that its approval of the listing and
trading of these ICUs is subject to the continued operation of the
Funds and their related Indexes as described herein by the Exchange.
The Exchange also states that while the Advisor would manage the
Funds, the Funds' Board of Directors would have overall
responsibility for the Funds' operations. The composition of the
Board is, and would be, in compliance with the requirements of
Section 10 of the Investment Company Act. The Funds are subject to
and must comply with Section 303A.06 of the Manual, which requires
that the Funds have an audit committee that complies with SEC Rule
10A-3, 17 CFR 240.10A-3.
---------------------------------------------------------------------------
The investment objective of the Funds will be to provide investment
results that correspond generally to the price and yield performance of
the Underlying Indexes. In seeking to achieve their investment
objective, the Funds will utilize ``passive'' indexing investment
strategies. The Funds may fully replicate their respective Underlying
Index, but currently intend to use a ``representative sampling''
strategy to track the applicable Underlying Index. A Fund utilizing a
representative sampling strategy generally will hold a basket of the
Component Securities of its Underlying Index, but it may not hold all
of the Component Securities of its Underlying Index.
Each Fund will invest at least 90% of its assets in the securities
of its Underlying Index or in American Depositary Receipts (``ADRs''),
Global Depositary Receipts (``GDRs''), or European Depositary Receipts
(``EDRs'') (collectively ``Depositary Receipts'') representing
securities in the Underlying Index. A Fund may invest the remainder of
its assets in securities not included in its Underlying Index, but
which BGFA believes will help the Fund track its Underlying Index. For
example, a Fund may invest in securities not included in its Underlying
Index in order to reflect various corporate actions (such as mergers)
and other changes in its Underlying Index (such as reconstitutions,
additions and deletions). A Fund also may invest its other assets in
futures contracts, options on futures contracts, options, and swaps
related to its Underlying Index, as well as cash and cash equivalents,
including shares of money market funds affiliated with BGFA.
From time to time, adjustments may be made in the portfolio of the
Funds in accordance with changes in the composition of the Underlying
Indexes or to maintain compliance with requirements applicable to a RIC
under
[[Page 55250]]
the Code.\11\ For example, if at the end of a calendar quarter a Fund
would not comply with the RIC diversification tests, the Advisor would
make adjustments to the portfolio to ensure continued RIC status.
---------------------------------------------------------------------------
\11\ In order for the Funds to qualify for tax treatment as a
RIC, they must meet several requirements under the Code. Among these
is a requirement that, at the close of each quarter of the Funds'
taxable year, (1) at least 50% of the market value of the Funds'
total assets must be represented by cash items, U.S. government
securities, securities of other RICs and other securities, with such
other securities limited for the purpose of this calculation with
respect to any one issuer to an amount not greater than 5% of the
value of the Funds' assets and not greater than 10% of the
outstanding voting securities of such issuer; and (2) not more than
25% of the value of their total assets may be invested in securities
of any one issuer, or two or more issuers that are controlled by the
Funds (within the meaning of Section 851(b)(4)(B) of the Code) and
that are engaged in the same or similar trades or business (other
than U.S. government securities of other RICs).
Compliance with the above referenced RIC asset diversification
requirements are monitored by the Advisor and any necessary
adjustments to portfolio issuer weights will be made on a quarterly
basis or as necessary to ensure compliance with RIC requirements.
When an iShares Fund's Underlying Index itself is not RIC compliant,
the Advisor generally employs a representative sampling indexing
strategy (as described in the Funds' prospectus) in order to achieve
the Fund's investment objective. The Funds' prospectus also gives
the Funds additional flexibility to comply with the requirements of
the Code and other regulatory requirements and to manage future
corporate actions and index changes in smaller markets by investing
a percentage of fund assets in securities that are not included in
the Fund's Underlying Index or in ADRs and GDRs representing such
securities.
---------------------------------------------------------------------------
To the extent the Funds invest in ADRs, they will be listed on a
national securities exchange or Nasdaq, and to the extent the Funds
invest in other Depositary Receipts, they will be listed on a foreign
exchange. The Funds will not invest in any unlisted Depositary Receipts
or any listed Depositary Receipts that the Advisor deems to be illiquid
or for which pricing information is not readily available. In addition,
all Depositary Receipts must be sponsored (with the exception of
certain pre-1984 ADRs that are listed and unsponsored because they are
grandfathered).
Each Fund will not concentrate its investments (i.e., hold 25% or
more of its total assets in the stocks of a particular industry or
group of industries), except that a Fund will concentrate to
approximately the same extent that its Underlying Index concentrates in
the stocks of such particular industry or group of industries. In such
case, a Fund could hold 25% or more of its total assets in the stocks
of such industry or group of industries. For purposes of this
limitation, securities of the U.S. Government (including its agencies
and instrumentalities), repurchase agreements collateralized by U.S.
Government securities, and securities or state or municipal governments
and their political subdivisions are not considered to be issued by
members of any industry.
The Exchange believes that these requirements and policies prevent
the Funds from being excessively weighted in any single security or
small group of securities and significantly reduce concerns that
trading in the Funds could become a surrogate for trading in
unregistered securities.
Description of the Index Methodology
Each of the Indexes is a subset of the Standard & Poor's Global
1200 Index and thus contains the securities of both domestic and
international companies as Index components. The Indexes are free float
adjusted and market capitalization weighted. The Standard & Poor's
Index Committee (which does not include employees of broker-dealers or
their affiliates) is responsible for the overall management of these
S&P Indices.
Selection Criteria for Domestic Components. Companies (i.e., the
``Components'') selected for the investments represent a broad range of
industry segments within the U.S. economy. The starting universe, all
publicly traded U.S. companies (i.e., companies listed and traded on a
national securities exchange or the Nasdaq Stock Market), is screened
to eliminate ADRs, mutual funds, limited partnerships and royalty
trusts. The following criteria are then analyzed to determine a
company's eligibility for inclusion in the investments: (1) Ownership
of a company's outstanding common shares, in order to screen out
closely held companies; (2) trading volume of a company's stock, in
order to ensure ample liquidity and efficient share pricing; and (3)
the financial and operating condition of a company.
Selection Criteria for International Components.\12\ With respect
to non-U.S. components of the Underlying Indexes, the eligible universe
of Index components that are considered for inclusion are from the
following S&P Indexes: (1) The S&P/Toronto Stock Exchange (``TSX'') 60
Index, which represents the liquid, large-cap stocks of the publicly
listed companies in the Canadian equities market; (2) the S&P Tokyo
Stock Price (``TOPIX'') 150 Index, which represents the liquid, large-
cap stocks of the publicly listed companies in the Japanese equities
market; (3) the S&P/ Australia Stock Exchange (``ASX'') 50 Index, which
represents the liquid, large-cap stocks in the Australian equities
market; (4) the S&P Asia 50 Index, which represents the liquid, large-
cap stocks of four major equities markets in Asia (Hong Kong, Korea,
Taiwan and Singapore); (5) the S&P Latin America 40 Index, which
represents the liquid, large-cap stocks from major sectors of the
Mexico, Brazil, Argentina and Chile equity markets; and (6) the S&P
Europe 350 Index, which represents the liquid, large-cap stocks of the
publicly listed companies in the region, covering approximately 70% of
the region's market capitalization and spanning 17 exchanges. All
stocks included in these S&P Indexes are in the S&P Global 1200
Index.\13\
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\12\ S&P determines a stock's domicile based on a number of
criteria, including the headquarters of the issuer, its
registration, its stock listing, its place of operations, the
residence of the senior officers, and other criteria. Each region's
Index Committee reviews all criteria before deciding on the domicile
of a stock. Telephone conversation between Michael Cavalier,
Associate General Counsel, NYSE, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, on September 15,
2006 (``September 15 Telephone Conference'').
\13\ September 15 Telephone Conference.
---------------------------------------------------------------------------
Where there were multiple classes of a particular equity, all
classes were deemed eligible if they met the criteria for size,
liquidity and sector representation. The specific securities are then
screened for industry sector classification; thus, the eligible
securities are ranked according to Global Industry Classification
Standards (``GICS''). Then, the Index components, now determined, are
weighted on the basis of S&P's free float, market capitalization
methodology. Generally, S&P observes a prospective constituent's
liquidity over a period of at least 6 months before consideration for
inclusion. However, it is recognized that there may be extraordinary
situations when companies should be added immediately (e.g., certain
privatizations). When a particular company dominates its home market,
it may be excluded from the Index if analysis of the sectors reveals
that its securities are not as liquid as those of similar companies in
other countries. The International Index components may include ADRs
and GDRs.
Issue Changes. General oversight responsibility for the S&P
Indices, including overall policy guidelines and methodology, is
handled by the S&P Global Index Committee (which does not include
employees of broker-dealers or their affiliates). Maintenance of
component investments, including additions and deletions to these
investments, is the responsibility of separate regional index
committees
[[Page 55251]]
composed of S&P staff specialized in the various regional equity
markets and, in some cases with the assistance of local stock
exchanges. Public announcements of index changes as the result of
committee decisions will generally be made two business days in advance
of the anticipate effective date whenever possible, although for
exceptional corporate events announcements may be made earlier.
Index Maintenance. Maintaining the S&P Indices includes monitoring
and completing the adjustments for company additions and deletions,
share changes, stock splits, stock dividends, and stock price
adjustments due to restructuring and spin-offs. Share changes of less
than 5% are only updated on a quarterly basis on the Friday near the
end of the calendar quarter.
A company will be removed from the S&P Indices as a result of
mergers/acquisitions, bankruptcy, restructuring, or if it is no longer
representative of its industry group. A company is removed from the
relevant Index as close as possible to the actual date on which the
event occurred. A company can be removed from an Index because it no
longer meets current criteria for inclusion and/or is no longer
representative of its industry group. All replacement companies are
selected based on the above component section criteria.
When calculating index weights, individual constituents' shares
held by governments, corporations, strategic partners, or other control
groups are excluded from the company's shares outstanding. Shares owned
by other companies are also excluded regardless of whether they are
index constituents.
In countries with regulated environments, where a foreign
investment limit exists at the sector or company level, the
constituent's weight will reflect either the foreign investment limit
or the percentage float, whichever is the more restrictive.
Once a year, the float adjustments will be reviewed and potentially
changed based on such review. Each company's financial statements will
be used to update the major shareholders' ownership for the float
adjustments calculation, as the Indexes are free float adjusted, market
capitalization weighted for each company's shares. However, during the
course of the year, S&P also monitors each company's Investable Weight
Factor (IWF), which is S&P's term for the mathematical float factor
used to calculate the float adjustment. If a change in the IWF is
caused by a major corporate action (i.e., privatization, merger,
takeover, or share offering) and the change is equal to or greater than
5%, a float adjustment will be implemented as soon as reasonably
possible.
Changes in the number of shares outstanding driven by corporate
events such as stock dividends, splits, and rights issues will be
adjusted on the ex-date. Share changes of 5% or greater are implemented
when they occur. All share changes of less than 5% are updated on a
quarterly basis (third Friday of March, June, September, and December
or at the close of the expiration of futures contracts). Implementation
of new additions, deletions, and changes to the float adjustment, due
to corporate actions, will be made available at the close of the third
Friday in March, June, September and December. Generally, index changes
due to rebalancing are announced two days before the effective date by
way of a news release posted on https://www.spglobal.com.
The S&P Indices are calculated continuously and are available from
major data vendors. A current list of the Index components is attached
as Exhibit 3 to the NYSE's filing.
Index Descriptions
The S&P Global Consumer Discretionary Index measures the
performance of companies that Standard & Poor's deems to be part of the
consumer discretionary sector of the economy and that Standard & Poor's
believes are important to global markets. Component companies include
manufacturing and service companies. As of the close of business on
January 31, 2006, the Index was comprised of stocks of companies in the
following countries: Australia, Belgium, Canada, Chile, France,
Germany, Hong Kong, Italy, Japan, Korea, Mexico, Netherlands,
Singapore, Spain, Sweden, Switzerland, United Kingdom, and the United
States.
The S&P Global Consumer Staples Index measures the performance of
companies that Standard & Poor's deems to be part of the consumer
staples sector of the economy and that Standard & Poor's believes are
important to global markets. Component companies include manufacturers
and distributors of food, producers of non-durable household goods, and
food and drug retailing companies. As of the close of business on
January 31, 2006, the Index was comprised of stocks of companies in the
following countries: Australia, Belgium, Brazil, Canada, Chile,
Germany, Japan, Korea, Mexico, Netherlands, Norway, Spain, Sweden,
Switzerland, United Kingdom, and the United States.
The S&P Global Industrials Index measures the performance of
companies that Standard & Poor's deems to be part of the industrials
sector of the economy and that Standard & Poor's believes are important
to global markets. Component companies include manufacturers and
distributors of capital goods, providers of commercial services and
supplies, and transportation service providers. As of the close of
business on January 31, 2006, the Index was comprised of stocks of
companies in the following countries: Australia, Brazil, Canada, Chile,
Denmark, France, Germany, Hong Kong, Ireland, Italy, Japan, Korea,
Mexico, Netherlands, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, United Kingdom and the United States.
The S&P Global Utilities Index measures the performance of
companies that Standard & Poor's deems to be part of the Utilities
sector of the economy and that Standard & Poor's believes are important
to global markets. Component companies include providers of electric,
gas or water utilities, or companies that operate as independent
producers and/or distributors of power. As of the close of business on
January 31, 2006, the Index was comprised of stocks of companies in the
following countries: Australia, Brazil, Canada, Chile, Finland, France,
Germany, Hong Kong, Italy, Japan, Portugal, Spain, United Kingdom, and
the United States.
The S&P Global Materials Index measures the performance of
companies that Standard & Poor's deems to be part of the materials
sector of the economy and that Standard & Poor's believes are important
to global markets. Component companies include those companies engaged
in a wide variety of commodity-related manufacturing. As of the close
of business on January 31, 2006, the Index was comprised of stocks of
companies in the following countries: Australia, Belgium, Brazil,
Canada, Chile, Finland, France, Germany, Ireland, Japan, Korea,
Luxembourg, Mexico, Netherlands, Portugal, Spain, Sweden, Switzerland,
Taiwan, United Kingdom, and the United States.
As of May 31, 2006, the iShares S&P Global Consumer Discretionary
Sector Index's top three holdings were Toyota Motor Corp., Home Depot,
Time Warner Inc.; the Index's top three industries were Consumer
Discretionary and Index components had a total market capitalization of
approximately $2.8 trillion. The average total market capitalization
was approximately $14.6 billion. The 10 largest constituents
represented approximately 28.4% of the Index weight. The five highest
weighted stocks, which represented 18.2% of the Index weight, had an
average daily
[[Page 55252]]
trading volume in excess of 66.1 million shares during the period April
1 through May 31, 2006. 99.98% of the component stocks traded at least
250,000 shares monthly from December 2005 through May 2006.
As of May 31, 2006, the iShares S&P Global Consumer Staples Sector
Index's top three holdings were Procter & Gamble, Altria Group, Inc.,
Wal-Mart Stores; the Index's top three industries were Consumer Staples
and Index components had a total market capitalization of approximately
$2.3 trillion. The average total market capitalization was
approximately $23.5 billion. The 10 largest constituents represented
approximately 48.3% of the Index weight. The five highest weighted
stocks, which represented 34.6% of the Index weight, had an average
daily trading volume in excess of 32.3 million shares during the period
April 1 through May 31, 2006. 99.6% of the component stocks traded at
least 250,000 shares monthly from December 2005 through May 2006.
As of May 31, 2006, the iShares S&P Global Industrials Sector
Index's top three holdings were General Electric, United Parcel
Service, Siemens AG; the Index's top three industries were Industrials
and Index components had a total market capitalization of approximately
$2.7 trillion. The average total market capitalization was
approximately $15.3 billion. The 10 largest constituents represented
approximately 37.1% of the Index weight. The five highest weighted
stocks, which represented 27.2% of the Index weight, had an average
daily trading volume in excess of 38.6 million shares during the period
April 1 through May 31, 2006. 99.65% of the component stocks traded at
least 250,000 shares monthly from December 2005 through May 2006.
As of May 31, 2006, the iShares S&P Global Materials Sector Index's
top three holdings were BHP Billiton Limited, Anglo American, Rio
Tinto; the Index's top three industries were Materials and Index
components had a total market capitalization of approximately $1.6
trillion. The average total market capitalization was approximately
$12.9 billion. The 10 largest constituents represented approximately
30.7% of the Index weight. The five highest weighted stocks, which
represented 19.5% of the Index weight, had an average daily trading
volume in excess of 66.5 million shares during the period April 1
through May 31, 2006. 99.31% of the component stocks traded at least
250,000 shares monthly from December 2005 through May 2006.
As of May 31, 2006, the iShares S&P Global Utilities Sector Index's
top three holdings were E.On AG, Suez SA, RWE AG; the Index's top three
industries were Utilities and Index components had a total market
capitalization of approximately $1.2 trillion. The average total market
capitalization was approximately $16.9 billion. The 10 largest
constituents represented approximately 41.5% of the Index weight. The
five highest weighted stocks, which represented 25.0% of the Index
weight, had an average daily trading volume in excess of 47.8 million
shares during the period April 1 through May 31, 2006. 100% of the
component stocks traded at least 250,000 shares monthly from December
2005 through May 2006.
Additional information regarding the Funds' holdings is available
at https://www.ishares.com.
Determination of Net Asset Value
IBT calculates the NAV for each Fund generally once daily Monday
through Friday generally as of the regularly scheduled close of
business of the NYSE (normally 4 p.m. Eastern time) on each day that
the NYSE is open for trading, based on prices at the time of closing,
provided that (a) any assets or liabilities denominated in currencies
other than the U.S. dollar shall be translated into U.S. dollars at the
prevailing market rates on the date of valuation as quoted by one or
more major banks or dealers that makes a two-way market in such
currencies (or a major market data service provider based on quotations
received from such banks or dealers); and (b) U.S. fixed-income assets
may be valued as of the announced closing time for trading in fixed-
income instruments on any day that the Bond Market Association
announces an early closing time. The NAV of each Fund is calculated by
dividing the value of the net assets of such Fund (i.e., the value of
its total assets less total liabilities) by the total number of
outstanding shares of the Fund, generally rounded to the nearest cent.
In calculating a Fund's NAV, a Fund's investments are generally valued
using market valuations. In the event that current market valuations
are not readily available or such valuations do not reflect current
market values, the affected investments will be valued using fair value
pricing pursuant to the pricing policy and procedures approved by the
Board of Trustees. The frequency with which a Fund's investments are
valued using fair value pricing is primarily a function of the types of
securities and other assets in which the Fund invests pursuant to its
investment objective, strategies and limitations.
According to the Funds' prospectus, valuing the Fund's investments
using fair value pricing will result in using prices for those
investments that may differ from current market prices. Accordingly,
fair value pricing could result in a difference between the prices used
to calculate the Fund's net asset value and the prices used by the
Fund's benchmark index, which, in turn, could result in a difference
between the Fund's performance and the performance of the Fund's
benchmark index.
Because foreign markets may be open on different days than the days
during which a shareholder may purchase the Fund's shares, the value of
the Fund's investments may change on days when shareholders are not
able to purchase the Fund's shares.
The value of assets denominated in foreign currencies is converted
into U.S. dollars using exchange rates deemed appropriate by BGFA as
investment advisor.\14\
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\14\ The Fund utilizes foreign exchange rates of major market
data vendors, such as WM/Reuters. September 15 Telephone Conference.
---------------------------------------------------------------------------
Issuance of Creation Unit Aggregations
In General. Shares of the Funds (the ``iShares'') will be issued on
a continuous offering basis in groups of iShares, or multiples thereof.
These ``groups'' of shares are called ``Creation Unit Aggregations.''
The Funds will issue and redeem iShares only in Creation Unit
Aggregations of 50,000 iShares.\15\
---------------------------------------------------------------------------
\15\ Each Creation Unit Aggregation will have an estimated
initial value of approximately $2,500,000.
---------------------------------------------------------------------------
As with other open-end investment companies, iShares will be issued
at the net asset value (``NAV'') per share next determined after an
order in proper form is received. The anticipated price at which the
iShares will initially trade is approximately $50.
The NAV per share of the Funds is determined as of the close of the
regular trading session on the Exchange on each day that the Exchange
is open. The Trust sells Creation Unit Aggregations of the Funds only
on business days at the next determined NAV of the Fund. Creation Unit
Aggregations generally will be issued by the Funds in exchange for the
in-kind deposit of equity securities designated by the Advisor to
correspond generally to the price and yield performance of the Fund's
Underlying Index (the ``Deposit Securities'') and a specified cash
payment. Creation Unit Aggregations generally will be redeemed by the
Fund in exchange for portfolio securities of
[[Page 55253]]
the Fund (``Fund Securities'') and a specified cash payment. Fund
Securities received on redemption may not be identical to Deposit
Securities deposited in connection with creations of Creation Unit
Aggregations for the same day.
All orders to purchase iShares in Creation Unit Aggregations must
be placed through an Authorized Participant. An Authorized Participant
must be either a ``Participating Party,'' i.e., a broker-dealer or
other participant in the clearing process through the National
Securities Clearing Corporation (``NSCC'') Continuous Net Settlement
System (the ``Clearing Process''), a clearing agency that is registered
with the SEC, or a Depository Trust Company (``DTC'') participant, and
in each case, must enter into a Participant Agreement. The Funds impose
a transaction fee in connection with the issuance and redemption of
iShares to offset transfer and other transaction costs. The transaction
fee in connection with the issuance and redemption of Creation Unit
Aggregations of the Funds are estimated to be approximately between
$2,200 and $8,800.
In-Kind Deposit of Portfolio Securities. Payment for Creation Unit
Aggregations will be made by the purchasers generally by an in-kind
deposit with the applicable Fund of the Deposit Securities together
with an amount of cash (the ``Balancing Amount'') specified by the
Advisor in the manner described below. The Balancing Amount is an
amount equal to the difference between (1) the NAV (per Creation Unit
Aggregation) of the Fund and (2) the total aggregate market value (per
Creation Unit Aggregation) of the Deposit Securities (such value
referred to herein as the ``Deposit Amount''). The Balancing Amount
serves the function of compensating for differences, if any, between
the NAV per Creation Unit Aggregation and that of the Deposit Amount.
The deposit of the requisite Deposit Securities and the Balancing
Amount are collectively referred to herein as a ``Fund Deposit.'' The
Advisor will make available to the market through the NSCC on each
business day, prior to the opening of trading on the Exchange
(currently 9:30 a.m. Eastern Time), the list of the names and the
required number of shares of each Deposit Security included in the
current Fund Deposit (based on information at the end of the previous
business day) for each Fund. The Fund Deposit will be applicable to the
relevant Fund (subject to any adjustments to the Balancing Amount, as
described below) in order to effect purchases of Creation Unit
Aggregations of such Fund until such time as the next-announced Fund
Deposit composition is made available.
The identity and number of shares of the Deposit Securities
required for the Fund Deposit for each Fund will change from time to
time. The composition of the Deposit Securities may change in response
to adjustments to the weighting or composition of the Component
Securities in the Underlying Index. In addition, the Trust reserves the
right to permit or require the substitution of an amount of cash--i.e.,
a ``cash in lieu'' amount--to be added to the Balancing Amount to
replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not otherwise be eligible for
transfer. The Trust also reserves the right to permit or require a
``cash in lieu'' amount where the delivery of the Deposit Security by
the Authorized Participant would be restricted under the securities
laws or where the delivery of the Deposit Security to the Authorized
Participant would result in the disposition of the Deposit Security by
the Authorized Participant becoming restricted under the securities
laws, or in certain other situations. The adjustments described above
will reflect changes known to the Advisor on the date of announcement
to be in effect by the time of delivery of the Fund Deposit, in the
composition of the applicable Underlying Index or resulting from
certain corporate actions.
Redemption of iShares
Creation Unit Aggregations of the Funds will be redeemable at the
NAV next determined after receipt of a request for redemption. Creation
Unit Aggregations of the Funds generally will be redeemed in-kind,
together with a balancing cash payment (although, as described below,
Creation Unit Aggregations may sometimes be redeemed for cash). The
value of the Funds' redemption payments on a Creation Unit Aggregation
basis will equal the NAV per the appropriate number of iShares of the
Funds. Owners of iShares may sell their iShares in the secondary market
but must accumulate enough iShares to constitute a Creation Unit
Aggregation in order to redeem through the Funds. Redemption orders
must be placed by or through an Authorized Participant.
Creation Unit Aggregations of the Funds generally will be
redeemable on any business day in exchange for applicable Fund
Securities and the Cash Redemption Payment (defined below) in effect on
the date a request for redemption is made. The Advisor will publish
daily through NSCC the list of securities which a creator of Creation
Unit Aggregations must deliver to the Fund (the ``Creation List'') and
which a redeemer will receive from the Funds (the ``Redemption List'').
The Creation List is identical to the list of the names and the
required numbers of shares of each Deposit Security included in the
current Fund Deposit.
In addition, just as the Balancing Amount is delivered by the
purchaser of Creation Unit Aggregations to the Funds, the Trust will
also deliver to the redeeming beneficial owner in cash the ``Cash
Redemption Payment.'' The Cash Redemption Payment on any given business
day will be an amount calculated in the same manner as that for the
Balancing Amount, although the actual amounts may differ if the Fund
Securities received upon redemption are not identical to the Deposit
Securities applicable for creations on the same day. To the extent that
the Fund Securities have a value greater than the NAV of iShares being
redeemed, a cash payment equal to the differential is required to be
paid by the redeeming beneficial owner to the applicable Fund. The
Trust may also make redemptions in cash in lieu of transferring one or
more Fund Securities to a redeemer if the Trust determines, in its
discretion, that such method is warranted due to unusual circumstances.
An unusual circumstance could arise, for example, when a redeeming
entity is restrained by regulation or policy from transacting in
certain Fund Securities, such as the presence of such Fund Securities
on a redeeming investment banking firm's restricted list.
Availability of Information Regarding iShares and the Underlying Index
On each business day the list of names and amount of each security
constituting the current Deposit Securities of the Fund Deposit and the
Balancing Amount effective as of the previous business day, per
outstanding share of each Fund, will be made available. An amount per
iShare representing the sum of the estimated Balancing Amount effective
through and including the previous business day, plus the current value
of the Deposit Securities in U.S. dollars, on a per iShare basis (the
``Intra-day Optimized Portfolio Value'' or ``IOPV'') will be calculated
by an independent third party that is a major market data vendor (the
``Value Calculator''), such as Bloomberg L.P., every 15 seconds during
the Exchange's regular trading hours and disseminated every 15 seconds
on the Consolidated Tape.
The IOPV reflects the current value of the Deposit Securities and
the Balancing Amount. The IOPV also reflects changes
[[Page 55254]]
in currency exchange rates between the U.S. dollar and the applicable
home foreign currency.\16\
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\16\ The IOPV ticker is available at www.ishares.com and Intra-
day IOPV is publicly available utilizing this ticker through various
financial Web sites such as https://finance.yahoo.com.
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Since the Funds will utilize a representative sampling strategy,
the IOPV may not reflect the value of all securities included in the
Underlying Indexes. In addition, the IOPV does not necessarily reflect
the precise composition of the current portfolio of securities held by
the Funds at a particular point in time. Therefore, the IOPV on a per
Fund share basis disseminated during the Exchange's trading hours
should not be viewed as a real time update of the NAV of the Funds,
which is calculated only once a day.
While the IOPV disseminated by the Exchange at 9:30 a.m. is
expected to be generally very close to the most recently calculated
Fund NAV on a per Fund share basis, it is possible that the value of
the portfolio of securities held by each Fund may diverge from the
Deposit Securities values during any trading day. In such case, the
IOPV will not precisely reflect the value of each Fund's portfolio.
However, during the trading day, the IOPV can be expected to closely
approximate the value per Fund share of the portfolio of securities for
each Fund except under unusual circumstances (e.g., in the case of
extensive rebalancing of multiple securities in a Fund at the same time
by the Advisor).
The Exchange believes that dissemination of the IOPV based on the
Deposit Securities provides additional information regarding the Funds
that is not otherwise available to the public and is useful to
professionals and investors in connection with Fund shares trading on
the Exchange or the creation or redemption of Fund shares.
There is an overlap in trading hours between the foreign and U.S.
markets with respect to the Funds. Therefore, the Value Calculator will
update the applicable IOPV every 15 seconds to reflect price changes in
the applicable foreign market or markets, and convert such prices into
U.S. dollars based on the currency exchange rate. When the foreign
market or markets are closed but U.S. markets are open, the IOPV will
be updated every 15 seconds to reflect changes in currency exchange
rates after the foreign market closes. The IOPV will also include the
applicable cash component for each Fund.
In addition, there will be disseminated a value for the Underlying
Indexes once each trading day, based on closing prices in the relevant
exchange market, utilizing the WM/Reuters (or other major market
information vendor) currency exchange rates. In each S&P Index, the
prices used to calculate the S&P Indices are the official exchange
closing prices or those figures accepted as such. S&P reserves the
right to use an alternative pricing source on any given day.
The NAV for the Fund will be calculated and disseminated daily. The
Funds' NAV will be calculated by IBT. IBT will disseminate the
information to BGI, SEI and others, including the NYSE. The Funds' NAV
will be published in a number of places, including, https://
www.iShares.com and on the Consolidated Tape. The Advisor for the Funds
has informed the Exchange that the Funds will make the NAV for the
Funds available to all market participants at the same time. If the NAV
is not disseminated to all market participants at the same time, the
Exchange will halt trading in the Shares of the Funds.\17\
Closing prices of the Funds' Deposit Securities are readily
available from, as applicable, the relevant exchanges, automated
quotation systems, published or other public sources in the relevant
country, or on-line information services such as Bloomberg or Reuters.
The exchange rate information required to convert such information into
U.S. dollars is also readily available in newspapers and other
publications and from a variety of on-line services.
---------------------------------------------------------------------------
\17\ The Exchange will immediately contact the Commission staff
to discuss measures that may be appropriate under the circumstances.
September 15 Telephone Conference.
---------------------------------------------------------------------------
In addition, the Web site for the Trust, https://www.iShares.com,
which will be publicly accessible at no charge, will contain the
following information, (1) the prior business day's NAV and the mid-
point of the bid-ask price at the time of calculation of such NAV
(``Bid/Ask Price''), and a calculation of the premium or discount of
such price against such NAV; and (2) data in chart format 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.
Dividends and Distributions
Dividends are accrued daily from net investment income and will be
declared and paid to beneficial owners of record at least annually by
the Funds. Distributions of realized securities gains, if any,
generally will be declared and paid once a year, but the Funds may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code and consistent with the Investment Company
Act.
Dividends and other distributions on iShares of the Funds will be
distributed on a pro rata basis to beneficial owners of such iShares.
Dividend payments will be made through the Depository and the DTC
Participants to beneficial owners then of record with amounts received
from the Fund.
The Trust currently does not intend to make the DTC book-entry
Dividend Reinvestment Service (the ``Service'') available for use by
beneficial owners for reinvestment of their cash proceeds, but certain
individual brokers may make the Service available to their clients. The
Statement of Additional Information (``SAI'') will inform investors of
this fact and direct interested investors to contact such investor's
broker to ascertain the availability and a description of the Service
through such broker. The SAI will also caution interested beneficial
owners that they should note that each broker may require investors to
adhere to specific procedures and timetables in order to participate in
the Service and such investors should ascertain from their broker such
necessary details. The Funds acquired pursuant to the Service will be
held by the beneficial owners in the same manner and subject to the
same terms and conditions, as for original ownership of the Funds.
Beneficial owners of the Funds will receive all of the statements,
notices, and reports required under the Investment Company Act and
other applicable laws. They will receive, for example, annual and semi-
annual reports, written statements accompanying dividend payments,
proxy statements, annual notifications detailing the tax status of
distributions, IRS Form 1099-DIVs, etc. Because the Trust's records
reflect ownership of iShares by DTC only, the Trust will make available
applicable statements, notices, and reports to the DTC Participants
who, in turn, will be responsible for distributing them to the
beneficial owners.
Other Issues
Criteria for Initial and Continued Listing. The Funds are subject
to the criteria for initial and continued listing of Investment Company
Units in Section 703.16 of the Manual. A minimum of two Creation Units
(100,000 iShares) will be required to be outstanding at the start of
trading. This minimum number of shares of each Fund required to be
outstanding at the start of trading will be comparable to requirements
that have
[[Page 55255]]
been applied to previously traded series of ICUs.
Prospectus Delivery. The Commission has granted the Trust an
exemption from certain prospectus delivery requirements under section
24(d) of the Investment Company Act.\18\ Any product description used
in reliance on a section 24(d) exemptive order will comply with all
representations made therein and all conditions thereto. The Exchange,
in an Information Memo to Exchange members and member organizations,
will inform members and member organizations, prior to commencement of
trading, of the prospectus or product description delivery requirements
applicable to the Funds and will refer members and member organizations
to NYSE Rule 1100(b). There is not currently a product description
available for the Funds. The Information Memo will also advise members
and member organizations that delivery of a prospectus to customers in
lieu of a product description would satisfy the requirements of Rule
1100(b).
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\18\ See In the Matter of iShares, Inc., et al., Investment
Company Act Release No. 25623 (June 25, 2002).
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Information Memo. The Exchange will distribute an Information Memo
to its members in connection with the trading of the Funds. The Memo
will discuss the special characteristics and risks of trading this type
of security. Specifically, the Memo, among other things, will discuss
what the Funds are, how the Funds' shares are created and redeemed, the
requirement that members and member firms deliver a prospectus or
product description to investors purchasing shares of the Funds prior
to or concurrently with the confirmation of a transaction, applicable
Exchange rules, dissemination information, trading information and the
applicability of suitability rules (including Exchange Rule 405). The
Memo will also discuss exemptive, no-action and interpretive relief, if
granted by the Commission from certain rules under the Act.
Trading Halts. In order to halt the trading of the Funds, the
Exchange may consider, among other things, factors such as the extent
to which trading is not occurring in underlying security(s) and whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. In addition,
trading in the Funds' shares is subject to trading halts caused by
extraordinary market volatility pursuant to Exchange Rule 80B. The
Exchange will halt trading in a Fund if the Index Value or IOPV
applicable to such Fund is no longer calculated or disseminated or the
NAV is not disseminated to all market participants at the same
time.\19\
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\19\ Under such circumstances, the Exchange would immediately
contact the Commission staff to discuss appropriate measures that
may be appropriate under the circumstances. September 15 Telephone
Conference.
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Due Diligence. The Information Memo to members will note, for
example, Exchange responsibilities including that before an Exchange
member, member organization, or employee thereof recommends a
transaction in the Funds, a determination must be made that the
recommendation is in compliance with all applicable Exchange and
Federal rules and regulations, including due diligence obligations
under Exchange Rule 405 (Diligence as to Accounts).
Purchases and Redemptions in Creation Unit Size. In the Memo
referenced above, members and member organizations will be informed
that procedures for purchases and redemptions of shares of the Funds in
Creation Unit Size are described in the Funds' Prospectus and SAI \20\
and that Funds' shares are not individually redeemable but are
redeemable only in Creation Unit Size aggregations or multiples
thereof.
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\20\ See Securities Exchange Act Release Nos. 44990 (October 25,
2001), 66 FR 56869 (November 13, 2001) (SR-Amex-2001-45); 42748 (May
2, 2000), 65 FR 30155 (May 10, 2000) (SR-Amex-98-49); and 36947
(March 8, 1996), 61 FR 10606 (March 14, 1996) (SR-Amex-95-43).
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Surveillance. The Exchange will utilize its existing surveillance
procedures applicable to ICUs monitor trading of the shares of the
Funds. Surveillance procedures applicable to trading in the proposed
iShares are comparable to those applicable to other ICUs currently
trading on the Exchange. The Exchange represents that these
surveillance procedures are adequate to properly monitor the trading of
the Funds.\21\ The Exchange's current trading surveillances focus on
detecting securities trading outside their normal patterns. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations. The Exchange
may obtain trading information via the Intermarket Surveillance Group
(``ISG'') from other exchanges who are members or affiliates of the
ISG. For a list of the current members and affiliate members of ISG,
see https://www.isgportal.com.
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\21\ The Exchange states that it submitted such surveillance
procedures to the Commission staff in the past. September 15
Telephone Conference.
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Hours of Trading/Minimum Price Variation. The Funds will trade on
the Exchange until 4:15 p.m. (Eastern time). The minimum price
variation for quoting will be $.01.
2. Statutory Basis
NYSE believes that the proposed rule change is consistent with
section 6(b)(5) of the Act \22\ requiring that an exchange have rules
that are designed, among other things, to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to, and perfect the
mechanism of a free and open market and, in general, to protect
investors and the public interest.
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\22\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Exchange Act. Comments may be submitted
by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send e-mail to rule-comments@sec.gov. Please include File
Number SR-NYSE-2006-60 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2006-60. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro/shtml). Copies of the submission, all subsequent
[[Page 55256]]
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for inspection and copying in the Commission's Public
Reference Room. Copies of such filing will also be available for
inspection and copying at the principal office of the NYSE. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File number SR-NYSE-2006-60 and should be
submitted on or before October 12, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder, applicable to a national securities exchange.\23\ In
particular, the Commission finds that the proposed rule change is
consistent with section 6(b)(5) of the Act \24\ and will promote just
and equitable principles of trade, and facilitate transactions in
securities, and, in general, protect investors and the public interest.
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\23\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
\24\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the NYSE's proposal should advance the
public interest by providing investors with increased flexibility in
satisfying their investment needs and by allowing them to purchase and
sell Fund shares at negotiated prices throughout the business day that
generally track the price and yield performance of the Underlying
Index.
Furthermore, the Commission believes that the proposed rule change
raises no issues that have not been previously considered by the
Commission. The Fund is similar in structure and operation to exchange-
traded funds that the Commission has previously approved for listing
and trading on national securities exchanges under section 19(b)(2) of
the Act.\25\ Further, with respect to each of the following issues, the
Commission believes that the listing and trading of the Funds' shares
satisfies established standards.
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\25\ 15 U.S.C. 78s(b)(2).
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A. Fund Characteristics
The Commission believes that the proposed Funds are reasonably
designed to provide investors with an investment vehicle that
substantially reflects in value the performance of the respective
Underlying Indexes and will provide investors with an alternative to
trading a range of securities on an individual basis. Investors will be
able to trade shares in the Fund continuously throughout the business
day in secondary market transactions at negotiated prices. Accordingly,
the proposed Fund will allow investors to: (1) Respond quickly to
market changes through intra-day trading opportunities; (2) engage in
hedging strategies similar to those used by institutional investors;
and (3) reduce transaction costs for trading a portfolio of securities.
The Commission also notes that the market capitalization and
liquidity of the underlying Indexes' component securities is also a
deterrent to manipulation of the Fund shares. Because each Fund's
Underlying Index is broad-based and well diversified, the Exchange
represents that it does not believe that the Fund will be so highly
concentrated such that it becomes a surrogate for trading unregistered
foreign securities on the Exchange.
While the Commission believes that these requirements should help
to reduce concerns that the Funds could become a surrogate for trading
in a single or a few unregistered stocks, if the characteristics of the
Funds, or their underlying Indexes, changed materially from the
characteristics described the Exchange,\26\ the Fund would not be in
compliance with the listing and trading standards approved herein, and
the Commission would expect the NYSE to file a proposed rule change
pursuant to Rule 19b-4 of the Act, which must be approved to permit
continued trading of the Funds' shares.
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\26\ Substitution of an underlying index or significant
alteration of the index methodology described herein would be a
material change.
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B. Disclosure
The Exchange represents that it will circulate an information memo
detailing applicable prospectus and product description delivery
requirements. The memo will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from certain rules under
the Act. The memo also will address NYSE members' responsibility to
deliver a prospectus or product description to all investors (in
accordance with NYSE Rule 1100(b)) and highlight the characteristics of
the Funds. The memo will also remind members of their suitability
obligations, including NYSE Rule 405 (Diligence as to Accounts).
Additionally, for example, the information memo will also inform
members and member organizations that Funds' shares are not
individually redeemable, but are redeemable only in Creation-Unit-size
aggregations or multiples thereof as set forth in the Fund Prospectus
and SAI. The Commission believes that the disclosure included in the
information memo is appropriate and consistent with the Act.
C. Dissemination of Fund Information
With respect to pricing, once each day, the NAV for the Fund will
be calculated and disseminated by IBT, to various sources, including
the NYSE, and made available on https://www.iShares.com and the
Consolidated Tape. The Exchange represents that the NAV will be made
available to all market participants at the same time; otherwise, the
Exchange will halt trading in the Funds' shares. Also, during the
Exchange's regular trading hours, the IOPV Calculator will determine
and disseminate every 15 seconds the IOPV for each Fund. The IOPV will
reflect price changes in the applicable foreign market or markets and
changes in currency exchange rates. The Exchange also represents that
the value of the underlying Indexes will be calculated and disseminated
at least every 15 seconds during the time the Funds' shares trade on
the Exchange. If the IOPV and
