Notices. SECURITIES AND EXCHANGE COMMISSION

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BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50806; File No. SR-FICC-2004-21] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Fee Structure of the Government Securities Division of the Fixed Income Clearing Corporation December 7, 2004. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on November 9, 2004, the Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by FICC.

The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. 1 15 U.S.C. 78s(b)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change consists of amendments to the fee structure of the Government Securities Division (“GSD”) of FICC to reflect a new pricing methodology for GSD's netting services. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FICC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change.

The text of these statements may be examined at the places specified in Item IV below. FICC has prepared summaries, set forth in sections (A), (B), and

(C)below, of the most significant aspects of these statements. 2 2 The Commission has modified the text of the summaries prepared by FICC.

(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 amend the fee structure of the GSD of FICC to reflect a new pricing methodology for GSD's netting services. The new methodology was established in recognition of the evolution of the government securities marketplace and the growth of electronic trading which have resulted in the GSD processing more high-volume/low-dollar trades with fewer residual positions to settle. FICC believes that the revised fee structure more accurately aligns the costs of FICC's services with its risk exposure. The changes will go into effect on January 1, 2005. Under the new methodology, netting fees will be calculated based on three components. These components consist of a fixed charge similar to today's fee and two new variable fees that will give FICC the ability to distinguish between smaller and larger ticket values and their associated risk, as well as capture the cost of FICC's settlement infrastructure and risk exposure associated with the post-netting positions requiring settlement. The new netting fee calculation will be based on the following charges:

(1)A reduced fixed charge of $0.43 per ticket for trades entering the netting process (the current charge is $1.00);

(2)A new charge of $0.012 per $1 million of par value for trades entering the netting process; and

(3)A new charge of $0.052 per $1 million of par value for clearance obligations created as a result of the netting process. In addition, effective January 1, 2005, the fixed clearance charge will be reduced from the current $2.75 per obligation created to $2.35 per obligation created in order to better align clearance revenues with associated expenses. The applicable charge for comparison services remains unchanged. FICC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 3 and the rules and regulations thereunder applicable to FICC because the proposed change provides for fees that more accurately reflect FICC's costs and risks presented by trades submitted to FICC. 3 15 U.S.C. 78q-1.

(B)Self-Regulatory Organization's Statement on Burden on Competition FICC does not believe that the proposed rule change will have an 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 Written comments relating to the proposed rule change have been solicited or received. FICC will notify the Commission of any written comments received by FICC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act 4 and Rule 19b-4(f)(2) 5 thereunder because the proposed rule establishes or changes a due, fee, or other charge. At any time within sixty days of the filing of such 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. 4 15 U.S.C. 78s(b)(3)(A)(ii). 5 17 CFR 240.19b-4(f)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ) or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-FICC-2004-21 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-FICC-2004-21. 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 ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of FICC and on FICC's Web site at *http://www.ficc.com.* 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-FICC-2004-21 and should be submitted on or before January 3, 2005. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 6 6 17 CFR 200.30-3(a)(12). Jill M. Petersen, Assistant Secretary. [FR Doc. E4-3609 Filed 12-10-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50797; File No. SR-NSCC-2003-22] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Amend the Standards of Financial Responsibility Required of Mutual Fund and Insurance Services Applicants and Members That Are Banks, Trust Companies, or Broker-Dealers December 6, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on November 10, 2003, the National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) and on November 29, 2004, amended the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by NSCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. 1 15 U.S.C. 78s(b)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The purpose of the proposed rule change is to amend the standards of financial responsibility required of applicants and members that are banks, trust companies, or broker-dealers using or applying to use NSCC's non-guaranteed services as Mutual Fund/Insurance Services Members under Rule 2 and Fund Members under Rule 51. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NSCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NSCC has prepared summaries, set forth in sections (A), (B), and

(C)below, of the most significant aspects of these statements. 2 2 The Commission has modified the text of the summaries prepared by NSCC.

(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The proposed rule change amends Addendum B, “Standards of Financial Responsibility and Operational Capability,” and Addendum I, “Standards of Financial Responsibility and Operational Capability For Fund Members,” of NSCC's Rules and Procedures to enhance the standards of financial responsibility required of applicants and members that are banks, trust companies, and broker-dealers using or applying to use NSCC's non-guaranteed services as Mutual Fund/Insurance Services Members under Rule 2 and Fund Members under Rule 51. 3 Addendum B establishes financial criteria applicable to Mutual Fund/Insurance Services Members and applicants admitted or seeking admission under Rule 2. Addendum I establishes the financial criteria applicable to Fund Members and applicants admitted or seeking admission under Rule 51. 4 3 Mutual Fund Services and Insurance Processing Services are non-guaranteed services. 4 NSCC has revised Addendum B (Version 1) as set forth in Appendix 1 to NSCC's Rules (Version 2 of Addendum B). Version 1 uses allocation and liquidation components to determine participant clearing fund and Version 2 uses risk-based margining to determine participant clearing fund. NSCC is informing members on a rolling basis when Version 2 is applicable to them. The provisions of Addendum B, which are the subject of this proposed rule change, are identical in Version 1 and Version 2. This proposed rule change would amend both the text of Addendum B (Version 1) and Appendix 1 (Version 2 of Addendum B). Securities Exchange Act Release No. 44431 (June 14, 2001), 66 FR 33280. The proposed rule change

(i)raises the minimum excess net capital requirement applicable to such broker-dealer applicants and members from $25,000 in excess net capital to $50,000 in excess net capital and

(ii)changes the standards of financial responsibility required of banks and trust companies by reference to different types of criteria than currently used for this purpose. The effective date for the proposed rule change as applied to current members will be one year from the date of Commission approval. The one year period, arrived at after consultations with the affected members, is necessary to allow members that do not meet the increased or changed capital requirements sufficient time to evaluate their options and implement any necessary changes without undue disruption to their customers. The proposed rule change also seeks to amend Addendum I to require an established business history of six months instead of three years which is consistent with the required established business history for applicants for other types of membership in NSCC. 1. Increase of Minimum Excess Net Capital Required of Broker-Dealers Using Mutual Fund and Insurance Services NSCC's current minimum excess net capital requirement applicable to broker-dealer applicants and members using non-guaranteed services was implemented in 1993. 5 In 1998, NSCC increased its minimum excess net capital requirements under Rule 2 for broker-dealer applicants and members using NSCC guaranteed services from $50,000 to $500,000 subject to certain limited exceptions. 6 At that time, no change was made to the financial requirements applicable to the use of non-guaranteed services. NSCC now believes it is appropriate to do so because of increased transaction volumes and settlement obligations. 5 Securities Exchange Act Release No. 33525 (January 26, 1994), 59 FR 9805. 6 Securities Exchange Act Release No. 40081 (June 10, 1998), 63 FR 32905. A municipal securities broker under Rule 15c3-1(a)(8) of the Act is required to maintain $100,000 in excess net capital, and a clearing broker is required to maintain $1,000,000 in excess net capital. NSCC currently has 290 broker-dealer members to which the increased excess net capital requirement would apply. Thirteen of the 290 broker-dealer members have been identified as not meeting the increased capital requirement. The purpose of delaying effectiveness of the proposed rule change is to allow these thirteen members time in which to obtain and apply additional excess net capital or make alternate arrangements such as clearing through another NSCC member without disruption to their businesses. NSCC currently requires a larger clearing fund deposit from broker-dealer members which have a minimum excess net capital of less than $50,000 ( *i.e.* , a minimum of $10,000-$20,000-$40,000 as compared to $5,000-$10,000-$20,000 depending upon settlement debit history). When the proposed minimum excess net capital requirement is increased to $50,000, the minimum clearing fund requirements currently imposed would no longer be applicable because $50,000 in excess net capital would be required of these broker-dealers in all instances. 2. Amendment to Standards of Financial Responsibility Applied to Banks and Trust Companies Using Mutual Fund Services and Insurance Processing Service Addendum B currently requires that banks and trust companies that are applying to be or are Mutual Fund/Insurance Services Members under Rule 2 have $100,000 minimum excess net capital over the capital requirement imposed by the applicable state or federal regulatory authority. Addendum I is silent on the criteria applicable to banks and trust companies for purposes of being Fund Members under Rule 51. Under the proposed rule change, the standards of financial responsibility applicable to banks and trust company applicants and members applying to use or using Mutual Fund Services and Insurance Processing Services would be applicable both to Mutual Fund/Insurance Services Members under Rule 2 and to Fund Members under Rule 51. Under the proposed standard, a bank or trust company would be required to have a Tier 1 risk-based capital ratio of at least 6% or greater. A trust company which is not required to calculate a risk-based capital ratio by its regulators will be required to have at least $2,000,000 in capital. As applied to banks, the revised criteria will apply the standard adopted by the Federal Deposit Insurance Corporation (“FDIC”) to compute risk-based capital ratios. The proposed standard of a minimum Tier 1 risk-based capital ratio of 6% is currently categorized as “well-capitalized” under the guidelines issued by the Board of Governors of the Federal Reserve System. All current NSCC Mutual Fund/Insurance Services Members and Fund Members that are banks exceed this requirement. With respect to trust companies, the current standard of $100,000 in excess capital over the capital required by applicable state or federal regulations would be replaced by a requirement that the trust company have $2,000,000 in capital. Since state regulations vary in their respective capital requirements and some states do not a have a capital requirement, the proposed revised criteria would provide a uniform and consistent standard to all trust companies regardless of whether they are members of the Federal Reserve System or subject to nonuniform state regulatory requirements. The proposed $2,000,000 capital requirement is the same capital standard required for membership in The Depository Trust Company. Some trust companies which are not required to calculate a Tier 1 risk-based capital ratio pursuant to FDIC or Federal Reserve Act requirements calculate this ratio for other purposes. NSCC would therefore accept as an alternative to the minimum $2,000,000 capital requirement the 6% Tier 1 risk-based capital ratio from those trust companies which provide this calculation for regulatory purposes. 7 7 The proposed rule change seeks to make a technical amendment to Addendum B regarding the capital standards applicable to bank applicants for full membership under NSCC Rule 2. In particular, the proposed rule change amends Section I.B.2.(a)(i) by replacing the listed components of bank capital with a reference to bank capital as it is defined in the Consolidated Report of Condition (“CALL Report”). NSCC currently has sixty-six bank/trust company members to which the revised capital requirements would apply. Only one trust company has been identified as not meeting the new standard. NSCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 8 and the rules and regulations thereunder applicable to NSCC because it will assure the safeguarding of securities and funds which are in the custody or control of NSCC by enhancing the standards of financial responsibility applicable to NSCC members using NSCC's Mutual Fund Services and Insurance Processing Service and thereby should help NSCC protect itself and its participants from undue financial risk. 8 15 U.S.C. 78q-1.

(B)Self-Regulatory Organization's Statement on Burden on Competition NSCC believes that the proposed rule change will not impose a burden on competition 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 No written comments relating to the proposed rule change have been solicited or received. NSCC will notify the Commission of any written comments received by NSCC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty-five days of the date of publication of this notice in the **Federal Register** or within such longer period

(i)as the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or

(ii)as to which the self-regulatory organization consents, the Commission will:

(A)By order approve such proposed rule change or

(B)institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an E-mail to *rule-comments@sec.gov.* Please include File Number SR-NSCC-2003-22 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NSCC-2003-22. 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 ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of NSCC and on NSCC's Web site at *http://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 Number SR-NSCC-2003-22 and should be submitted on or before January 3, 2005. 9 17 CFR 200.30-3(a)(12). For the Commission by the Division of Market Regulation, pursuant to delegated authority. 9 Jill M. Peterson, Assistant Secretary. [FR Doc. E4-3604 Filed 12-10-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50810; File No. SR-NYSE-2004-04] Self-Regulatory Organizations; Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the New York Stock Exchange, Inc. To Amend Its Rules Regarding Listed Company Relations Proceedings December 7, 2004. I. Introduction On February 9, 2004, the New York Stock Exchange, Inc. (“NYSE” 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 a proposed rule change to amend its rules regarding listed company relations proceedings. On March 29, 2004, the NYSE submitted Amendment No. 1 to the proposal. 3 On August 3, 2004, the NYSE submitted Amendment No. 2 to the proposal. 4 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated March 26, 2004 (“Amendment No. 1”). Amendment No. 1 replaced the proposed rule text in the original proposal to reflect changes in NYSE Rule 103C that the Commission had recently approved. *See* Securities Exchange Act Release No. 49345 (March 1, 2004), 69 FR 10791 (March 8, 2004). 4 *See* letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division, Commission, dated August 2, 2004 (“Amendment No. 2”). Amendment No. 2 deleted NYSE rule 103C and replaced it with proposed Section 806.01 in the Exchange's Listed Company Manual and a proposed Policy Note in NYSE Rule 103B. The proposed rule change, as amended, was published for notice and comment in the **Federal Register** on August 20, 2004. 5 The Commission received no comment letters on the proposal. This order approves the proposed rule change, as amended by Amendment Nos. 1 and 2. 5 *See* Securities Exchange Act Release No. 50196 (August 13, 2004), 69 FR 51740. II. Description of the Proposal The Exchange has proposed to remove NYSE Rule 103C, which currently governs listed company relations proceedings, and to replace it with proposed Section 806.1 of the Exchange's Listed Company Manual. The Exchange also has proposed to add a related Policy Note to NYSE Rule 103B, which governs specialist stock allocation. Currently, if a listed company has a non-regulatory dispute with its specialist unit, NYSE Rule 103C provides for a mediation process known as a “Listed Company Relations Proceeding.” In order to resolve the issue, this proceeding is facilitated by the Listed Company Relations Subcommittee, a subcommittee of the Quality of Markets Committee (“QOMC”). If the matter remains unresolved, the Subcommittee prepares a report making recommendations to the QOMC. The QOMC, in turn, reviews the Subcommittee's report and makes recommendations to the Exchange's Board of Directors. After reviewing the QOMC's recommendations and giving the parties to the mediation proceeding an opportunity to present their written views, the Board of Directors ultimately is authorized to direct the Allocation Committee to reallocate the listed company's stock to a different specialist unit. The Exchange has stated that the process for a Listed Company Relations Proceeding is “cumbersome and extremely lengthy.” The Exchange has further noted that proceedings under current NYSE Rule 103C occur under the oversight of the QOMC before a subcommittee consisting of, among others, certain Exchange officials. In the NYSE's view, this process no longer makes sense given the recent changes to the Exchange's governance structure. 6 For these reasons, the Exchange is proposing a new mediation process under proposed Section 806.01 of its Listed Company Manual. 6 *See* Securities Exchange Act Release No. 48946 (December 17, 2003), 68 FR 74678 (December 24, 2003) (SR-NYSE-2003-34). *See also,* Securities Exchange Act Release No. 49345 (March 1, 2004), 69 FR 10791 (March 8, 2004) (SR-NYSE-2004-02). Under proposed Section 806.01, if a listed company wishes to request a change of specialist unit, it would file a notice (the “Issuer Notice”) with the Corporate Secretary of the Exchange to that effect, stating the specific issues that prompted the request and what steps, if any, it has taken to address the issues. 7 The Exchange's Corporate Secretary would provide copies of the Issuer Notice to the Exchange's Regulatory Group and the New Listings & Client Service Division. The Corporate Secretary also would notify the specialist unit that a Listed Company Change of Specialist Mediation (“Mediation”) is being commenced, and would provide a copy of the Issuer Notice to the specialist unit. The specialist unit would be granted two weeks to respond to the Issuer Notice, with the last date of that period referred to as the “Specialist Response Date.” The Exchange would appoint a committee (the “Mediation Committee”) to facilitate the Mediation between the listed company and the specialist unit, which would consist of at least one floor broker representative of the NYSE's Board of Executives (“BOE”), at least one BOE investor representative, and at least one listed company representative of the BOE. As soon as practicable after the expiration of the Specialist Response Date, the Mediation Committee would commence a meeting with the representatives of the listed company and the specialist unit to attempt to mediate the matters indicated in the Issuer Notice. 7 The Exchange represents that the proposed rule would be added to Section 8.06 of its Listed Company Manual (which includes the provision under which listed companies may voluntarily delist from the Exchange), because “under these circumstances, the change of specialist represents an issuer choice: in this case, a choice to change its specialist rather than a choice to change the market on which the company is listed.” At any time after the filing of the Issuer Notice, the listed company may file a written notice with the Corporate Secretary stating that it is concluding the Mediation because it wishes to continue with the same specialist unit. Simultaneous with the mediation process, the Regulatory Group would review the Issuer Notice and any specialist response, and would have the authority to request a review of the matter by the Exchange's Regulatory Oversight Committee, a standing committee of the Exchange's Board of Directors composed wholly of independent NYSE directors. Where a review by the Regulatory Oversight Committee has been requested, no change of the specialist unit can occur until the Regulatory Oversight Committee makes a final determination that it is appropriate to permit such a change. The Regulatory Oversight Committee, in making its determination, would consider all relevant regulatory issues, including without limitation whether the requested change appears to be in aid or furtherance of conduct that is illegal or violates Exchange rules, or in retaliation for a refusal by a specialist to engage in conduct that is illegal or violates Exchange rules. Furthermore, notwithstanding the Regulatory Group's review of any matter raised during this process, the Regulatory Group would be able, at any time, to take any regulatory action that it may determine to be warranted. After the expiration of three months from the Specialist Response Date, the listed company would be able to file a written notice with the Exchange's Corporate Secretary stating that it wishes to proceed with the change of specialist unit. Subject to any ongoing review of the Regulatory Oversight Committee, as soon as practicable thereafter, the listed company's security would be submitted for allocation under Exchange Rule 103B. Under the proposed Policy Note to Exchange Rule 103B, the currently-assigned specialist unit would not be prohibited from applying for allocation of the security. Furthermore, the proposed Policy Note would state that no negative inference for allocation or regulatory purposes would be made against the specialist unit in the event that the specialist unit is changed pursuant to the process outlined above, nor would the specialist unit be afforded preferential treatment in subsequent allocations as a result of a change pursuant to a Mediation. III. Discussion and Commission Findings The Commission has reviewed the proposed rule change, as amended, and finds that it is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, 8 particularly Section 6(b)(5) of the Act. 9 Section 6(b)(5) requires, among other things, that a national securities exchange's rules be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 8 In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). The Commission believes that the proposed rule change appropriately balances the need to revise the current mediation process for resolution of disputes between listed companies and their assigned specialist units, which the Exchange represents is “cumbersome and extremely lengthy,” with the need to incorporate appropriate procedures that are designed to provide that any such mediation is subject to review by the Exchange's Regulatory Group and, in turn, by its Regulatory Oversight Committee. While the proposal shortens the current timeframe for resolving a dispute between the listed company and the specialist unit to three months, it also introduces the involvement of the Exchange's Regulatory Group in the mediation process to assure that the requested change of specialist unit is for non-regulatory purposes. The Regulatory Group would be provided copies of any Issuer Notice and response to such Notice by the specialist unit. The Regulatory Group is accorded the right to take any regulatory action that it may determine to be warranted at any time during the Mediation. In addition, the Regulatory Group is permitted to request a review of the matter by the Regulatory Oversight Committee, a committee composed entirely of independent directors. When a review by the Regulatory Oversight Committee has been requested, no change of specialist unit may occur until after the Regulatory Oversight Committee makes a final determination that it is appropriate to permit such a change. The Regulatory Oversight Committee, in making its determination of whether to permit a change in specialist unit, may consider all relevant regulatory issues, including whether the requested change appears to be in aid or furtherance of conduct that is illegal or violates Exchange rules, or is in retaliation for a refusal by a specialist to engage in conduct that is illegal or violates Exchange rules. Therefore, the Commission believes that the proposed Mediation process, while more simplified and expedited than the current process, would provide an appropriate mechanism for the Exchange's Regulatory Group to maintain independent oversight over a listed company's request to change specialist units, to ascertain that such requests are confined to non-regulatory reasons, and to obtain a review by the Regulatory Oversight Committee when appropriate. The Commission believes that the proposal to simplify the procedures and shorten the timeframe for the mediation of disputes between a listed company and its specialist unit should not impair the ability of the listed company and the specialist unit to fully discuss and attempt to resolve any non-regulatory issues, under the auspices of the Mediation Committee. The Commission notes that the proposed rule change requires the Mediation Committee to commence meeting with the representatives of the listed company and the specialist unit “as soon as practicable” after the specialist unit has submitted its written response to the Issuer's Notice, and does not limit the Mediation Committee and the parties from meeting as many times as necessary to discuss and address concerns that the listed company has with its specialist unit. The proposal further provides that at any time the listed company may file a written notice concluding the Mediation because the listed company wishes to continue with the same specialist unit. Therefore, the Commission believes that the proposed Mediation process should provide the listed company and the specialist unit ample opportunity to discuss and attempt to resolve any non-regulatory issues. The Commission also believes that the proposal provides appropriate procedures for reallocating a security after a change of special unit and for subsequent allocation decisions affecting a specialist unit that is subject to such a change. The Commission notes that the proposed addition to the Policy Notes to NYSE Rule 103B, which governs specialist stock allocation, would lift the current prohibition on a specialist reapplying for an allocation of the security after the listed company has requested to change its specialist unit for a particular security. The proposal also would retain the provision that no preferential treatment for subsequent allocation would be demonstrated to a specialist unit that was a party to a Mediation. Furthermore, the proposal would state that no negative inference for allocation or regulatory purposes would be made against a specialist unit in the event that a listed company requests a Mediation. The Commission believes that it is appropriate to permit a specialist unit to apply for the allocation of the security—should the specialist choose to apply for the allocation—despite the fact that the listed company and the specialist unit have been parties to a Mediation. There is the possibility, although it may be remote, that the specialist unit may be assigned to the listed company, so the specialist unit should not be barred from applying for the allocation, particularly if a non-regulatory matter between the parties has been vented through a mediation process. The Commission also believes that it is appropriate for the Exchange to have policies in place that would prevent any negative inference to be drawn for allocation or regulatory purposes and that would prohibit the specialist unit from being afforded preferential treatment in subsequent allocations, because addressing and resolving a non-regulatory dispute between a listed company and its specialist unit should have no bearing on future allocations of securities to the specialist unit. Accordingly, the Commission finds that the proposed rule change is consistent with the Act. IV. Conclusion It is therefore Ordered, pursuant to Section 19(b)(2) of the Act, 10 that the proposed rule change (SR-NYSE-2004-04), as amended by Amendment Nos. 1 and 2, is hereby approved. 10 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E4-3608 Filed 12-10-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50799; File No. SR-PCX-2004-99] Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the Pacific Exchange, Inc. Relating to Listing and Trading iShares® FTSE/Xinhua China 25 Index Fund December 6, 2004. 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 October 15, 2004, the Pacific Exchange, Inc. (“PCX” or “Exchange”), through its wholly owned subsidiary PCX Equities, Inc. (“PCXE”), filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is approving the proposal on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 217 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The PCX proposes to amend its rules governing the Archipelago Exchange (“ArcaEx”), the equities trading facility of PCXE, to list and trade, or trade pursuant to unlisted trading privileges, the iShares® FTSE/Xinhua China 25 Index Fund. 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 PCX included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange has adopted listing standards applicable to Investment Company Units (“ICUs”), which are consistent with the listing criteria currently used by the American Stock Exchange LLC and other national securities exchanges, and trading standards pursuant to which the Exchange may either list and trade ICUs, or trade such ICUs on the Exchange on an unlisted trading privileges (“UTP”) basis. 3 The Exchange now proposes to list and trade, or trade on a UTP basis, under PCXE Rule 5.2(j)(3), shares of the iShares® FTSE/Xinhua China 25 Index Fund (“Fund”), 4 a series of the iShares Trust (“Trust”). 5 Fund shares will be deemed equity securities subject to PCXE rules governing the trading of equity securities. 6 Because the Fund invests in non-U.S. securities not listed on a national securities exchange or the Nasdaq Stock Market, the Fund does not meet the “generic” listing requirements of PCXE Rule 5.2(j)(3), Commentary .01, applicable to the listing of ICUs pursuant to Rule 19b-4(e) under the Act, and therefore cannot be listed on a national securities exchange without a filing pursuant to Rule 19b-4 under the Act. 3 *See* PCXE Rule 5.2(j)(3). 4 iShares is a registered trademark of Barclays Global Investors, N.A. 5 The Trust is registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”). On January 22, 2003, the Trust filed with the Commission a Registration Statement for the Fund on Form N-1A under the Securities Act of 1933, as amended, and under the Investment Company Act (File Nos. 333-92935 and 811-09729) (as amended, the “Registration Statement”). On July 28, 2004, the Trust filed a Form N-1A to update certain Fund information. On September 8, 2004, the Trust filed with the Commission a Second Amended and Restated Application to Amend Orders under Sections 6(c) and 17(b) of the Investment Company Act for the purpose of exempting the Fund from various provisions of the Investment Company Act and the rules thereunder (the “Application”). *See Barclays Global Fund Advisors, et al.* ; *Notice of Application* , Investment Company Act Release No. 26597 (September 14, 2004), 69 FR 56105 (September 17, 2004) (File No. 812-12936). The Application requested that the Commission amend a prior order received by the Advisor, the Trust and the Distributor on August 15, 2001, as amended (the “Prior Order”) to permit the Trust to offer three new International ETFs, including the Fund, and to permit the Fund, along with certain other International ETFs, to invest in certain depositary receipts, as described below. *See also In the Matter of iShares Trust, et al.* , Investment Company Act Release No. 25111 (August 15, 2001) (File No. 812-12254); *Barclays Global Fund Advisors, et al.* , Investment Company Act Release No. 25078 (July 24, 2001), 66 FR 39377 (July 30, 2001) (File No. 812-12254). *In the Matter of iShares, Inc., et al.* , Investment Company Act Release No. 25623 (June 25, 2002); *In the Matter of iShares Trust, et al.* , Investment Company Act Release No. 26006 (April 15, 2003) (relating to Prior Order). On October 5, 2004, the Commission approved the Application. *See Barclays Global Fund Advisors, et al.* , Investment Company Act Release No. 26626 (October 5, 2004) (“Amended Order”). 6 Telephone conversation between Tania J.C. Blanford, Staff Attorney, PCX, and Natasha Cowen, Attorney, Division of Market Regulation (“Division”), Commission, on December 6, 2004. As set forth in detail below, the Fund will hold certain securities and other instruments selected to correspond generally to the performance of the FTSE/Xinhua China 25 Index (“Underlying Index”). The Fund was created to qualify as a “regulated investment company” (“RIC”) under the Internal Revenue Code (“Code”). 7 Barclays Global Fund Advisors (“Advisor” or “BGFA”) is the investment advisor to the Fund. The Advisor is registered under the Investment Advisers Act of 1940. 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. (“Distributor”), a Pennsylvania corporation and broker-dealer registered under the Act, is the principal underwriter and distributor of Creation Unit Aggregations of iShares. 8 The Distributor is not affiliated with the Exchange or the Advisor. The Trust has appointed Investors Bank & Trust Co. to act as administrator (“Administrator”), custodian, fund accountant, transfer agent, and dividend disbursing agent for the Fund. The performance of the Administrator's duties and obligations will be conducted within the provisions of the Investment Company Act and the rules thereunder. There is no affiliation between the Administrator and the Trust, the Advisor, or the Distributor. 7 *See also infra* note 12. 8 *See infra* note 24 and accompanying text. FTSE/Xinhua Index Ltd. (“FXI”), 9 the sponsor and compiler of the FTSE/Xinhua China 25 Index, is not affiliated with the Trust, the Administrator, the Distributor, or with the Advisor or its affiliates. 10 The Fund is not sponsored, offered, or sold by FXI. FXI is not affiliated with a broker or dealer. 9 FXI is a Hong Kong incorporated, joint venture company between FTSE, the global index company, and Xinhua Financial Network. 10 Although FXI is not an affiliated person, or an affiliated person of an affiliated person of the Advisor, an employee of Barclays Global Investors, North Asia Limited (“BGIL”), an affiliate of the Advisor currently serves as one of the 19 members of the FTSE/Xinhua Index Committee. Telephone conversation between Tania J.C. Blanford, Staff Attorney, PCX, and Natasha Cowen, Attorney, Division, Commission, on November 17, 2004. The FTSE/Xinhua Index Committee provides practitioner input into the construction of the FTSE/Xinhua indices and independent oversight to ensure that relevant index construction rules are being followed. The role of the Index Committee is to review the appropriateness of existing Underlying Index rules, to provide oversight to ensure that Underlying Index rules are properly followed and to recommend changes to the rules in response to changes in the underlying market that the Underlying Index seeks to represent. Input from persons or experts ( *i.e.* , practitioners) who have applicable industry knowledge of the underlying market the Underlying Index seeks to represent helps ensure that the published Underlying Index rules and the implementation of such rules adequately reflect current developments in the underlying market. Any such input would be provided in accordance with the published Underlying Index rules and methodology. The index compilation functions of FXI and the FTSE/Xinhua Index Committee are, and will remain, completely separate and independent of the portfolio management functions of BGFA. FXI and the FTSE/Xinhua Index Committee have adopted policies that prohibit the dissemination and use of confidential and proprietary information about the Underlying Index and have instituted procedures designed to prevent the improper dissemination and use of such information. The BGIL employee on the FTSE/Xinhua Index Committee is not and will not be involved in the operations of the Advisor or the Fund, and is and will not be involved in any capacity with the Fund's Board of Trustees. BGI and BGIL have adopted policies that limit the use of confidential and proprietary information about portfolio management decisions to those persons whose duties require and permit them to have access to such information and have instituted procedures designed to prevent the improper dissemination and use of such information. BGIL and BGFA are separate legal entities and do not share employees, office space, trading floors or portfolio management systems.

(a)Operation of the Fund 11 11 The information provided herein is based on information included in the Application and the Prior Order. While the Advisor manages the Fund, the Fund's Board of Directors has overall responsibility for the Fund's operations. The composition of the Board is, and would be, in compliance with the requirements of Section 10 of the Investment Company Act. The Fund is subject to and must comply with PCXE Rule 5.3(k)(5), which requires that the Fund have an audit committee that complies with Rule 10A-3 under the Act. The investment objective of the Fund is to provide investment results that correspond generally to the price and yield performance of the Underlying Index. In seeking to achieve its investment objective, the Fund utilizes “passive” indexing investment strategies. The Fund may fully replicate the Underlying Index, but currently intends to use a “representative sampling” strategy to track its Underlying Index. A Fund utilizing a representative sampling strategy generally will hold a basket of the component securities of its Underlying Index (“Component Securities”), but it may not hold all of the Component Securities. The Application states that the representative sampling techniques to be used by the Advisor to manage the Fund do not differ from the representative sampling techniques it uses to manage the funds that were the subject of the Prior Order. From time to time, adjustments may be made in the portfolio of the Fund in accordance with changes in the composition of the Underlying Index or to maintain compliance with requirements applicable to a RIC under the Code. 12 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. 12 In order for the Fund to qualify for tax treatment as a RIC, it must meet several requirements under the Code. Among these is a requirement that, at the close of each quarter of the Fund's taxable year,

(1)at least 50% of the market value of the Fund's 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 Fund's assets and not greater than 10% of the outstanding voting securities of such issuer; and

(2)not more than 25% of the value of its total assets may be invested in securities of any one issuer, or two or more issuers that are controlled by the Fund (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). “Other securities” of an issuer are considered qualifying assets only if they meet the following conditions: The entire amount of the securities of the issuer owned by the company is not greater in value than 5% of the value of the total assets of the company; and the entire amount of the securities of such issuer owned by the company does not represent more than 10% of the outstanding voting securities of such issuer. Under the second diversification requirement, the “25% diversification limitation,” a company may not invest more than 25% of the value of its assets in any one issuer or two issuers or more that the taxpayer controls. Compliance with the above referenced RIC asset diversification requirements are monitored by the Adviser 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 Adviser generally employs a representative sampling indexing strategy (as described in the Fund's prospectus) in order to achieve the fund's investment objective. The Fund's prospectus also gives the Fund 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 Underlying Index or in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”), representing such securities. The Underlying Index is a theoretical financial calculation while the Fund is an actual investment portfolio. The performance of the Fund and the Underlying Index will vary somewhat due to transaction costs, market impact, corporate actions (such as mergers and spin-offs) and timing variances. It is expected that, over time, the correlation between the Fund's performance and that of the Underlying Index, before fees and expenses, will be 95% or better. A figure of 100% would indicate perfect correlation. Any correlation of less than 100% is called “tracking error.” The Fund's investment objectives, policies, and investment strategies will be fully disclosed in its prospectus (“Prospectus”) and statement of additional information (“SAI”). The Fund will not concentrate its investments ( *i.e.,* hold 25% or more of its assets) in a particular industry or group of industries, except that the Fund will concentrate its investments to approximately the same extent that the Underlying Index is so concentrated. For purposes of this limitation, securities of the U.S. Government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S. Government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry. The Fund will at all times invest at least 80% of its assets in Component Securities and in depositary receipts representing Component Securities (“Depositary Receipts”) 13 and at least half of the remaining 20% of its assets in Component Securities, Depositary Receipts, or stocks included in the Chinese market, but not included in the Underlying Index. To the extent the Fund invests in ADRs, they will be listed on a national securities exchange or Nasdaq. Other Depositary Receipts will be listed on a foreign exchange. The Fund 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. 14 The Fund may also invest up to 10% of its assets in certain futures, options, and swap contracts and cash and cash equivalents, including money market funds advised by the Advisor 15 and other exchange traded funds (including other iShares funds). 16 For example, the Fund may invest in securities not included in the Underlying Index to reflect prospective changes in the Underlying Index (such as future corporate actions and index reconstitutions, additions, and deletions). 13 For the purposes of this order, “Depositary Receipts” are ADRs and GDRs. 14 In addition, the Exchange understands that all Depositary Receipts must be sponsored (with the exception of certain pre-1984 ADRs that are listed but unsponsored because they were grandfathered). Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, Ryan Johnson, Listings Qualifications Specialist, PCX, Tim Elliott, Regulatory Counsel, Archipelago Holdings, LLC, and Ira Brandriss, Assistant Director, Lisa Jones, Special Counsel, and Natasha Cowen, Attorney, Division, Commission, on November 9, 2004. 15 *See In the Matter of Master Investment Portfolio, et al.,* Investment Company Act Release No. 25158 (September 18, 2001). 16 The Fund, as well as any existing iShares fund, is permitted to invest in shares of another iShares fund to the extent that such investment is consistent with the Fund's investment objective, registration statement, and any applicable investment restrictions. The Fund intends to hold all of the securities in the Underlying Index that are listed on the Hong Kong Stock Exchange. The Fund does not intend to hold any B-shares which are listed on Chinese markets and included in the Underlying Index. 17 The Exchange understands that the Fund does not currently intend to invest in Depositary Receipts but reserves the flexibility to do so. 18 As with the existing iShares funds, BGFA represents that the expected tracking error of the Fund relative to the performance of its Underlying Index will be no more than 5%. 17 *See infra* note 22. 18 Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, Ryan Johnson, Listings Qualifications Specialist, PCX, Tim Elliott, Regulatory Counsel, Archipelago Holdings, LLC, and Ira Brandriss, Assistant Director, Lisa Jones, Special Counsel, and Natasha Cowen, Attorney, Division, Commission, on November 9, 2004. The Exchange believes that these requirements and policies prevent the Fund from being excessively weighted in any single security or small group of securities and significantly reduce concerns that trading in the Fund could become a surrogate for trading in unregistered securities.

(b)Description of the Fund and the Underlying Index (FTSE/Xinhua China 25 Index) FXI is a Hong Kong incorporated, joint venture company between FTSE, the global index company, and Xinhua Financial Network (“XFN”). The company was created to facilitate the development of real-time indices for the Chinese market that can be used as performance benchmarks and as a basis for derivative trading and index tracking funds. FTSE is an independent company whose sole business is the creation and management of indices and associated data services. FTSE originated as a joint venture between the Financial Times and the London Stock Exchange. FTSE calculates over 60,000 indices daily, including more than 600 real-time indices. XFN is an independent financial information provider that focuses on China's markets. XFN is based in Hong Kong and Beijing. Index Description The Underlying Index is designed to represent the performance of the largest companies in the mainland China equity market that are available to international investors. The Underlying Index includes 25 of the largest and most heavily traded Chinese companies. Component Securities are weighted based on the free-float adjusted total market value of their shares, so that securities with higher total market values generally have a higher representation in the Underlying Index. Component Securities are screened for liquidity and weightings are capped to avoid over-concentration in any one stock. The inception date of the Underlying Index was March 2001. As of December 31, 2003, the Underlying Index's top three holdings were BOC Hong Kong (Holdings), PetroChina and China Mobile and the Underlying Index's top three industries were oil and gas, telecommunications services, and banks. 19 19 Information on Underlying Index constituents was attached to the proposed rule change as Exhibit A, available at the places specified in Item III below. As of October 12, 2004, the FTSE/Xinhua China 25 Index components had a total market capitalization of approximately $155 billion and a float-adjusted market capitalization of approximately $42 billion. 20 The average total market capitalization was approximately $6.4 billion and the average float-adjusted market capitalization was approximately $1.7 billion. The ten largest constituents represented approximately 60.1% of the Underlying Index weight. The five highest weighted stocks, which represented 39.9% of the Underlying Index weight, had an average daily trading volume in excess of 56.9 million shares during the past three months. All of the Component Securities traded at least 250,000 shares in each of the previous three months. 20 Float-adjusted market capitalization includes shares available in the market for public investment, and reflects free-float adjustments to the Underlying Index in accordance with FTSE's free float rules. Additional information regarding FTSE's free float adjustment methodology is available on *http://www.ftse.com.* Index Methodology *Component Selection Criteria.* The FTSE/Xinhua China 25 Index is rule based and is monitored by a governing committee. The FTSE/Xinhua China 25 Index Committee (“Index Committee”) is responsible for conducting the quarterly review of constituents of the Underlying Index and for making changes to the Underlying Index in accordance with the Underlying Index procedures. 21 21 *See also supra* note 10. *Eligibility.* Each Component Security will be a current constituent of the FTSE All-World Index. All classes of equity securities in issue are eligible for inclusion in the Underlying Index subject to conforming with free-float and liquidity restrictions. H shares, Red Chip shares and B shares are eligible for inclusion in the Underlying Index. 22 As of September 24, 2004, only one Component Security was B shares (approximately 1% of the Underlying Index). FXI expects to eventually eliminate B shares from the Underlying Index. 22 “H” Shares—H shares are shares of companies incorporated in China and listed and traded on the Hong Kong Stock Exchange. They are quoted and traded in Hong Kong and U.S. dollars. Like other securities trading on the Hong Kong Stock Exchange, there are no restrictions on who can trade H shares. “Red Chip” Shares—Red Chip shares are shares of companies incorporated in Hong Kong and trade on the Hong Kong Stock Exchange. They are quoted in Hong Kong dollars. Red Chip companies may be substantially owned directly or indirectly by the Chinese Government and have the majority of their business interests in mainland China. H shares and Red Chip shares trade on the Hong Kong Stock Exchange, typically on a T + 2 basis, through a central book-entry system that effectively guarantees settlement of exchange trades by broker-dealers. “B” Shares—B shares are shares of companies incorporated in China and trade on either the Shanghai or Shenzhen stock exchanges. They are quoted in U.S. dollars on the Shanghai Stock Exchange and Hong Kong dollars on the Shenzhen Stock Exchange. They can be traded by non-residents of the People's Republic of China and also residents of the People's Republic of China with appropriate foreign currency dealing accounts. There is no true “delivery versus payment” settlement for B shares. B shares settle in the local markets and cash settles subsequently in foreign depositaries or local banks. *Float-Adjusted Market Capitalization.* When calculating a company's 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 such companies are Underlying Index constituents. 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. 23 23 The Exchange understands that there are no foreign ownership limits with the current constituents to the FTSE/Xinhua China 25 Index and that, as such, the percentage float will be used. Stocks are screened to ensure there is sufficient liquidity to be traded. Factors in determining liquidity include the availability of current and reliable price information and the level of trading volume relative to shares outstanding. Value traded and float turnover are also analyzed on a monthly basis to ensure ample liquidity. Fundamental analysis is not part of the selection criteria for inclusion or exclusion of stocks from the Underlying Index. The financial and operating conditions of a company are not analyzed. *Index Maintenance and Issue Changes.* The Index Committee is responsible for undertaking the review of the Underlying Index and for approving changes of constituents in accordance with the Underlying Index rules and procedures. The FTSE Global Classification Committee is responsible for the industry classification of constituents of the Underlying Index within the FTSE Global Classification System. The FTSE Global Classification Committee may approve changes to the FTSE Global Classification System and Management Rules. FXI appoints the Chairman and Deputy Chairman of the Index Committee. The Chairman chairs meetings of the Committee and represents the Committee in outside meetings. Adjustments to reflect a major change in the amount or structure of a constituent company's issued capital will be made before the start of the Underlying Index calculation on the day on which the change takes effect. Adjustments to reflect less significant changes will be implemented before the start of the Underlying Index calculation on the day following the announcement of the change. All adjustments are made before the start of the Underlying Index calculations on the day concerned, unless market conditions prevent this. A company will be inserted into the Underlying Index at the periodic review if it rises to 15th position or above when the eligible companies are ranked by full market value before the application of any investibility weightings. A company in the Underlying Index will be deleted at the periodic review if it falls to 36th position or below when the eligible companies are ranked by full market value before the application of any investibility weightings. Any deletion to the Underlying Index will simultaneously entail an addition to the Underlying Index in order to maintain 25 Underlying Index constituents at all times. *Revisions to the Float Adjustments.* The Underlying Index is reviewed quarterly for changes in free float. These reviews will coincide with the quarterly reviews undertaken of the Underlying Index as a whole. Implementation of any changes will be after the close of the Underlying Index calculation on the third Friday in January, April, July, and October. *Quarterly Index Rebalancing.* The quarterly review of the Underlying Index constituents takes place in January, April, July, and October. Any constituent changes will be implemented on the next trading day following the third Friday of the same month of the review meeting. Details of the outcome of the review and the dates on which any changes are to be implemented will be published as soon as possible after the Index Committee meeting has concluded. *Index Availability.* The Underlying Index is calculated in real-time and published every minute during the Underlying Index period (09:15-16:00 Local Hong Kong Time) or (17:15-24:00 U.S. Pacific Daylight Time). It is available real-time directly from FTSE and from the following vendors: Reuters, Bloomberg, Telekurs, FTID and LSE/Proquote. The end of day Underlying Index value is distributed at 16:15 (Local Hong Kong Time). Daily values will also be made available to the Financial Times Asia edition and other major newspapers and will be available at the FTSE Index Services Web site: *http://www.ftse.com* . The Underlying Index uses Hong Kong Stock Exchange trade prices and Reuters real-time spot currency rates. A total return index value that takes into account reinvested dividends is published daily at the end of day. The Underlying Index is not calculated on days that are holidays in Hong Kong. The daily closing Underlying Index value, historical values, constituents' weighting, constituents' market capitalization and daily percentage changes are publicly available from *http://www.ftsexinhua.com* . All corporate actions and rules relating to the management of the Underlying Index are also available from the Web site. *Exchange Rates and Pricing.* The Underlying Index uses Reuters real-time foreign exchange spot rates and local stock exchange real-time security prices. The Underlying Index is calculated in Hong Kong Dollars. Non-Hong Kong Dollar denominated constituent prices are converted to Hong Kong Dollars to calculate the Underlying Index. The Reuters foreign exchange rates and Hong Kong Stock Exchange prices received at the closing time of the Underlying Index are used to calculate the final Underlying Index levels.

(c)Issuance of iShares in Creation Unit Aggregations The issuance and redemption of Creation Unit Aggregations will operate in a manner identical to that of the funds that are the subject of the Prior Order.

(i)*In General.* Shares of the Fund (the “iShares”) will be issued on a continuous offering basis in groups of 50,000 or more. These “groups” of shares are called “Creation Unit Aggregations.” The Fund will issue and redeem iShares only in Creation Unit Aggregations. 24 24 Each Creation Unit Aggregation consists of 50,000 or more iShares. As with other open-end investment companies, iShares will be issued at the net asset value (“NAV”) per share next determined after an order in proper form is received. The NAV per share of the Fund is determined as of the close of the regular trading session on the NYSE on each day that the NYSE is open. The Trust sells Creation Unit Aggregations of the Fund only on business days at the next determined NAV of the Fund. Creation Unit Aggregations generally will be issued by the Fund 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 (“Deposit Securities”) and a specified cash payment. Creation Unit Aggregations generally will be redeemed by the Fund in exchange for portfolio securities of the Fund (“Fund Securities”) and a specified cash payment. Fund Securities received on redemption may not be identical to Deposit Securities deposited in connection with creations of Creation Unit Aggregations for the same day. All orders to purchase iShares in Creation Unit Aggregations must be placed through an Authorized Participant. An Authorized Participant must be either a “Participating Party,” *i.e.* , a broker-dealer or other participant in the clearing process through the National Securities Clearing Corporation (“NSCC”) Continuous Net Settlement System, a clearing agency that is registered with the SEC, or a Depository Trust Company (“DTC”) participant (“DTC Participant”), and in each case, must enter into a Participant Agreement. The Exchange understands that the Fund is currently imposing transaction fees in connection with creation and redemption transactions. 25 25 Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, PCX, and Natasha Cowen, Attorney, Division, Commission, on November 17, 2004.

(ii)In-Kind Deposit of Portfolio Securities. Payment for Creation Unit Aggregations will be made by the purchasers generally by an in-kind deposit with the Fund of the Deposit Securities together with an amount of cash (“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. 26 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 NSCC participants 27 through the NSCC on each business day, prior to the opening of trading on the NYSE (currently 9:30 a.m. Eastern Standard 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 the Fund. The Fund Deposit will be applicable to the Fund (subject to any adjustments to the Balancing Amount, as described below) in order to effect purchases of Creation Unit Aggregations of the Fund until such time as the next-announced Fund Deposit composition is made available. 26 Where the NAV (per Creation Unit Aggregation) of the Fund exceeds the Deposit Amount, the purchaser pays the corresponding Balancing Amount to the Fund. Where, by contrast, the Deposit Amount exceeds the NAV (per Creation Unit Aggregation) of the Fund, the Balancing Amount is paid by the Fund to the purchaser. Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, PCX, and Natasha Cowen, Attorney, Division, Commission, on December 1, 2004. 27 Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, PCX, and Natasha Cowen, Attorney, Division, Commission, on November 17, 2004. The identity and number of shares of the Deposit Securities required for the Fund Deposit for the 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 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 Underlying Index or resulting from certain corporate actions.

(d)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 the 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 (“Intraday Optimized Portfolio Value” or “IOPV”) is currently calculated by an independent third party (“Value Calculator”), such as Bloomberg L.P., every 15 seconds during the Exchange's Core Trading Session 28 and disseminated every 15 seconds on the Consolidated Tape. 28 The Core Trading Session is defined in PCXE Rule 7.34(a). Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, PCX, and Natasha Cowen, Attorney, Division, Commission, on October 28, 2004. The IOPV reflects the current value of the Deposit Securities and the Balancing Amount. The IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable home foreign currency. Since the Fund will utilize a representative sampling strategy, the IOPV may not reflect the value of all securities included in the Underlying Index. In addition, the IOPV does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a particular point in time. Therefore, the IOPV on a per Fund share basis disseminated during the NYSE's trading hours should not be viewed as a real time update of the NAV of the Fund, which is calculated only once a day. While the IOPV disseminated by the NYSE at 9:30 a.m. Eastern Standard Time 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 the Fund may diverge from the Deposit Securities values during any trading day. In such case, the IOPV will not precisely reflect the value of the Fund 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 the 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 Fund 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. Since the trading hours of the Hong Kong Stock Exchange do not overlap with regular trading hours in the U.S., it is expected that the Value Calculator, when calculating IOPV, will utilize closing prices (in applicable foreign currency prices) in the principal foreign market for the securities in the Fund portfolio ( *i.e.* , the Hong Kong Stock Exchange), and convert the prices to U.S. dollars. In addition, FTSE will be disseminating a value for the Underlying Index once each trading day, based on closing prices on the Hong Kong Stock Exchange. The NAV for the Fund will be calculated and disseminated daily. Investors Bank and Trust (“IBT”) will calculate the Fund NAV. IBT will also disseminate the information to BGI, SEI, and others. The Fund NAV will be published in a number of places, including *http://www.iShares.com* and on the Consolidated Tape. The Underlying Index currently uses the Reuters foreign exchange rate at the close of the index (4 p.m. Hong Kong Time) to compute final Underlying Index values. The Fund uses Reuters/WM foreign exchange rates at 4 p.m. London Time. There will also be disseminated a variety of data with respect to the Fund on a daily basis by means of CTA and CQ High Speed Lines, which will be made available prior to the opening of trading on the NYSE. 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 NYSE. In addition, the Web site for the Trust, *http://www.iShares.com* , which is publicly accessible at no charge, will contain the following information, on a per iShare basis, for the Fund:

(a)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”), 29 and a calculation of the premium or discount of such price against such NAV; and

(e)Redemption of iShares Creation Unit Aggregations of the Fund will be redeemable at the NAV next determined after receipt of a request for redemption. Creation Unit Aggregations of the Fund 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 Fund's redemption payments on a Creation Unit Aggregation basis will equal the NAV per the appropriate number of iShares of the Fund. 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 Fund. Redemption orders must be placed by or through an Authorized Participant. Creation Unit Aggregations of the Fund generally will be redeemable on any business day in exchange for 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 (“Creation List”) and which a redeemer will receive from the Fund (“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 Fund, 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 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.

(f)Dividends and Distributions Dividends from net investment income will be declared and paid to beneficial owners of record at least annually by the Fund. Distributions of realized securities gains, if any, generally will be declared and paid once a year, but the Fund 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 Fund will be distributed on a pro rata basis to beneficial owners of such iShares. Dividend payments will be made through the DTC 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 (“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 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 beneficial owners will hold iShares acquired pursuant to the Service in the same manner, and subject to the same terms and conditions, as for original ownership of iShares. Beneficial owners of iShares will receive all of the statements, notices, and reports required under the Investment Company Act and other applicable laws. They will receive, for example, annual and semi-annual reports, written statements accompanying dividend payments, proxy statements, annual notifications detailing the tax status of distributions, IRS Form 1099-DIVs, etc. Because the Trust's records reflect ownership of iShares by DTC only, the Trust will make available applicable statements, notices, and reports to the DTC Participants who, in turn, will be responsible for distributing them to the beneficial owners.

(g)Other Issues

(1)*Criteria for Initial and Continued Listing.* iShares are subject to the criteria for initial and continued listing of ICUs in PCXE Rules 5.2(j)(3) and 5.5(g)(2). The minimum number of iShares required to be outstanding at the start of trading will be comparable to requirements that have been applied to previously traded series of ICUs. The Exchange believes that the proposed minimum number of iShares outstanding at the start of trading is sufficient to provide market liquidity and to further the Trust's objective to seek to provide investment results that correspond generally to the price and yield performance of the Underlying Index.

(2)*Original and Annual Listing Fees.* On October 26, 2004 the Commission approved modifications to the listing fees for exchange-traded funds and closed-end funds on the Exchange. Original listing fees are: $20,000 for the first fund listed by a fund issuer or “family;” and no fee for subsequent additional funds listed by the same fund issuer or “family.” 30 30 Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, PCX, and Natasha Cowen, Attorney, Division, Commission, on December 6, 2004. *See also* Securities Exchange Act Release No. 50593 (October 26, 2004), 69 FR 63427 (November 1, 2004) (SR-PCX-2004-63).

(3)*Prospectus Delivery.* The Commission has granted the Trust an exemption from certain prospectus delivery requirements under Section 24(d) of the Investment Company Act. 31 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 Circular, will inform ETP Holders prior to commencement of trading, of the prospectus or product description delivery requirements applicable to the Fund. 31 *See In the Matter of iShares, Inc., et al.* , Investment Company Act Release No. 25623 (June 25, 2002).

(4)*Information Circular.* The Exchange will distribute an information circular to ETP Holders in connection with the trading of the Fund (“Information Circular”). The Information Circular will discuss the special characteristics and risks of trading this type of security. Specifically, the Information Circular, among other things, will discuss what the Fund is, how Fund shares are created and redeemed, the requirement that ETP Holders deliver a prospectus or product description to investors purchasing shares of the Fund before, or concurrently with, the confirmation of a transaction, applicable Exchange rules, dissemination information, trading information and the applicability of suitability rules (PCXE Rule 9.2(a)). The Information Circular will also discuss exemptive, no-action and interpretive relief granted by the Commission from Section 11(d)(1) and certain rules under the Act, including Rule 10a-1, Rule 10b-10, Rule 14e-5, Rule 10b-17, Rule 11d1-2, Rules 15c1-5 and 15c1-6, and Rules 101 and 102 of Regulation M under the Act.

(5)*Trading Halts.* In order to halt the trading of the Fund, 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 Fund shares is subject to trading halts caused by extraordinary market volatility pursuant to PCXE Rule 7.12.

(6)*Due Diligence.* The Exchange represents that the information circular to ETP Holders will note, for example, Exchange responsibilities including that before an ETP Holder, or employee thereof recommends a transaction in the Fund, 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 PCXE Rule 9.2(a)-(b).

(7)*Purchases and Redemptions in Creation Unit Aggregations.* 32 In the Information Circular ETP Holders will be informed that procedures for purchases and redemptions of iShares in Creation Unit Aggregations are described in the Prospectus and SAI, and that iShares are not individually redeemable but are redeemable only in Creation Unit Aggregations or multiples thereof. 32 Some of the terminology in this Section has been revised pursuant to a telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, PCX, and Natasha Cowen, Attorney, Division, Commission, on November 2, 2004.

(8)*Surveillance.* Exchange surveillance procedures applicable to trading in the proposed iShares are comparable to those applicable to other ICUs currently trading on the Exchange. The Exchange represents that its surveillance procedures are adequate to properly monitor the trading of the Fund. 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 is able to obtain information regarding trading in both the Fund shares and the Component Securities by the ETP Holders on any relevant market; in addition, the Exchange may obtain trading information via the Intermarket Surveillance Group (“ISG”) from other exchanges who are members or affiliates of the ISG, including, by way of example, the Hong Kong Stock Exchange.

(9)*Hours of Trading/Minimum Price Variation.* The Fund will trade during the hours specified in PCXE Rule 7.34. The minimum price variation for quoting will be consistent with PCXE Rule 7.6. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 33 in general, and furthers the objectives of Section 6(b)(5) 34 in particular, in that it is designed 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 a national market system, and in general, to protect investors and the public interest. 33 15 U.S.C. 78f(b). 34 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments on the proposed rule change were solicited or received. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an email to *rule-comments@sec.gov* . Please include File No. SR-PCX-2004-99 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File No. SR-PCX-2004-99. 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 ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the PCX. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-PCX-2004-99 and should be submitted on or before January 3, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 35 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act, 36 which requires, among other things, that the Exchange's rules promote just and equitable principles of trade, and facilitate transactions in securities, and, in general, protect investors and the public interest. 37 35 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 36 15 U.S.C. 78f(b)(5). 37 Pursuant to Section 6(b)(5) of the Act, the Commission must predicate approval of exchange trading for new products upon a finding that the introduction of the product is in the public interest. Such a finding would be difficult with respect to a product that served no investment, hedging or other economic function, because any benefits that might be derived by market participants would likely be outweighed by the potential for manipulation, diminished public confidence in the integrity of the markets, and other valid regulatory concerns. The Commission believes that the PCX'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 targeted Underlying Index. 38 38 The Commission notes that, as is the case with similar previously approved exchange traded funds, investors in the Fund can redeem shares in Creation Unit Aggregations only. *See,* *e.g.* , Securities Exchange Act Release No. 43679 (December 5, 2000), 65 FR 77949 (December 13, 2000) (File No. SR-NYSE-00-46); Securities Exchange Act Release No. 50189 (August 12, 2004); 69 FR 51723 (August 20, 2004) (File No. SR-Amex-2004-05). 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 index funds that the Commission has previously approved for listing and trading on national securities exchanges under Section 19(b)(2) of the Act. 39 In addition, as noted above, the Commission has previously approved a substantially similar proposed rule change submitted by the NYSE to list and trade the iShares. 40 39 15 U.S.C. 78s(b)(2). 40 *See* Securities Exchange Act Release No. 50505 (October 8, 2004), 69 FR 61280 (October 15, 2004) (SR-NYSE-2004-55). The stocks included in the Underlying Index are among the stocks with the highest liquidity and market capitalization in the Chinese markets. Further, with respect to each of the following key issues, the Commission believes that the Fund satisfies established standards. A. Fund Characteristics The Commission believes that the proposed Fund is reasonably designed to provide investors with an investment vehicle that substantially reflects in value the performance of the Underlying Index. 41 Moreover, the Commission finds that, although the value of the Fund's shares will be derived from and based on the value of the securities and cash held in the Fund, the Fund is not leveraged. Accordingly, the level of risk involved in the purchase or sale of Fund shares is similar to the risk involved in the purchase or sale of traditional common stock, with the exception that the pricing mechanism for shares in the Fund is based on a portfolio of securities. The Commission notes that the Fund will at all times invest at least 80% of its assets in Component Securities and in Depositary Receipts and at least half of the remaining 20% of its assets in Component Securities, Depositary Receipts, or in stocks included in the Chinese market, but not included in the Underlying Index. 42 As noted above, the Fund will use a representative portfolio sampling strategy to attempt to track its Underlying Index. Although a representative sampling strategy entails some risk of tracking error, the Advisor will seek to minimize tracking error. It is expected that the Fund will have a tracking error relative to the performance of its Underlying Index of no more than 5%. 41 The FTSE/Xinhua China 25 Index is a free float-adjusted market capitalization weighted index that is designed to represent the performance of the largest companies in the mainland China equity market that are available to international investors. As of October 12, 2004, its constituents had a total market capitalization of approximately $155 billion and a float-adjusted market capitalization of approximately $42 billion. The Commission notes that although one employee of an affiliate of the Advisor serves on the FTSE/Xinhua Index Committee and provides input to help ensure that the published index rules and the implementation of such rules adequately reflect current developments in the underlying market, such employee is not and will not be involved in the operations of the Advisor or the Fund or be involved in any capacity with the Fund's Board of Trustees. Moreover, the index compilation functions of FXI and the FTSE/Xinhua Index Committee are, and will remain, completely separate and independent of the portfolio management functions of BGFA. FXI and the FTSE/Xinhua Index Committee have adopted policies that prohibit the dissemination and use of confidential and proprietary information about the Underlying Index and have instituted procedures designed to prevent the improper dissemination and use of such information. BGI and BGIL have adopted policies that limit the use of confidential and proprietary information about portfolio management decisions to those persons whose duties require and permit them to have access to such information and have instituted procedures designed to prevent the improper dissemination and use of such information. 42 The Exchange states that, to the extent the Fund invests in Depositary Receipts, any ADRs will be listed on a national securities exchange or Nasdaq. Other Depositary Receipts will be listed on a foreign exchange. The Fund 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. The Fund currently intends to hold all of the securities in the Underlying Index that are listed on the Hong Kong Stock Exchange. The Advisers to the Fund may attempt to reduce tracking error by using a variety of investment instruments, including futures contracts, repurchase agreements, options, swaps and currency exchange contracts; however, these instruments will not constitute more than 10% of the Fund's assets. 43 43 *See* discussion under Section II.A.1(a) “Operation of the Fund” above. The Commission believes that the market capitalization and liquidity of the Component Securities is such that an adequate level of liquidity exists so that the Fund shares should not be susceptible to manipulation. 44 Also, the Commission 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. 44 The Exchange states that as of October 12, 2004, the ten largest constituents represented approximately 60.1% of the index weight. The five highest weighted stocks, which represented 39.9% of the index weight, had an average daily trading volume in excess of 56.9 million shares during the past three months. All of the Component Securities traded at least 250,000 shares in each of the previous three months. While the Commission believes that these requirements should help to reduce concerns that the Fund could become a surrogate for trading in a single or a few unregistered stocks, if the Fund's characteristics changed materially from the characteristics described herein, the Fund would not be in compliance with the standards approved herein, and the Commission would expect the PCX to file a proposed rule change pursuant to Rule 19b-4 of the Act. In addition, the Exchange has represented that it will immediately notify the Commission of any changes made in the Fund and not represented herein. 45 45 Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, Ryan Johnson, Listings Qualifications Specialist, PCX, Tim Elliott, Regulatory Counsel, Archipelago Holdings, LLC, and Ira Brandriss, Assistant Director, Lisa Jones, Special Counsel, and Natasha Cowen, Attorney, Division, Commission, on November 9, 2004. B. Disclosure The Exchange represents that it will circulate an Information Circular detailing applicable prospectus and product description delivery requirements. The Information Circular also will address ETP Holders' responsibility to deliver a prospectus or product description to all investors and highlight the characteristics of the Funds. The Information Circular will also remind ETP Holders of their suitability obligations, including PCXE Rule 9.2(a)). For example, the Information Circular will also inform ETP Holders that Fund shares are not individually redeemable, but are redeemable only in Creation Unit Aggregations or multiples thereof as set forth in the Prospectus and SAI. 46 46 See discussion under Section II.A.1(a) “Operation of the Fund,” above. The Exchange has represented that the Information Circular will also discuss exemptive, no-action, and interpretive relief granted by the Commission from certain rules under the Act. C. Dissemination of Fund Information With respect to pricing, each day, the NAV for the Fund will be calculated and disseminated by IBT to various sources and made available on http://www.iShares.com and on the Consolidated Tape. 47 47 The Underlying Index currently uses the Reuters foreign exchange rate at the close of the index (4 p.m. Hong Kong Time) to compute final index values. The Fund intends to use Reuters/WM foreign exchange rates at 4 p.m. London Time. During each day the PCX is open for business, the Exchange states that the IOPV of the Underlying Index will be disseminated at regular intervals (every 15 seconds) on the Consolidated Tape. The IOPV will be updated throughout the PCX trading day to reflect fluctuations in exchange rates between the U.S. dollar and the applicable home foreign currency. The Underlying Index value is available real time directly from FTSE and from the following vendors: Reuters, Bloomberg, Telekurs, FTID and LSE/Proquote. An end of day closing value for the Underlying Index is available on *http://www.ftsexinhua.com,* along with other Underlying Index information such as historical values, composition and component weighting. The Commission believes that this information will help an investor to determine whether, and to what extent, iShares may be selling at a premium or a discount to NAV. There will also be disseminated a variety of data with respect to the Fund on a daily basis by means of CTA and CQ High Speed Lines, which will be made available prior to the opening of trading on the NYSE. 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 NYSE. In addition, the Web site for the Trust, which will be publicly accessible at no charge, will contain the following information, on a per iShare basis, for the Fund:

(a)The prior business day's NAV and the mid-point of the Bid-Ask Price 48 at the time of calculation of such NAV, and a calculation of the premium or discount of such price against such NAV; and

(b)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. 48 The Bid-Ask Price of the Fund is determined using the highest bid and lowest offer on the NYSE as of the time of calculation of the Fund's NAV. The closing prices of the Fund's Deposit Securities are available from, as applicable, the relevant exchanges, automated quotation systems, published or other public sources in the relevant country, or on-line information services 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 Commission notes that the iShares Web site is and will be publicly accessible at no charge, and will contain the Fund's NAV as of the prior business day, the Bid-Asked Price, and a calculation of the premium or discount of the Bid-Asked Price in relation to the closing NAV. 49 49 Additional information available to investors will include data for a period covering at least the four previous calendar quarters (or the life of a Fund, if shorter) indicating how frequently the Fund's shares traded at a premium or discount to NAV based on the Bid-Asked Price and closing NAV, and the magnitude of such premiums and discounts; the Fund Prospectus and two most recent reports to shareholders; and other quantitative information such as daily trading volume. The Exchange also represents that it will halt trading and/or delist the shares if the dissemination of the Fund's value ceases and there is no readily available source for obtaining such information. 50 50 Telephone conversation between Tania J.C. Blanford, Staff Attorney, Regulatory Policy, Ryan Johnson, Listings Qualifications Specialist, PCX, Tim Elliott, Regulatory Counsel, Archipelago Holdings, LLC, and Ira Brandriss, Assistant Director, Lisa Jones, Special Counsel, and Natasha Cowen, Attorney, Division, Commission, on November 9, 2004. Based on the representations made in the 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 further finds that adequate rules and procedures exist to govern the listing and trading, or trading pursuant to UTP, of the Fund's shares. The Exchange has represented that Fund shares will be deemed equity securities subject to PCXE rules governing the trading of equity securities, including, among others, rules governing trading halts. 51 51 In order to halt the trading of the Fund, the Exchange may consider, among others, factors including:

(1)The extent to which trading is not occurring in underlying securities; or

(2)whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, trading in Fund shares is subject to trading halts caused by extraordinary market volatility pursuant to PCXE Rule 7.12. In addition, the Exchange states that iShares are subject to the criteria for initial and continued listing of ICUs in PCXE Rules 5.2(j)(3) and 5.5 (g)(2). The Commission believes that the listing and delisting criteria for Fund shares should help to ensure that a minimum level of liquidity will exist in the Fund to allow for the maintenance of fair and orderly markets. E. Surveillance The Exchange represents that it will rely on its existing surveillance procedures governing ICUs currently trading on the Exchange. The Exchange also represents that it is able to obtain information from the NYSE or any third party regarding trading in both the Fund shares and the Component Securities by the ETP Holders on any relevant market; in addition, the Exchange represents that it may obtain trading information via the ISG from other exchanges who are members or affiliates of the ISG, including, by way of example, the Hong Kong Stock Exchange. F. Accelerated Approval The Exchange has requested that the Commission approve the proposed rule change on an accelerated basis. The Commission finds good cause, pursuant to Section 19(b)(2) of the Act, 52 for approving the proposed rule change prior to the thirtieth day after the date of publication of notice in the **Federal Register** . The Commission has previously approved a substantially similar proposed rule change submitted by the NYSE to list and trade the iShares 53 and does not believe that the proposed rule change raises novel regulatory issues. Consequently, the Commission believes that it is appropriate to permit investors to benefit from the ability to trade these products on the PCX as soon as possible. Accordingly, the Commission finds that there is good cause, consistent with Section 6(b)(5) of the Act, 54 to approve the proposal on an accelerated basis. 52 15 U.S.C. 78s(b)(2). 53 *See* Securities Exchange Act Release No. 50505 (October 8, 2004), 69 FR 61280 (October 15, 2004) (SR-NYSE-2004-55). 54 15 U.S.C. 78s(b)(5). V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-PCX-2004-99) is hereby approved on an accelerated basis. 55 55 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 56 56 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. 04-27252 Filed 12-10-04; 8:45 am]

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