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BILLING CODE 7590-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51055; File No. SR-Amex-2004-99] Self Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 thereto Relating to the Listing and Trading of Contingent Principal Protected Notes Linked to the Performance of the Russell 2000 January 18, 2005. 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 December 9, 2004, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange.
On January 6, 2005, Amex amended the proposed rule change. 3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is approving the proposal on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, Amex defined the term “market disruption event” for purposes of the proposed rule change and specified the market capitalization of the Russell 2000 Index as of January 5, 2005. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade contingent principal protected notes, the performance of which is linked to the Russell 2000 Index (“Russell 2000” or “Index”).
The text of the proposed rule change is available on Amex's Web site ( *http://www.amex.com* ), at the Office of the Secretary, the Amex, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Amex included statements concerning the purpose of, and basis for, the proposed rule change, as amended, and discussed any comments it received on the proposed rule change.
The text of these statements may be examined at the places specified in Item III below. The Amex 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose Introduction Under Section 107A of the Amex Company Guide (“Company Guide”), the Exchange may approve for listing and trading securities which cannot be readily categorized under the listing criteria for common and preferred stocks, bonds, debentures, or warrants. 4 The Amex proposes to list for trading under Section 107A of the Company Guide notes linked to the performance of the Russell 2000 that provide for contingent principal protection (the “Contingent Principal Protected Notes” or “Notes”). 5 The Russell 2000 is determined, calculated, and maintained solely by Frank Russell.
The Notes will provide for an uncapped participation in the positive performance of the Russell 2000 during their term while also reducing the risk exposure to the principal investment amount as long as the Index does not at any time decline below a pre-established level to be determined at the time of issuance (“Threshold Level”). This Threshold Level will be a pre-determined percentage decline from the level of the Index at the close of the market on the date the Notes are priced for initial sale to the public (“Initial Index Level”).
The Issuer expects that the Threshold Level will be approximately 70% of the Initial Index Level. A decline of the Index below the Threshold Level is referred to as a “Contingent Event.” 4 *See* Securities Exchange Act Release No. 27753 (March 1, 1990), 55 FR 8626 (March 8, 1990) (order approving File No. SR-Amex-89-29). 5 Lehman Brothers Holdings Inc. (“Lehman”) and Frank Russell Company (“Frank Russell”) have entered into a non-exclusive license agreement providing for the use of the Russell 2000 by Lehman and certain affiliates and subsidiaries in connection with certain securities including these Notes.
Frank Russell is not responsible and will not participate in the issuance and creation of the Notes. The Contingent Principal Protected Notes will conform to the initial listing guidelines under Section 107A 6 and will be subject to the continued listing guidelines under Sections 1001-1003 7 of the Company Guide. The Notes are senior non-convertible debt securities issued by Lehman. The Notes will have a term of at least one
(1)but no more than ten
(10)years. The original public offering price will be $1,000 per Note with a required minimum initial investment amount of $10,000. 6 The initial listing standards for the Notes require:
(1)A market value of at least $4 million; and
(2)a term of at least one year. Because the Notes will be issued in $1,000 denominations, the minimum public distribution requirement of one million units and the minimum holder requirement of 400 holders do not apply. *See* Section 107A. In addition, the listing guidelines provide that the issuer have assets in excess of $100 million, stockholder's equity of at least $10 million, and pre-tax income of at least $750,000 in the last fiscal year or in two of the three prior fiscal years. In the case of an issuer that is unable to satisfy the earning criteria stated in Section 101 of the Company Guide, the Exchange will require the issuer to have the following:
(1)Assets in excess of $200 million and stockholders' equity of at least $10 million; or
(2)assets in excess of $100 million and stockholders' equity of at least $20 million. Amex represents that Lehman meets these requirements. Telephone conference among Jeffrey Burns, Associate General Counsel, Amex and Beth Kleiman, Vice President Capital Markets, Amex, and Ira Brandriss, Assistant Director; Geoffrey Pemble, Special Counsel; and Mitra Mehr, Attorney, Division of Market Regulation, Commission, on January 6, 2005 (“Telephone Conference with Amex”). 7 The Exchange's continued listing guidelines are set forth in Sections 1001 through 1003 of Part 10 to the Exchange's Company Guide. Section 1002(b) of the Company Guide states that the Exchange will consider removing from listing any security where, in the opinion of the Exchange, it appears that the extent of public distribution or aggregate market value has become so reduced to make further dealings on the Exchange inadvisable. With respect to continued listing guidelines for distribution of the Notes, the Exchange will rely, in part, on the guidelines for bonds in Section 1003(b)(iv). Section 1003(b)(iv)(A) provides that the Exchange will normally consider suspending dealings in, or removing from the list, a security if the aggregate market value or the principal amount of bonds publicly held is less than $400,000. The Notes will entitle the owner at maturity to receive at least 100% of the principal investment amount as long as the Russell 2000 never experiences a Threshold Event. In the case of a positive Index return, the holder would receive the full principal investment amount of the Note plus the product of $1,000, the percentage change of the Russell 2000 during the term and the participation rate (expected to be between 105-115%). Accordingly, even if the Index declines but never drops below the Threshold Level, the holder will receive the principal investment amount of the Notes at maturity. If however, the Notes experience a Contingent Event during the term, the holder loses the “principal protection,” and will be entitled to receive a payment based on the percentage change of the Index, positive or negative. In this case, the Notes will not have a minimum principal investment amount that will be repaid, and accordingly, payment on the Notes prior to or at maturity may be less than the original issue price of the Notes. Accordingly, if the Index experiences a negative return and a Contingent Event, the Notes would be fully exposed to any decline in the level of the Russell 2000. 8 The Notes are not callable by Lehman or redeemable by the holder before maturity. 9 8 A negative return of the Russell 2000, together with a Contingent Event, will reduce the redemption amount at maturity with the potential that the holder of the Note could lose his entire investment amount. 9 Telephone Conference with Amex. The payment that a holder of or investor in a Note will be entitled to receive (the “Redemption Amount”) will depend on the relation of the level of the Russell 2000 at the close of the market on the third business day (the “Valuation Date”) before maturity of the Notes (the “Final Index Level”) and the Initial Index Level. 10 In addition, whether the Notes retain “principal protection” or are fully exposed to the performance of the Index is determined by whether the Russell 2000 ever experiences a Contingent Event during the term of the Notes. 10 In the event that a market disruption event occurs on the Valuation Date, such date will be the next business day on which no market disruption event occurs. Telephone Conference with Amex. In Amendment No. 1, Amex submitted the following definition of “market disruption event” for purposes of the proposed rule change: “The term ‘market disruption' event, as defined in the prospectus [related to the Note], is
(i)a material suspension or limitation imposed on trading relating to 20% or more of the component stocks of the Index on the primary market or related markets at any time during the one-hour period that ends at the close of trading on such day;
(ii)a material suspension of or limitation imposed on trading in futures and options contracts relating to the Index or any successor index by the primary exchange on which futures or options are traded, at any time during the one-hour period that ends at the close of trading on such day;
(iii)any event, other than an early closure, that disrupts or impairs the ability of market participants in general to effect transactions in, or obtain market values for the securities that comprise 20% or more of the Index or any successor index on the relevant exchanges of which those securities are traded, at any time during the one-hour period that ends at the close of trading on such day;
(iv)any event, other than early closure, that disrupts or impairs the ability of market participants in general to effect transactions in, or obtain market values for, the futures or options contracts relating to the Index or any successor index on the primary exchange or quotation system on which those futures or options contracts are traded at any time during the one-hour period that ends at the close of trading on such day; and
(v)the closure of the relevant exchanges on which the securities that comprise 20% or more of the Index or any successor index are traded or on which futures or options contracts relating to the Index or any successor index are traded prior to its scheduled closing time unless the earlier closure is announced by the relevant exchanges at least one hour prior to the actual closing of the regular trading session and submission deadline for orders for execution at the close.” If the percentage change of the Index is positive, the Redemption Amount per Note will equal: EN26JA05.005 If the percentage change of the Index is zero or negative and the Index never experienced a Contingent Event, the Redemption Amount per Note will equal the principal investment amount of $1,000. If the Index experiences a Contingent Event the Redemption Amount per Note will equal: 11 Amex represents that this formula is equivalent to the formula that appears in the prospectus. Telephone Conference with Amex. EN26JA05.004 The Notes are cash-settled in U.S. dollars and do not give the holder any right to receive a portfolio security, dividend payments or any other ownership right or interest in the portfolio or index of securities comprising the Russell 2000. Unlike ordinary debt securities, the Notes do not guarantee any return of principal at maturity. 12 The Notes are designed for investors who want to participate or gain exposure to the Russell 2000 while partially limiting their investment risk and who are willing to forego market interest payments on the Notes during such term. The Commission has previously approved the listing of securities and options linked to the performance of the Russell 2000. 13 12 Telephone Conference with Amex. Description of the Index The Index is a capitalization-weighted index maintained by Frank Russell. 14 It is designed to track the performance of 2,000 common stocks of corporations with small market capitalizations relative to other stocks in the U.S. equity market. The companies represented in the Index are domiciled in the U.S. and its territories and cover a wide range of industries. All 2,000 stocks underlying the Index are traded on the New York Stock Exchange, Inc. (“NYSE”), the Amex or the Nasdaq Stock Market (“Nasdaq”) and form a part of the Russell 3000 Index. The Russell 3000 Index is comprised of the 3,000 largest U.S. companies, based on market capitalization, and it represents approximately 98% of the U.S. equity market. 13 *See e.g.* , Securities Exchange Act Release Nos. 50724 (November 23, 2004), 69 FR 69655 (November 30, 2004)(SR-NASD-2004-132)(listing and trading of Accelerated Return Notes linked to the Russell 2000); 50710 (November 19, 2004), 69 FR 69435 (November 29, 2004)(SR-NASD-2004-157)(listing and trading of Leveraged Upside Securities linked to the Russell 2000); 49388 (March 10, 2004), 69 FR 12720 (March 17, 2004)(SR-CBOE-2003-151)(options on three Russell Indexes); 46306 (August 2, 2002), 67 FR 51916 (August 9, 2002)(SR-NYSE-2002-28); 32694 (July 29, 1993), 58 FR 41814 (August 4, 1993)(SR-CBOE-93-16)(FLEX options on Russell 2000); 32693 (July 29, 1993), 58 FR 41817 (August 5, 1993) (SR-CBOE-93-15); and 31382 (October 30, 1992), 57 FR 52802 (November 5, 1992)(SR-CBOE-92-02)(options on the Russell 2000). 14 For additional information regarding the Index see *http: //www.russell.com.* The Index measures the price performance of the shares of common stock of the smallest 2,000 companies included in the Russell 3000 Index, which represented approximately 8% of the total market capitalization of the Russell 3000 Index as of December 3, 2004. 15 The Index is designed to track the performance of the small capitalization segment of the U.S. equity market. The Index is defined, assembled, and calculated by Frank Russell without regard to the Notes. 15 As of January 5, 2005, the total market capitalization of the Index was $1.33 trillion. *See* Amendment No. 1. Only companies domiciled in the U.S. and its territories are eligible for inclusion in the Index. Companies domiciled in other countries are excluded from the Index, even if their common stock shares are traded on U.S. markets. Preferred stock, convertible preferred stock, participating preferred stock, paired shares, warrants, and rights are also excluded. Trust receipts, royalty trusts, limited liability companies, OTC Bulletin Board and Pink Sheets' quoted stock, closed-end mutual funds, and limited partnerships that are traded on U.S. exchanges are also ineligible for inclusion in the Index. Real Estate Investment Trusts and Beneficial Trusts are eligible for inclusion, however. In general, only one class of shares of a company is allowed in the Russell 3000 Index, although exceptions to this general rule have been made where Frank Russell has determined that each class of shares acts independently. The primary criteria used to determine the initial list of securities eligible for the Russell 3000 Index is total market capitalization, which is defined as the price of the shares times the total number of shares outstanding. Based on closing values on May 31 of each year, Frank Russell reconstitutes the composition of the Russell 3000 Index using the then existing market capitalizations of eligible companies to reflect changes in capitalization rankings and shares available. If a stock ceases to trade as a result of a merger or acquisition during the year, then the stock would be deleted from the Index immediately, but would not be replaced until the subsequent annual recapitalization. No interim replacements will be made. As of June 30 of each year, the Index is adjusted to reflect the reconstitution of the Russell 3000 Index for that year. As of December 3, 2004, the market capitalization of the Index components ranged from a high of approximately $2.531 billion to a low of approximately $3.858 million. As of the same date, the Index's highest weighted component stock constituted approximately 0.2257% of the Index's market capitalization, and the top five component stocks constituted approximately 1.0080% of the Index's market capitalization. The average daily trading volume for these same securities for the last six
(6)months ranged from a high of approximately 1.07 million shares to a low of approximately 103,465 shares. As a capitalization-weighted index, the Index reflects changes in the capitalization, or market value, of the component stocks relative to the capitalization on a base date. The current Index value is calculated by adding the market values of the Index's component stocks, which are derived by multiplying the price of each stock by the number of shares outstanding to arrive at the total market capitalization of the 2,000 stocks. The total market capitalization is then divided by a divisor, which represents the “adjusted” capitalization of the Index on the base date of December 31, 1986. To calculate the Index, last sale prices are used for exchange-traded and Nasdaq stocks. If a component stock is not open for trading, the most recently traded price for that security is used in calculating the Index. To provide continuity for the Index's value, the divisor is adjusted periodically to reflect certain events, including changes in the number of common shares outstanding for component stocks, company additions or deletions, corporate restructurings, and other capitalization changes. As of December 3, 2004, the divisor was 1,735,296. The Index value is updated and disseminated every 15 seconds throughout the trading day and is available from numerous vendors, independent of the issuer and Amex, such as Bloomberg and Reuters. The value of the Index on a delayed basis can be accessed by individual investors at *http://finance.yahoo.com.* The last sale information for the Notes is disseminated on a real time basis on Tape B and a variety of other sources. 16 In the event that the Index is no longer calculated and disseminated by an independent third-party source, the Exchange will delist the Notes. 17 16 Telephone Conference with Amex. 17 Telephone Conference with Amex. Because the Notes are issued in $1,000 denominations, the Amex's existing debt floor trading rules will apply to the trading of the Notes. First, pursuant to Amex Rule 411, the Exchange will impose a duty of due diligence on its members and member firms to learn the essential facts relating to every customer prior to trading the Notes. 18 Second, even though the Exchange's debt trading rules apply, the Notes will be subject to the equity margin rules of the Exchange. 19 Third, the Exchange will, prior to trading the Notes, distribute a circular to the membership providing guidance with regard to member firm compliance responsibilities (including suitability recommendations) when handling transactions in the Notes and highlighting the special risks and characteristics of the Notes. With respect to suitability recommendations and risks, the Exchange will require members, member organizations and employees thereof recommending a transaction in the Notes:
(1)To determine that such transaction is suitable for the customer; and
(2)to have a reasonable basis for believing that the customer can evaluate the special characteristics of, and is able to bear the financial risks of such transaction. In addition, Lehman will deliver a prospectus in connection with the initial sales of the Notes. The procedures for the delivery of a prospectus will be the same as Lehman's current procedure involving primary offerings. 20 18 Amex Rule 411 requires that every member, member firm or member corporation use due diligence to learn the essential facts, relative to every customer and to every order or account accepted. 19 *See* Amex Rule 462 and Section 107B of the Company Guide. 20 Telephone Conference with Amex. The Exchange represents that its surveillance procedures are adequate to properly monitor the trading of the Notes. Specifically, the Amex will rely on its existing surveillance procedures governing equities, which have been deemed adequate under the Act. In addition, the Exchange also has a general policy which prohibits the distribution of material, non-public information by its employees. Pursuant to the Securities Exchange Act Rule 10A-3, 17 CFR 240.10A-3 and Section 3 of the Sarbanes-Oxley Act of 2002, Public Law 107-204, 116 stat. 745 (2002), Amex will prohibit the initial or continued listing of any security of an issuer that is not in compliance with the requirements set forth therein. 21 21 Telephone Conference with Amex. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, is consistent with Section 6 of the Act 22 in general, and furthers the objectives of Section 6(b)(5) of the Act 23 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. 22 15 U.S.C. 78f(b). 23 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, as amended, would impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange did not receive any written comments on the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form at ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-Amex-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-Amex-2004-99. 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 at ( *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. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. 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. 2004-99 and should be submitted on or before February 16, 2005. IV. Commission's Findings and Order Granting Approval of the Proposed Rule After careful consideration, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder, applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b)(5) of the Act. 24 The Commission notes that the proposal is similar to several approved instruments currently listed and traded on Amex. 25 Accordingly, the Commission finds that the listing and trading of the Notes based on the Index is consistent with the Act and will promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, and, in general, protect investors and the public interest consistent with Section 6(b)(5) of the Act. 26 24 15 U.S.C. 78f(b)(5). 25 *See* Securities Exchange Act Release Nos. 50850 (December 14, 2004), 2004 SEC Lexis 2953 (SR-Amex-2004-87) (approving the listing and trading of Contingent Principal Protected Notes linked to S&P 500); 50414 (September 20, 2004), 69 FR 58001 (September 28, 2004) (SR-Amex-2004-68) (approving the listing and trading of Wachovia Contingent Principal Protected Notes on the S&P 500); 48486 (September 11, 2003); 68 FR 54758 (September 18, 2003) (SR-Amex-2003-74) (approving the listing and trading of CSFB Contingent Principal Protected Notes on the S&P 500); 50019 (July 14, 2004), 69 FR 43635 (July 21, 2004) (SR-Amex-2004-48) (approving the listing and trading of Morgan Stanley PLUS Notes); 48152 (July 10, 2003), 68 FR 42435 (July 17, 2003) (SR-Amex-2003-62) (approving the listing and trading of a UBS Partial Protection Note linked to the S&P 500); 47983 (June 4, 2003), 68 FR 35032 (June 11, 2003) (SR-Amex-2003-45) (approving the listing and trading of a CSFB Accelerated Return Notes linked to S&P 500). 26 15 U.S.C. 78f(b)(5). In approving this rule, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). The requirements of Section 107A of the Company Guide were designed to address the concerns attendant to the trading of hybrid securities, like the Notes. For example, Section 107A of the Company Guide provides that only issuers satisfying substantial asset and equity requirements may issue securities such as the Notes. Amex represents that Lehman meets these requirements. In addition, the Exchange's “Other Securities” listing standards further require that the Notes have a market value of at least $4 million. 27 The Commission also notes that the Notes will be registered under Section 12 of the Act. 28 By imposing the hybrid listing standards and the suitability, disclosure, and compliance requirements noted in the proposal above, the Commission believes Amex has addressed adequately the potential problems that could arise from the hybrid nature of the Notes. 27 *See* Company Guide Section 107A. 28 15 U.S.C. 781. In approving the product, the Commission recognizes that the Index is a modified capitalization-weighted index of 2000 stocks traded on NYSE, Nasdaq and Amex. The Commission notes that the Index is broadly diversified and that the overwhelming majority of the stocks that comprise the Index are not inactively traded. Thus, the Commission believes that the listing and trading of the Notes should not unduly impact the market for the underlying securities comprising the Index or raise manipulative concerns. Moreover, all of the component stocks are either listed or traded on, or traded through the facilities of, U.S. securities markets. The Commission also believes that any concerns that a broker-dealer, such as Lehman, or a subsidiary providing a hedge for the issuer, will incur undue position exposure are minimized by the size of the Notes issuance in relation to the net worth of Lehman. 29 29 *See* Securities Exchange Act Release Nos. 44913 (October 9, 2001), 66 FR 52469 (October 15, 2001) (SR-NASD-2001-73) (order approving the listing and trading of notes whose return is based on the performance of the Nasdaq-100 Index); 44483 (June 27, 2001), 66 FR 35677 (July 6, 2001) (SR-Amex-2001-40) (order approving the listing and trading of notes whose return is based on a portfolio of 20 securities selected from the Amex Institutional Index); and 37744 (September 27, 1996), 61 FR 52480 (October 7, 1996) (SR-Amex-96-27) (order approving the listing and trading of notes whose return is based on a weighted portfolio of healthcare/biotechnology industry securities). Finally, the Commission notes that the value of the Index will be widely disseminated at least once every fifteen seconds throughout the trading day. The Exchange represents that the Index will be determined, calculated and maintained solely by Frank Russell. The Commission finds good cause for approving the proposed rule change, as amended, prior to the 30th day after the date of publication of the notice of filing thereof in the **Federal Register** . The Exchange has requested accelerated approval because this product is similar to several other instruments currently listed and traded on the Amex. 30 The Commission believes that the Notes will provide investors with an additional investment choice and that accelerated approval of the proposal will allow investors to begin trading the Notes promptly. Additionally, the Notes will be listed pursuant to Amex's existing hybrid security listing standards as described above. Therefore, the Commission finds good cause, consistent with Section 19(b)(2) of the Act, 31 to approve the proposal on an accelerated basis. 30 *See supra* note 24. 31 15 U.S.C. 78f(b)(5) and 78s(b)(2). V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 32 that the proposed rule change, as amended (SR-Amex-2004-99), is hereby approved on an accelerated basis. 32 *Id.* For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 33 33 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-278 Filed 1-25-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51058; File No. SR-Amex-2004-38] Self-Regulatory Organizations; Order Granting Approval of Proposed Rule Change and Amendment Nos. 2, 3 and 4 and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 5 by the American Stock Exchange LLC Relating to the Listing and Trading of the iShares® COMEX Gold Trust January 19, 2005. I. Introduction On May 24, 2004, the American Stock Exchange LLC (“Amex” 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 list and trade under new Amex Rules 1200A *et seq.* iShares® COMEX Gold Trust Shares (“Gold Shares”). On November 9, 2004, Amex amended its proposal; however, the Exchange withdrew this amendment on November 17, 2004. On November 10, 2004 the Exchange submitted a second amendment. 3 On November 16, 2004, the Exchange submitted a third amendment. 4 On December 1, 2004, the Exchange submitted a fourth amendment. 5 The proposed rule change, as amended, was published for comment in the **Federal Register** on December 9, 2004. 6 The Commission received no comment letters regarding the proposed rule change. On January 7, 2005, the Exchange submitted a fifth amendment. 7 This notice and order approves the Exchange's rule change, and Amendments 2, 3 and 4 thereto, solicits comment from interested persons on Amendment No. 5, and approves Amendment No. 5 on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Amendment No. 2, dated November 10, 2004 (“Amendment No. 2”). In Amendment No. 2, the Exchange revised the proposed rule text and corresponding description. Amendment No. 2 replaced Amex's original filing in its entirety. 4 *See* Amendment No. 3, dated November 16, 2004 (“Amendment No. 3”). In Amendment No. 3, the Exchange proposed clarifying changes to certain aspects of Amendment No. 2 and modified the proposed rule text. 5 *See* Amendment No. 4, dated December 1, 2004 (“Amendment No. 4”). In Amendment No. 4, the Exchange provided additional description of the creation and redemption process for the Gold Trust shares and made clarifying changes to the proposed rule text. Amendment No. 4 replaced Amex's amended proposal in its entirety. 6 *See* Securities Exchange Act Release No. 50792 (December 3, 2004), 69 FR 71446 (“Notice”). 7 *See* Amendment No. 5, dated January 7, 2005 (“Amendment No. 5”). In Amendment No. 5, the Exchange proposed changes to Commentary .01 to Rule 1202A for the purpose of clarifying that the Exchange will submit separate rule filings under section 19(b)(2) of the Act in connection with the listing and trading of each series of Commodity-Based Trust Shares. Further, in Amendment No. 5 the Exchange represented that
(1)as provided in the Registration Statement to the Trust, the trustee will charge a transaction fee in connection with the redemption and/or creation of Baskets;
(2)Barclays Capital, Inc., the Initial Purchaser, will purchase 150,000 Shares of the Trust to compose the initial Baskets; and
(3)the Exchange's surveillance procedures are adequate to properly monitor the trading of the Shares. II. Description of Proposal The Amex proposes to add new Exchange Rules 1200A *et seq.* for the purpose of permitting the listing and trading of Trust Issued Receipts 8 based on commodity interests (“Commodity-Based Trust Shares”), and to amend Sections 140 and 141 of the Amex *Company Guide* regarding original and annual listing fees applicable to such shares. Amex Rule 1201A will permit the Exchange to list and trade Commodity-Based Trust Shares. Under the rule, for each series of Commodity-Based Trust Shares, the Exchange will submit for Commission review and approval a filing pursuant to Section 19(b) of the Act. 9 Proposed Amex Rule 1202A sets forth initial and continued listing and trading criteria for Commodity-Based Trust Shares. 10 8 A Trust Issued Receipt or “TIR” is defined in Exchange Rule 1200(b) as a security
(a)that is issued by a trust that holds specified securities deposited with the trust;
(b)that, when aggregated in some specified minimum number, may be surrendered to the trust by the beneficial owner to receive the securities; and
(c)that pays beneficial owners dividends and other distributions on the deposited securities, if any are declared and paid to the trustee by an issuer of the deposited securities. Under Amex Rule 1201, the Exchange may approve for listing and trading TIRs based on one or more securities. The Exchange defines a “security” or “securities” to include stocks, bonds, options, and other interests or instruments commonly known as securities. *See* Article I, section 3(j) of the Amex Constitution. 9 15 U.S.C. 78s(b). Because of the structure of the Gold Trust, representing an interest in underlying gold, the Exchange's existing listing and trading rules that permit the listing and trading of TIRs, pursuant to Rule 19b-4(e) under the Act, 17 CFR 240.19b-4(e), cannot be used to list this product. 10 Proposed Rule 1202A for Commodity-Based Trust Shares tracks but is not identical to current Rule 1202 relating to TIRs. The initial listing standards set forth in Rule 1202(a) provide that the Exchange establish a minimum number of TIRs required to be outstanding at the time of the commencement of trading on the Exchange. As set forth in the section “Criteria for Initial and Continued Listing,” the Exchange represents that the minimum number of Gold Shares outstanding at the time of trading will be 150,000. *See* Amendment No. 5, *supra* note 7. The Amex initially proposes to list iShares COMEX 11 Gold Trust (the “Gold Trust” or “Trust”) shares that represent beneficial ownership interests in the net assets of a trust that holds gold bullion. As explained further herein, Gold Shares will be issued in baskets. Initially, each basket of 50,000 shares will correspond to 5,000 troy ounces of gold. Thus, each Gold Share will correspond to one-tenth of a troy ounce of gold. 12 The Gold Shares will conform to the initial and continued listing criteria under proposed Rule 1202A. The Gold Trust will be formed under a depositary trust agreement among Bank of New York (“BNY”), the Trustee; Barclays Global Investors, N.A. (“Barclays”), the Sponsor; all depositors; 13 and the holders of Gold Shares. 14 11 COMEX is a division of the New York Mercantile Exchange, Inc. (“NYMEX”) where gold futures contracts are traded. 12 The amount of gold associated with each basket (and individual Gold Share) is expected to decrease over time as the Trust incurs and pays maintenance fees and other expenses. 13 Barclays Capital, Inc., the Initial Purchaser, will purchase 150,000 Shares of the Trust to compose the initial Baskets. *See* Amendment No. 5, *supra* note 7. 14 The Trust is not an investment company as defined in section 3(a) of the Investment Company Act of 1940 (the “1940 Act”). In effect, purchasing Gold Shares will provide investors a new mechanism to participate in the gold market. The Trustee will not actively manage the gold held by the Trust. Information about the liquidity, depth, and pricing mechanisms of the international gold market, management and structure of the Trust, and description of the Gold Shares follows below. A. Description of the Gold Market The global trade in gold consists of over-the-counter (“OTC”) transactions in spot, forwards, and options and other derivatives, together with exchange-traded futures and options on futures. In its filing with the Commission, the Exchange made the following representations regarding the worldwide gold market. 15 15 For more information on the gold market and gold supply and demand, *see* Notice, *supra* note 6. 1. The OTC Market The OTC market trades on a 24-hour continuous basis and accounts for the substantial portion of global gold trading. Liquidity in the OTC market can vary from time to time during the course of the 24-hour trading day. Fluctuations in liquidity are reflected in adjustments to dealing spreads—the differential between a dealer's buy and sell prices. The period of greatest liquidity in the gold market is typically that time of day when trading in the European time zone overlaps with trading in the United States. This occurs when the OTC market trading in London, New York, and other centers coincides with futures and options trading on the COMEX. 16 This period lasts for approximately four
(4)hours each New York business day morning. 16 The open outcry trading hours of the COMEX gold futures contract is from 8:20 a.m. to 1:30 p.m. New York time Monday through Friday. NYMEX ACCESS(®), an electronic trading system, is open for trading on COMEX gold futures contracts from 2 p.m. Monday afternoon until 8 a.m. Friday morning New York time; and from 7 p.m. Sunday night until Monday morning at 8 a.m. New York time. *See* Amendment No. 4, *supra* note 5, at note 4. The OTC market has no formal structure and no open-outcry meeting place. The main centers of the OTC market are London, New York, and Zurich. Bullion dealers have offices around the world, and most of the world's major bullion dealers are either members or associate members of the London Bullion Market Association (“LBMA”), a trade association of participants in the London Bullion market. The Exchange states that there are no authoritative published figures for overall world-wide volume in gold trading. There are certain published sources that do suggest the significant size of the overall market. The LBMA publishes statistics compiled from the five
(5)members offering clearing services. 17 The Exchange notes that the monthly average daily volume figures published by the LBMA for 2003 range from a high of 19 million to a low of 13.6 million troy ounces per day. Through September 2004, the monthly average daily volume has ranged from a high of 17 million to a low of 12.4 million. The Exchange also notes that the COMEX publishes price and volume statistics for transactions in contracts for the future delivery of gold. COMEX figures for 2003 indicate that the average daily volume for gold futures and options contracts was 4.89 million (48,943 contracts) and 1.7 million (17,241 contracts) troy ounces per day, respectively. Through October 2004, the average daily volume for gold futures and options was 6.08 million (60,817 contracts) and 2.01 million (20,173 contracts), respectively. 18 17 Information regarding clearing volume estimates by the LBMA can be found at *http://www.lbma.org.uk/clearing_table.htm.* The three measures published by LBMA are: Volume, the amount of metal transferred on average each day measured in millions of troy ounces; value, measured in U.S. dollars, using the monthly average London PM fixing price; and the number of transfers, which is the average number recorded each day. The statistics exclude allocated and unallocated balance transfers where the sole purpose is for overnight credit and physical movements arranged by clearing members in locations other than London. 18 Information regarding average daily volume estimates by the COMEX can be found at *http://www.nymex.com/jsp/markets.md_annual_volume6.jsp#2.* The statistics are based on gold futures contracts, each of which relates to 100 troy ounces of gold. 2. Futures Exchanges The Exchange states that the most significant gold futures exchanges are the COMEX division of the NYMEX and the Tokyo Commodity Exchange (“TOCOM”). 19 Trading on these exchanges is based on fixed delivery dates and transaction sizes for the futures and options contracts traded. 19 The Exchange notes that there are other gold exchange markets, such as the Istanbul Gold Exchange, the Shanghai Gold Exchange, and the Hong Kong Chinese Gold & Silver Exchange Society. The daily settlement price for COMEX gold futures contracts is publicly available on the NYMEX Web site at *http://www.nymex.com.* 20 The Exchange on its Web site at *http://www.amex.com* will include a hyperlink to the NYMEX Web site for the purpose of disclosing gold futures contract pricing. In addition, the Exchange represents that COMEX gold futures prices, options on futures quotes, and last sale information are widely disseminated through a variety of market data vendors worldwide, including Bloomberg and Reuters. The Exchange further represents that complete real-time data for COMEX gold futures and options is available by subscription from Reuters and Bloomberg. The NYMEX also provides delayed futures and options information on current and past trading sessions and market news free of charge on its Web site at *http://www.nymex.com.* The contract specifications for COMEX gold futures contracts are also available from the NYMEX at its Web site at *http://www.nymex.com,* as well as other financial informational sources. 20 The COMEX daily settlement price for each gold futures contract is established by a subcommittee of COMEX members shortly after the close of regular trading on the COMEX. NYMEX Rule 3.43 sets forth the composition of the subcommittee requiring that it consist of three
(3)members that represent the gold market. Specifically, the Rule calls for the subcommittee to include a floor broker, a floor trader, and one who represents the trade. Rule 3.02 provides restrictions on Committee members and others who possess material, non-public information. A Committee Member is prohibited from disclosing for any purpose other than the performance of official duties relating to the Committee, material, non-public information obtained as a result of such person's participation on the Committee. In addition, no person may trade for his own account or for or on behalf of any other account, in any commodity interest on the basis of any material, non-public information that such person knows was obtained from such Committee member in violation of Rule 3.02. Telephone conversation between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on December 3, 2004. 3. Gold Market Regulation There is no direct regulation of the global OTC market in gold. However, indirect regulation of some of the overseas participants does occur in some capacity. In the United Kingdom, responsibility for the regulation of financial market participants, including the major participating members of the LBMA, falls under the authority of the Financial Services Authority (“FSA”) as provided by the Financial Services and Market Act of 2000 (“FSM Act”). Under the FSM Act, all UK-based banks, together with other investment firms, are subject to a range of requirements, including fitness and properness, capital adequacy, liquidity, and systems and controls. The FSA is responsible for regulating investment products, including derivatives, and those who deal in investment products. Regulation of spot, commercial forwards, and deposits of gold and silver not covered by the FSM Act is provided for by The London Code of Conduct for Non-Investment Products, which was established by market participants in conjunction with the Bank of England, and is a voluntary code of conduct among market participants. The Exchange states that participants in the United States OTC market for gold are generally regulated by their institutional supervisors, which regulate their activities in the other markets in which they operate. For example, participating banks are regulated by the banking authorities. In the United States, the Commodity Futures Trading Commission (“CFTC”), an independent government agency with the mandate to regulate commodity futures and options markets in the United States, regulates market participants and has established rules designed to prevent market manipulation, abusive trade practices, and fraud. The Exchange states that TOCOM has authority to perform financial and operational surveillance on its members' trading activities, scrutinize positions held by members and large-scale customers, and monitor price movements of futures markets by comparing them with cash and other derivative markets' prices. B. Trust Management and Structure The Exchange proposes to list and trade Gold Shares, which represent units of fractional undivided beneficial interest in and ownership of the Trust. The purpose of the Trust is to hold gold bullion. 21 The investment objective of the Trust is for the Gold Shares to reflect the performance of the price of gold, less the Trust's expenses. 21 The Commission has previously approved the listing of products for which the underlying was a commodity or otherwise was not a security trading on a regulated market. *See, e.g.* , Securities Exchange Act Release Nos. 19133 (October 14, 1982) (approving the listing of standardized options on foreign currencies); 36505 (November 22, 1995) (approving the listing of dollar-denominated delivery foreign currency options on the Japanese Yen); and 36165 (August 29, 1995) (approving listing standards for, among other things, currency and currency index warrants). The Trust is an investment trust and is not managed like a corporation or an active investment vehicle. The Trust has no board of directors or officers or persons acting in a similar capacity. The Exchange states that the Trust is not a registered investment company under the 1940 Act and is not required to register under such Act. The Sponsor (Barclays), Trustee (BNY), and Custodian (The Bank of Nova Scotia) are not affiliated with one another or with the Exchange. C. Trust Expenses and Management Fees Generally, the assets of the Trust ( *e.g.* , gold bullion) will be sold to pay Trust expenses and management fees. These expenses and fees will reduce the value of an investor's Gold Share as gold bullion is sold to pay such costs. Ordinary operating expenses of the Trust include
(1)fees paid to the Sponsor,
(2)fees paid to the Trustee,
(3)fees paid to the Custodian, and
(4)various Trust administration fees, including printing and mailing costs, legal and audit fees, registration fees, and Amex listing fees. The Trust's estimated ordinary operating expenses are accrued daily and reflected in the net asset value (“NAV”) of the Trust. D. Description and Characteristics of the Gold Shares 1. Liquidity The Exchange represents that a minimum of 150,000 Gold Shares will be outstanding at the start of trading. 22 The minimum number of shares required to be outstanding at the start of trading is comparable to requirements that have been applied to previously listed series of trust issues receipts, Portfolio Depository Receipts and Index Fund Shares. 22 *See* Amendment No. 5, *supra* note 7. While the Gold Shares will trade on the Amex until 4:15 p.m. New York time, liquidity in the OTC market for gold generally decreases after 1:30 p.m. New York time when daily trading at COMEX and other world gold trading centers ends. Trading spreads and the resulting premium or discount on the Gold Shares may widen as a result of reduced liquidity in the OTC gold market. The Exchange does not believe that the Gold Shares will trade at a material discount or premium to the value of the underlying gold held by the Trust because of arbitrage opportunities. 2. Creation and Redemption of Trust Shares Gold Shares will be issued only in baskets of 50,000 shares or multiples thereof (such aggregation referred to as the “Basket Aggregation” or “Basket”). The Trust will issue and redeem the Gold Shares on a continuous basis, by or through participants that have entered into participant agreements (each, an “Authorized Participant”) 23 with the Sponsor, Barclays, and the Trustee, BNY, at the NAV per share next determined after an order to purchase or redeem Gold Shares in a Basket Aggregation is received in proper form. Authorized Participants are the only persons that may place orders to create and redeem Baskets. Authorized Participants purchasing Baskets will be able to separate a Basket into individual Gold Shares for resale. 23 An “Authorized Participant” is a person, who at the time of submitting to the trustee an order to create or redeem one or more Baskets,
(i)is a registered broker-dealer,
(ii)is a Depository Trust Company (“DTC”) Participant or an Indirect Participant, and
(iii)has in effect a valid Authorized Participant Agreement. Basket Aggregations will be issued in exchange for a corresponding amount of gold, measured in fine ounces (the “Basket Gold Amount”). Similarly, the Trust will redeem Basket Aggregations of Gold Shares based on the Basket Gold Amount. The Basket Gold Amount will be determined at or about 4 p.m. each business day by the Trustee, BNY. 24 Initially, creation of a Basket will require 5,000 ounces of gold. This Basket Gold Amount will change from day to day and decrease over the life of the Trust due to the payment or accrual of fees and other expenses payable by the Trust. On each day that the Amex is open for regular trading, the BNY will adjust the quantity of gold constituting the Basket Gold Amount as appropriate to reflect sales of gold, any loss of gold that may occur, and accrued expenses. 25 The BNY will determine the Basket Gold Amount for a given business day by multiplying the NAV, as described below, for each Gold Share by the number of Gold Shares in each Basket (50,000) and dividing the resulting product by that day's COMEX settlement price for the spot month gold futures contract. Authorized Participants that submitted an order prior to 4 p.m. to purchase a Basket must transfer the Basket Gold Amount to the Trust in exchange for a Basket. 24 At the same time, the BNY will also determine an “Indicative Basket Gold Amount” that Authorized Participants can use as an indicative amount of gold to be deposited for issuance of the Gold Shares on the next business day. The Trustee will disseminate daily the Indicative Basket Gold Amount on the Trust Web site. Because the creation/redemption process is based entirely on the physical delivery of gold (and does not contemplate a cash component), the actual number of fine ounces required for the Indicative Basket Gold Amount will not change intraday, even though the value of the Indicative Basket Gold Amount may change based on the market price of gold. 25 The Trust's expense ratio, in the absence of any extraordinary expenses and liabilities, is established at 0.40% of the net assets of the Trust. As a result, the amount of gold by which the Basket Gold Amount will decrease each day will be predictable ( *i.e.* 1/365th of the net asset value of the Trust multiplied by 0.40%). Gold Shares are not individually redeemable, and Authorized Participants that wish to redeem a Basket ( *i.e.* , 50,000 Gold Shares) will receive the Basket Gold Amount in exchange for each Basket surrendered. Upon the surrender of the Gold Shares and payment of the applicable Trustee's fee and any expenses, taxes or charges, the BNY will deliver to the redeeming Authorized Participant the amount of gold corresponding to the redeemed Baskets. Unless otherwise requested by the Authorized Participants, gold will then be delivered to the redeeming Authorized Participants in the form of physical bars only. 26 Thus, although Authorized Participants place orders to purchase or redeem Gold Shares throughout the trading day, the actual Basket Gold Amount is determined at 4 p.m. or shortly thereafter. 26 If the amount of gold corresponding to the Basket Gold Amount results in an amount that is less than a full gold bar denomination, the Authorized Participant has the ability to take and/or deliver fractional gold bar amounts. Telephone conversation between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on December 3, 2004. The Bank of Nova Scotia (“BNS”) will be the custodian for the Trust and responsible for safekeeping the gold. 27 Gold deposited with BNS must either
(a)meet the requirements to be delivered in settlement of a COMEX gold futures contract pursuant to the rules adopted by the COMEX or
(b)meet the specifications for weight, dimensions, fineness (or purity), identifying marks and appearance of gold bars as set forth in “The Good Delivery Rules for Gold and Silver Bars” published by the LBMA. 27 If the total value of the Trust's gold held by the custodian exceeds $2 billion, then the custodian will be under no obligation to accept additional gold deliveries. In such a case, the Trustee will retain an additional custodian. Shortly after 4 p.m. each business day, the BNY will determine the NAV for the Trust. The BNY will calculate the NAV by multiplying the fine ounces of gold held by the Trust (after gold has been sold for that day to pay that day's fees and expenses) by the daily settlement value of the COMEX spot month gold futures contract. 28 At any point in time, the spot month contract is the futures contract then closest to maturity. If a COMEX settlement price for a spot month gold futures contract is not announced, the Trustee will use the most recently announced spot month COMEX settlement price, unless the Trustee (BNY), in consultation with the Sponsor (Barclays), determines that such price is inappropriate. Once the value of the gold is determined, the BNY will then subtract all accrued fees (other than the fees to be computed by reference to the value of the Trust or its assets), expenses and other liabilities of the Trust from the total value of gold and all other assets of the Trust. This adjusted NAV is then used to compute all fees (including the Trustee and Sponsor fees) that are calculated from the value of Trust assets. To determine the NAV, the BNY will subtract from the adjusted NAV the amount of accrued fees from the value of Trust assets. The BNY will calculate the NAV per share by dividing the NAV by the number of Gold Shares outstanding. 28 As previously stated, the COMEX daily settlement price for each gold futures contract is established by a subcommittee of COMEX members shortly after the close of trading in New York. The daily settlement price for each contract (delivery month) is derived from the daily settlement price for the most active futures contract month that is not necessarily the spot month. This settlement price is the average of the highest and lowest priced trades reported during the last one
(1)minute of trading during regular trading hours. For all other gold futures contract months (which may include the spot month), the settlement prices are determined by COMEX based upon differentials reflected in spread trades between adjacent months, such differentials being directly or indirectly related to the most active month. These differentials are the average of the highest and lowest spread trades (trades based upon the differential between the prices for two contract months) reported during the last fifteen
(15)minutes of trading during regular trading hours. In the case that there were no such spread trades, the average of the bids and offers for spread transactions during that last fifteen
(15)minute period are used. In the case where there are no bids and offers during that time, the contracts are settled at prices consistent with the differentials for other contract months that were settled by the first or second method. If the third method is used, the subcommittee of the COMEX members establishing those settlement prices provides a record of the differentials from other contract months that formed the basis for those settlements. 3. Availability of Information Regarding Gold Shares The Web site for the Trust at *http://www.ishares.com,* which will be publicly accessible at no charge, will contain the following information about Gold Shares:
(a)The prior business day's NAV, Basket Gold Amount, and reported closing price, and the present day's Indicative Basket Gold Amount;
(b)the mid-point of the bid-ask price 29 in relation to the NAV as of the time the NAV is calculated (the “Bid-Ask Price”);
(c)calculation of the premium or discount of such price against such NAV;
(d)data in chart form displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges for each of the four
(4)previous calendar quarters;
(e)the Prospectus; and
(f)other applicable quantitative information, such as expense ratios, trading volumes, and the total return of the Gold Shares. 30 The Exchange will provide a hyperlink on its Web site at *http://www.amex.com* to the Trust's Web site at *http://www.ishares.com.* 29 The bid-ask price of Shares is determined using the highest bid and lowest offer as of the time of calculation of the NAV. 30 Telephone conversation between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on January 18, 2005 (as to examples of “other quantitative information”). The Exchange will also make available on its Web site daily trading volume, closing prices, and the NAV from the previous day of the Gold Shares. Amex will also disseminate during regular Amex trading hours from 9:30 a.m. to 4:15 p.m. New York time, through the facilities of the CTA, the last sale price for Gold Shares on a real-time basis. 31 Amex will disseminate each day the prior day's NAV and shares outstanding through the facilities of the CTA. In addition, Amex will disseminate the Indicative Trust Value on a per Gold Share basis every 15 seconds through the Consolidated Tape during regular Amex trading hours of 9:30 a.m. to 4:15 p.m. New York time. 32 Shortly after 4 p.m. each business day, the BNY, Amex, and Barclays (Sponsor) will disseminate the NAV for the Gold Shares, the Basket Gold Amount (for orders placed during the day), and the Indicative Basket Gold Amount (for use by Authorized Participants contemplating placing orders the following business day). The Basket Gold Amount, the Indicative Basket Gold Amount, and the NAV are communicated by the BNY to all Authorized Participants via facsimile or electronic mail message and will be available on the Trust's Web site at *http://www.ishares.com.* 31 Telephone conversation between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on January 18, 2005 (as to real-time dissemination of last sale price). 32 The Indicative Trust Value will be calculated based on the amount of gold required for creations and redemptions on that day ( *e.g.* , Indicative Basket Gold Amount) and a price of gold derived from the most recently reported trade price in the active gold futures contract. The prices reported for the active contract month will be adjusted based on the prior day's spread differential between settlement values for that contract and the spot month contract. In the event that the spot month contract is also the active contract, the last sale price for the active contract will not be adjusted. The Indicative Trust Value will not reflect changes to the price of gold between the close of trading at the COMEX, typically 1:30 p.m. New York time, and the open of trading on the NYMEX ACCESS market at 2 p.m. New York time. While the market for the gold futures is open for trading, the Indicative Trust Value can be expected to closely approximate the value per share of the Indicative Basket Gold Amount. The Indicative Trust Value on a per Gold Share basis disseminated during Amex trading hours should not be viewed as a real time update of the NAV, which is calculated only once a day. 4. Information About Underlying Gold Holdings There is a considerable amount of gold price and gold market information available on public Web sites and through professional and subscription services. In most instances, real-time information is only available for a fee, and information available free of charge is subject to delay (typically 20 minutes). The Exchange states that investors may obtain on a 24-hour basis gold pricing information based on the spot price for a troy ounce of gold from various financial information service providers, such as Reuters and Bloomberg. Reuters and Bloomberg provide at no charge on their Web sites delayed information regarding the spot price of gold and last sale prices of gold futures, as well as information about news and developments in the gold market. Reuters and Bloomberg also offer a professional service to subscribers for a fee that provides information on gold prices directly from market participants. In addition, an organization named EBS provides an electronic trading platform to institutions such as bullion banks and dealers for the trading of spot gold, as well as a feed of live streaming prices to Reuters and Moneyline Telerate subscribers. As previously stated, the Exchange states that complete real-time data for gold futures and options prices traded on the COMEX is available by subscription from Reuters and Bloomberg. The closing price and settlement prices of the COMEX gold futures contracts are publicly available from the NYMEX at *http://www.nymex.com,* automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. The NYMEX also provides delayed futures and options information on current and past trading sessions and market news free of charge on its Web site. E. Criteria for Initial Share Issuance and Continued Listing The Trust will be subject to the criteria in Rules 1201A and 1202A for initial and continued listing of Gold Shares. The initial listing standards provide for a minimum number of shares to be outstanding at the time of commencement of trading on the Exchange. The continued listing criteria provides for the delisting or removal from listing of the Gold Shares under any of the following circumstances: • Following the initial twelve month period from the date of commencement of trading of the Gold Shares:
(i)If the Trust has more than 60 days remaining until termination and there are fewer than 50 record and/or beneficial holders of the Gold Shares for 30 or more consecutive trading days;
(ii)if the Trust has fewer than 50,000 Gold Shares issued and outstanding; or
(iii)if the market value of all Gold Shares is less than $1,000,000. • If the value of the underlying gold is no longer calculated or available on at least a 15-second delayed basis from a source unaffiliated with the sponsor, trust, custodian or the Exchange, or the Exchange stops providing a hyperlink on its Web site to any such unaffiliated gold value. • The Indicative Trust Value is no longer made available on at least a 15-second delayed basis. • If such other event shall occur or condition exists which in the opinion of the Exchange makes further dealings on the Exchange inadvisable. F. Original and Annual Listing Fees The Amex original listing fee applicable to the listing of the Gold Trust is $5,000. In addition, the annual listing fee applicable under Section 141 of the Amex *Company Guide* will be based upon the year-end aggregate number of shares in all series of the Gold Trust outstanding at the end of each calendar year and range from $15,000 to $30,000 per year. G. Exchange Trading Rules and Policies Under Amex Rules 1200A *et seq.* , Commodity-Based Trust Shares are generally subject to the Amex trading rules applicable to equity securities, including, among others, rules governing priority, parity and precedence of orders, specialist responsibilities, account opening, and customer suitability (Amex Rule 411). Initial equity margin requirements of 50% will apply to transactions in Gold Shares. Gold Shares will trade on the Amex until 4:15 p.m. New York time each business day and will trade in a minimum price variation of $0.01 pursuant to Amex Rule 127. Trading rules pertaining to odd-lot trading in Amex equities (Amex Rule 205) will also apply. Amex Rule 154, Commentary .04(c) provides that stop and stop limit orders to buy or sell a security (other than an option, which is covered by Rule 950(f) and Commentary thereto) the price of which is derivatively priced based upon another security or index of securities, may with the prior approval of a Floor Official, be elected by a quotation, as set forth in Commentary .04(c)(i-v). The Exchange has designated Gold Shares as eligible for this treatment. 33 33 *See* Securities Exchange Act Release No. 29063 (April 10, 1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the Exchange's designation of equity derivative securities as eligible for such treatment under Amex Rule 154, Commentary .04(c). Gold Shares will be deemed “Eligible Securities,” as defined in Amex Rule 230, for purposes of the Intermarket Trading System Plan and therefore will be subject to the trade through provisions of Amex Rule 236, which require that Amex members avoid initiating trade-throughs for ITS securities. Specialist transactions of Gold Shares made in connection with the creation and redemption of Gold Shares will not be subject to the prohibitions of Amex Rule 190. 34 Unless exemptive or no-action relief is available, Gold Shares will be subject to the short sale requirements of Rule 10a-1 and Regulation SHO under the Act. 35 If exemptive or no-action relief is provided, the Exchange will issue a notice detailing the terms of the exemption or relief. 34 *See* Commentary .05 to Amex Rule 190. 35 The Gold Trust has requested exemptive relief in connection with the trading of Gold Shares from the operation of certain short sale requirements of Rule 10a-1 and may seek no-action relief from Rule 200(g) of Regulation SHO under the Act. See 17 CFR 240.10a-1; 17 CFR 242.200(g). The requested relief is currently pending with the Commission staff in the Division of Market Regulation. If granted, Gold Shares would be exempt from Rule 10a-1, permitting sales without regard to the “tick” requirements of Rule 10a-1. Rule 10a-1(a)(1)(i) provides that a short sale of an exchange-traded security may not be effected
(i)below the last regular-way sale price (an “uptick”) or
(ii)at such price unless such price is above the next preceding different price at which a sale was reported (a “zero-plus tick”). No-action relief from the marking requirements of Rule 200(g) of Regulation SHO would permit broker-dealers, subject to certain conditions, to mark short sales in the Gold Shares “short,” rather than “short exempt.” The Exchange represents that the Gold Shares will generally be subject to the Exchange's stabilization rule, Amex Rule 170, except that specialists may buy on “plus ticks” and sell on “minus ticks,” in order to bring the Gold Shares into parity with the underlying gold and/or futures price. Proposed Commentary .01 to proposed Amex Rule 1203A sets forth this limited exception to Amex Rule 170. Amex states that the adoption of Amex Rule 1203A relating to certain specialist prohibitions will address potential conflicts of interest in connection with acting as a specialist in the Gold Shares. Specifically, Amex Rule 1203A provides that the prohibitions in Amex Rule 175(c) apply to a specialist in the Gold Shares so that the specialist or affiliated person may not act or function as a market maker in the underlying gold, related gold futures contract or option, or any other related gold derivative. An affiliated person of the specialist consistent with Amex Rule 193 (Affiliated Persons of Specialists) may be afforded an exemption to act in a market making capacity, other than as a specialist in the Gold Shares on another market center, in the underlying gold, related gold futures, options on futures, or any other related gold derivative. In particular, proposed Rule 1203A provides that an approved person of an equity specialist that has established and obtained Exchange approval for procedures restricting the flow of material, non-public market information between itself and the specialist member organization, and any member, officer, or employee associated therewith, may act in a market making capacity, other than as a specialist in the Gold Shares on another market center, in the underlying commodity, related commodity futures or options on commodity futures, or any other related commodity derivatives. H. Surveillance Amex represents that its surveillance procedures applicable to trading of Gold Shares are adequate to deter manipulation, will be similar to those applicable to other trust issued receipts and exchange-traded fund shares (“ETFs”), and will incorporate and rely upon existing Amex surveillance procedures governing options and equities. The Exchange currently has in place an Information Sharing Agreement with the NYMEX for the purpose of providing information in connection with trading in or related to COMEX gold futures contracts. Also, the Exchange states that adoption of Rule 1204A will facilitate surveillance of the specialist handling Gold Shares. Amex Rule 1204A requires that the specialist handling the Gold Shares to provide the Exchange with information relating to its trading in physical gold, gold futures contracts, options on gold futures, or any other gold derivative. Amex Rule 1204A also prohibits the specialist in the Gold Shares from using any material nonpublic information received from any person associated with a member or employee of such person regarding trading by such person or employee in physical gold, gold futures contracts, options on gold futures, or any other gold derivatives (including the Gold Shares). As a general matter, the Exchange has regulatory jurisdiction over its members, member organizations, and approved persons of a member organization. The Exchange also has regulatory jurisdiction over any person or entity controlling a member organization, as well as a subsidiary or affiliate of a member organization that is in the securities business. A subsidiary or affiliate of a member organization that does business only in commodities would not be subject to Exchange jurisdiction, but the Exchange could obtain information regarding the activities of such subsidiary or affiliate through surveillance sharing agreements with regulatory organizations of which such subsidiary or affiliate is a member. I. Information Circular The Amex will distribute an information circular (“Information Circular”) to its members in connection with the trading of Gold Shares. 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 Gold Shares are, how a basket is created and redeemed, the requirement that members and member firms deliver a prospectus to investors purchasing the Gold Shares prior to or concurrently with the confirmation of a transaction, applicable Amex rules, dissemination information regarding the per share Indicative Trust Value, trading information, and applicable suitability rules. The Information Circular will also explain that the Gold Trust is subject to various fees and expenses described in the Registration Statement and that the number of ounces of gold required to create a basket or to be delivered upon a redemption of a basket will gradually decrease over time because the Gold Shares comprising a basket will represent a decreasing amount of gold due to the sale of the Gold Trust's gold to pay Trust expenses. The Information Circular will also reference the fact that there is no regulated source of last sale information regarding physical gold and that the Commission has no jurisdiction over the trading of gold as a physical commodity. The Information Circular will also notify members and member organizations about the procedures for purchases and redemptions of Gold Shares in baskets and that Gold Shares are not individually redeemable but are redeemable only in basket-size aggregations or multiples thereof. The Information Circular will advise members of their suitability obligations with respect to recommended transactions to customers in the Gold Shares and inform them of Amex rules regarding trading halts applicable to Gold Shares. The Information Circular will also discuss any relief, if granted, by the Commission or the staff from any rules under the Act. The Information Circular will disclose that the NAV for Gold Shares will be disseminated shortly after 4 p.m. each trading day based on the COMEX daily settlement value, which is disseminated shortly after 1:30 p.m. New York time each trading day. J. Suitability As stated, the Information Circular will inform members and member organizations of the characteristics of the Gold Trust and of applicable Exchange rules, as well as of the requirements of Amex Rule 411 (Duty to Know and Approve Customers). The Exchange notes that pursuant to Rule 411, members and member organizations are required in connection with recommending transactions in the Gold Shares to have a reasonable basis to believe that a customer is suitable for the particular investment given reasonable inquiry concerning the customer's investment objectives, financial situation, needs, and any other information known by such member. K. Trading Halts Amex Rule 117 sets forth the trading halt parameters, *i.e.* , “circuit breakers,” applicable to the Gold Shares during periods of extraordinary volatility. In addition to the parameters set forth in Rule 117, the Exchange will halt trading in Gold Shares if trading in the underlying COMEX gold futures contract is halted or suspended. Third, with respect to a halt in trading that is not specified above, the Exchange may also consider other relevant factors and the existence of unusual conditions or circumstances that may be detrimental to the maintenance of a fair and orderly market. III. Discussion After careful consideration, the Commission finds that the proposed rule change, as amended, is consistent with the Act 36 and the rules and regulations thereunder applicable to a national securities exchange. 37 36 36 15 U.S.C. 78f(b). 37 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). A. Surveillance Information sharing agreements with markets trading securities underlying a derivative product are an important part of a self-regulatory organization's ability to monitor for trading abuses in derivative products. Although an information sharing agreement with the OTC gold market is not possible, the Commission believes that the unique liquidity and depth of the gold market, together with Amex's information sharing agreement with NYMEX (of which COMEX is a division) and Exchange Rules 1203A and 1204A, create the basis for Amex to monitor for fraudulent and manipulative practices in the trading of the Gold Shares. 38 38 The Commission notes that it recently reached a similar conclusion with respect to a proposal by the New York Stock Exchange to list and trade trust shares that, as in the Amex proposal, correspond to a fixed amount of gold. *See* Securities Exchange Act Release No. 50603 (October 28, 2004), 69 FR 64614 (November 5, 2004). In that recent order, the Commission noted that it had previously approved the listing and trading of foreign currency options, for which there is no self-regulatory organization or Commission surveillance of the underlying markets, on the basis that the magnitude of the underlying currency market militated against manipulations through inter-market trading activity. *See id.,* at 64619 (Securities Exchange Act Release Nos. 19133 (October 14, 1982) (approving the listing of standardized options on foreign currencies ); 36505 (November 22, 1995) (approving the listing of dollar-denominated delivery foreign currency options on the Japanese Yen); and 36165 (August 29, 1995) (approving listing standards for, among other things, currency and currency index warrants). The OTC market for gold is extremely deep and liquid. The LBMA estimates that the monthly average daily volume figures published by the LBMA for 2003 range from a high of 19 million to a low of 13.6 million troy ounces per day. 39 In addition, COMEX figures for 2003 indicate that the average daily volume for gold futures contracts was 4.9 million ounces per day. 40 39 There are no authoritative published figures for overall worldwide volume in gold trading. The LBMA publishes statistics compiled from the six members offering clearing services. Information regarding clearing volume estimates by the LBMA can be found at *http://www.lbma.org.uk/clearing_table.htm.* 40 Information regarding average daily volume estimates by the COMEX (a division of NYMEX) can be found at *http://www.nymex.com/jsp/markets/md_annual_volume6.jsp#2.* The statistics are based on gold futures contracts, each of which relates to 100 ounces of gold. Finally, Amex Rule 1204A will require that the specialist handling the Gold Shares provide the Exchange with information relating to its trading in physical gold, gold futures contracts, options on gold futures, or any other gold derivative. The Commission believes these reporting and record-keeping requirements will assist the Exchange in identifying situations potentially susceptible to manipulation. Amex Rule 1204A will also prohibit the specialist in the Gold Shares from using any material nonpublic information received from any person associated with a member or employee of such person regarding trading by such person or employee in physical gold, gold futures contracts, options on gold futures, or any other gold derivatives (including the Gold Shares). In addition, Amex Rule 1203A will prohibit the specialist in the Gold Shares from being affiliated with a market maker in physical gold, gold futures, or options on gold futures unless adequate information barriers are in place and approved by the Exchange. B. Dissemination of Information About the Gold Shares The Commission finds that sufficient venues for obtaining reliable gold price information exist so that investors in the Gold Shares can adequately monitor the underlying spot market in gold relative to the NAV of their Gold Shares. As discussed more fully above, the Commission notes that there is a considerable amount of gold price and gold market information available 24 hours per day on public Web sites and through professional and subscription services. In addition, the Trustee will disseminate each day on the Trust Web site, an estimated amount representing the Basket Gold Amount. The Exchange will also disseminate through the CTA the Indicative Trust Value on a per share basis every 15 seconds during regular Amex trading hours of 9:30 a.m. to 4:15 p.m. New York time (except between 1:30 p.m. and 2 p.m., the time period from the close of regular trading of the COMEX gold futures contract and the start of trading of COMEX gold futures contracts on NYMEX ACCESS). The last sale price for Gold Shares will also be disseminated on a real-time basis over the Consolidated Tape. The Commission also notes that the Trust's Web site at *http://www.ishares.com* is and will be publicly accessible at no charge and will contain the NAV of the Gold Shares and the Basket Gold Amount as of the prior business day, the Bid-Ask Price, and a calculation of the premium or discount of the Bid-Ask Price in relation to the closing NAV. Additionally, the Trust's Web site, to which the Amex will link, will also provide data in chart form displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges for each of the four previous calendar quarters, the Prospectus, and other applicable quantitative information. The Commission believes that dissemination of this information will facilitate transparency with respect to the Gold Shares and diminish the risk of manipulation or unfair informational advantage. C. Listing and Trading Further, the Commission finds that the Exchange's proposed rules and procedures for the listing and trading of the proposed Gold Shares are consistent with the Act. For example, Gold Shares will be subject to Amex rules governing trading halts, responsibilities of the specialist, and customer suitability requirements. In addition, the Gold Shares will be subject to Amex Rules 1201A and 1202A for initial and continued listing of Gold Shares. The Commission believes that listing and delisting criteria for the Gold Shares should help to maintain a minimum level of liquidity and therefore minimize the potential for manipulation of the Gold Shares. Finally, the Commission believes that the Exchange's Information Circular adequately will inform members and member organizations about the terms, characteristics, and risks in trading the Gold Shares. IV. Amendment No. 5 The Amex has requested that the Commission grant accelerated approval to Amendment No. 5 to the proposed rule change. 41 The Commission believes that the amendments proposed in Amendment No. 5 regarding the requirement for separate rule filings under Section 19(b)(2) of the Act for Commodity-Based Trust Shares, certain fees and expenses, and other minor changes to the proposal, provide clarity and additional detail, but do not change the substance of the proposal. Because the amendment clarifies and makes other minor changes to the proposal, the Commission therefore finds good cause, consistent with Section 19(b)(2) of the Act, 42 to approve Amendment No. 5 to the proposed rule change prior to the thirtieth day after the date of publication of notice of filing thereof in the **Federal Register** . 41 *See* Amendments Nos. 1 and 2, *supra* notes 4 and 5. 42 15 U.S.C. 78s(b)(2). Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 5 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-Amex-2004-38 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-Amex-2004-38. 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 on Amex's Web site ( *http://www.amex.com* ) and for inspection and copying at the Amex's Office of the Secretary. 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-Amex-2004-38 and should be submitted on or before February 16, 2005. V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 43 that the proposed rule change (SR-Amex-2004-38), as amended, is hereby approved. 43 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 44 44 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-283 Filed 1-25-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51049; File No. SR-BSE-2004-52] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto Relating to Market Maker Quote Obligations Under the Rules of the Boston Options Exchange Facility January 18, 2005. On November 24, 2004, the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) submitted to 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 adopt a rule under the rules of the Boston Options Exchange Facility (“BOX”) to provide BOX Market Makers protection from the unreasonable risk associated with communication failures and systemic errors. On December 3, 2004, the BSE submitted Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for comment in the **Federal Register** on December 14, 2004. 3 The Commission received no comments on the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Securities Exchange Act Release No. 50814 (December 7, 2004), 69 FR 74547 (December 14, 2004). After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange. 4 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act, 5 which requires among other things, that the rules of the Exchange are 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. The Commission notes that the proposal does not alter the obligations of BOX Market Makers. The proposed rule change codifies BOX system functionality which should provide BOX Market Makers assistance in effectively managing their quotations. 4 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). 5 15 U.S.C. 78f(b)(5). It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 6 that the proposed rule change (SR-BSE-2004-52) be, and it hereby is, approved. 6 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-281 Filed 1-25-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51052; File No. SR-CBOE-2005-05] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Inc., Amending Its Marketing Fee January 18, 2005. 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 January 10, 2005, the Chicago Board Options Exchange, Inc., (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the CBOE. The CBOE has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the CBOE under section 19(b)(3)(A)(ii) of the Act, 3 and Rule 19b-4(f)(2) thereunder, 4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CBOE proposes to amend its marketing fee to assess a fee on options on Standard & Poor's Depositary Receipts (“SPDRs®”) involving transactions of Market-Makers (including Designated Primary Market-Makers, or DPMs, and electronic Designated Primary Market-Makers, or e-DPMs) other than Market-Maker-to-Market-Maker transactions. The fee will be imposed at the rate of $.22 per contract. Below is the text of the proposed rule change. Proposed new language is *italicized;* proposed deletions are in [brackets]. Chicago Board Options Exchange, Inc. Fee Schedule 1.-4. No change. **Notes:** (1)-(5) No change.
(6)The Marketing Fee will be assessed only on transactions of Market-Makers, e-DPMs and DPMs at the rate of $.22 per contract on all classes of equity options, *options on HOLDRs, and options on SPDRs.* [other than] *The fee will not apply to* Market-Maker-to-Market-Maker transactions. This fee shall not apply to index options and options on ETFs ( *other than options on SPDRs* ). [The fee shall apply to options on HOLDRs.] Should any surplus of the marketing fees at the end of each month occur, those funds would be carried forward to the following month. The Exchange would then refund such surplus at the end of the quarter, if any, on a pro rata basis based upon contributions made by the Market-Makers, e-DPMs and DPMs. (7)-(14) No change. 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 CBOE included statements concerning the purpose of and basis for its proposal and discussed any comments it had received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. The CBOE 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 On October 29, 2004, the CBOE amended its marketing fee program. 5 The current marketing fee is assessed upon DPMs, e-DPMs, and Market-Makers at a rate of $0.22 for every contract they enter into on the Exchange, other than Market-Maker-to-Market-Maker transactions, including all transaction between any combination of DPMs, e-DPMs, and Market-Makers. 6 Currently, the marketing fee is assessed in all equity option classes and options on HOLDRs. 7 The Exchange proposes to amend its marketing fee to also apply to options on SPDRs (ticker symbol “SPY”), an Exchange Traded Fund (“ETF”). 8 This fee shall not apply to index options and options on ETFs (other than options on SPDRs). The Exchange states that it is not making any other changes to its marketing fee. 5 *See* Securities Exchange Act Release No. 50736 (November 24, 2004), 69 FR 69966 (December 1, 2004) (SR-CBOE-2004-68) (“Release No. 34-50736”). 6 *See* Release No. 34-50736 for a more detailed description of the CBOE's marketing fee program. 7 HOLDRs are trust-issued receipts that represent an investor's beneficial ownership of a specified group of stocks. *See* Interpretation .07 to CBOE Rule 5.3. 8 ETFs are shares of trusts that hold portfolios of stocks designed to closely track the price performance and yield of specific indices. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act 9 in general, and furthers the objectives of section 6(b)(4) of the Act 10 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among the CBOE's members. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The CBOE neither solicited nor received written comments with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange, it has become effective pursuant to section 19(b)(3)(A)(ii) of the Act 11 and subparagraph (f)(2) of Rule 19b-4 thereunder. 12 Accordingly, the proposal will take effect upon filing with the Commission. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 11 15 U.S.C. 78s(b)(3)(A)(ii). 12 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-CBOE-2005-05 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-CBOE-2005-05. 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 Room. Copies of the filing also will be available for inspection and copying at the principal office of the CBOE. 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-CBOE-2005-05 and should be submitted on or before February 16, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-282 Filed 1-25-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51050; File No. SR-ISE-2004-31] Self-Regulatory Organizations; International Securities Exchange, Inc.; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto Relating to System-Assisted Quotation Services January 18, 2005. On September 30, 2004, the International Securities Exchange, Inc. (“ISE” or “Exchange”) submitted to 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 codify in the ISE's rules certain services the ISE offers market makers to help them manage their quotations. On November 16, 2004, the ISE submitted Amendment No.1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for comment in the **Federal Register** on December 14, 2004. 3 The Commission received no comments on the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Securities Exchange Act Release No. 50813 (December 7, 2004), 69 FR 74551 (December 14, 2004). After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange. 4 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act, 5 which requires among other things, that the rules of the Exchange are 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. The Commission notes that the proposal does not alter the obligations of ISE market makers. The proposed rule change codifies ISE system functionality which should provide ISE market makers assistance in effectively managing their quotations. 4 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). 5 15 U.S.C. 78f(b)(5). It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 6 that the proposed rule change (SR-ISE-2004-31) be, and it hereby is, approved. 6 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-280 Filed 1-25-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51054; File No. SR-NYSE-2005-07] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Proposed Changes to Exchange Rules 440F (“Public Short Sale Transactions Effected on the Exchange”) and 440G (“Transactions in Stocks and Warrants for the Accounts of Members, Allied Members and Member Organizations”) January 18, 2005. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the “Exchange Act”), 2 and Rule 19b-4 thereunder, 3 notice is hereby given that on January 11, 2005, the New York Stock Exchange, Inc. (the “NYSE” or the “Exchange”) filed with the Securities and Exchange Commission (the “SEC” or the “Commission”) the proposed rule change as described in Items I, II, and III 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. 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a *et seq.* 3 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The NYSE is filing with the SEC proposed amendments to Exchange Rules 440F (“Public Short Sale Transactions Effected on the Exchange”) and 440G (“Transactions in Stocks and Warrants for the Accounts of Members, Allied Members and Member Organizations”) to include certain short-exempt sales on Reports of Short Interest ( *i.e.* , Forms SS20 and 121). The text of the proposed amendments is available from the NYSE and the Commission. 4 4 Both Exhibits A and B are available at *http://www.nyse.com/regulation/* and *http://www.sec.gov/rules/sro.shtml.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
(1)Purpose Exchange Rule 440F requires members and member organizations to report round-lot short sale transactions for public customers on Form SS20. Exchange Rule 440G requires members and member organizations to report round-lot short sale transactions for members, allied members or member organizations on Form 121. Rule 440F.10 (“Requirements for filing”) and 440G.10 (“Requirements for filing”) also provide “General Instructions” to complete “Reports on Form SS20” and “Reports on Form 121,” respectively. Currently, short-exempt sales are excluded when computing the total short interest on the forms, under Rules 440F and 440G, respectively. However, the SEC greatly increased the number of short-exempt sales transactions when they adopted Regulation SHO. Concurrently with the adoption of Regulation SHO, the SEC issued the Pilot Order 5 providing for a one-year Pilot program under which the provisions of Rule 10a-1 and any SRO short sale price test, including the tick test contained in Exchange Rule 440B, are suspended. Subsequently, on November 29, 2004, the SEC issued a Second Pilot Order 6 postponing its previously announced one-year pilot suspending the provisions of Rule 10a-1 and any short sale price test of any exchange or national securities association for short sales of designated securities. 5 *See* Securities Exchange Act Release No. 50104 (July 28, 2004), 69 FR 48032 (August 6, 2004). 6 *See* Securities Exchange Act Release No. 50747 (November 29, 2004) (“Second Pilot Order”), available at *http://www.sec.gov/rules/other/34-50747.htm.* The Pilot was established as part of the SEC's review of short sale regulations in conjunction with the adoption of Regulation SHO. Pursuant to Regulation SHO, broker-dealers are required to mark short sale orders of securities enumerated in the Pilot Order effected during any Pilot period as “short exempt” so that such orders are not subject to price tests. A large number of broker-dealers had informed the Commission that it would be inefficient and very costly for them to comply with this marking requirement for Pilot stocks, requiring significant systems changes for both firms and customers. In addition, these broker-dealers had raised the possibility that these significant systems changes may be in effect for only the duration of the one-year Pilot. As a result, the Exchange, along with other market centers, have agreed to “mask” short sale orders in Pilot stocks for the duration of the Pilot, as it would be more efficient than having broker-dealers and their customers make the changes. However, as it would take some time to make necessary changes to the various market centers systems, the market centers will not be able to “mask” orders until May 2, 2005. As a result, the Commission issued the Second Pilot Order extending the implementation of the Pilot until that date. The Pilot is now scheduled to begin on May 2, 2005 and end on April 28, 2006. All other terms of the Pilot Order 7 remain unchanged, 8 which requires these Pilot “designated securities” to be marked “short-exempt” sales. Accordingly, the Exchange proposes to amend the instructions to Forms SS20 and 121, pursuant to Rules 440F and 440G to include these certain short-exempt sales on Reports of Short Interest. 7 *See* Securities Exchange Act Release No. 50104 (July 28, 2004), 69 FR 48032 (August 6, 2004) (“Pilot Order”), available at *http://www.sec.gov/rules/other/34-50104.htm.* The Pilot Order provided for a one-year pilot program (“Pilot Program”), under which the provisions of Rule 10a-1 and any self-regulatory organization (“SRO”) short sale price test, including the tick test contained in Exchange Rule 440B, are suspended for short sales in:
(1)Certain “designated securities” identified in Appendix A to the SEC's Pilot Order;
(2)any security included in the Russell 1000 Index effected between 4:15 p.m. e.s.t. and the open of the consolidated tape on the following day; and
(3)any security not included in
(1)and
(2)above effected in the period between the close of the consolidated tape ( *i.e.* , after 8 p.m. e.s.t.) and the open of the consolidated tape the following day. During the Pilot, all other provisions of Rule 10a-1 and Regulation SHO—including the marking, locate and delivery requirements—remain in effect. The SEC also noted in the Pilot Order that SROs, including the Exchange, would actively monitor trading in the Pilot Program securities to identify any abusive short selling. 8 *See* SEC, Division of Market of Regulation, Responses to Frequently Asked Questions Concerning Regulation SHO (December 17, 2004), available at *http://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm.* The Exchange is proposing amendments to Rules 440F.10 and 440G.10 to conform the instructions to Forms SS20 and 121, respectively, to the Pilot Order. The purpose of Rules 440F and 440G is to capture short interest for reporting purposes, which is meant to include the designated securities subject to the Pilot Order—regardless as to whether they are marked “short-exempt.” In addition, the Exchange is proposing some minor amendments to the rules to remove obsolete references.
(1)Statutory Basis The statutory basis for the proposed rule change is Sections 6(b)(5) 9 and 17A 10 of the Exchange Act which require, among other things, that the rules of the Exchange are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to perfect the mechanism of a free and open market and national market system, and in general to protect investors and the public interest; and the prompt and accurate clearance and settlement of securities transactions. 9 9 15 U.S.C. 78f(b)(5). 10 15 U.S.C. 78q-1. 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 not necessary or appropriate in furtherance of the purposes of the Exchange Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 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 90 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 Exchange consents, the Commission:
(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, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send e-mail to *rule-comments@sec.gov.* Please include File Number SR-NYSE-2005-07 in 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-NYSE-2005-07. This file number should be included on the subject line of 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 Room. Copies of such filing also will be available for inspection and copying at the principal office of the NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submission should refer to File Number SR-NYSE-2005-07 and should be submitted on or before February 16, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-279 Filed 1-25-05; 8:45 am] BILLING CODE 8010-01-P SOCIAL SECURITY ADMINISTRATION The Ticket To Work and Work Incentives Advisory Panel Meeting AGENCY: Social Security Administration (SSA). ACTION: Notice of meetings. DATES: February 23, 2005, 9 a.m.-5 p.m. February 24, 2005, 9 a.m.-6 p.m.* February 25, 2005, 9 a.m.-1 p.m. *The full deliberative panel meeting ends at 5 p.m. The standing committees of the Panel will meet from 5 p.m. until 6 p.m. ADDRESSES: Hotel Monaco, 333 St. Charles Ave., New Orleans, LA 70130. SUPPLEMENTARY INFORMATION: *Type of meeting:* This is a quarterly meeting open to the public. The public is invited to participate by coming to the address listed above. Public comment will be taken during the quarterly meeting. The public is also invited to submit comments in writing on the implementation of the Ticket to Work and Work Incentives Improvement Act (TWWIIA) of 1999 at any time. *Purpose:* In accordance with section 10(a)(2) of the Federal Advisory Committee Act, the Social Security Administration
(SSA)announces a meeting of the Ticket to Work and Work Incentives Advisory Panel (the Panel). Section 101(f) of Public Law 106-170 establishes the Panel to advise the President, the Congress, and the Commissioner of SSA on issues related to work incentives programs, planning, and assistance for individuals with disabilities as provided under section 101(f)(2)(A) of the TWWIIA. The Panel is also to advise the Commissioner on matters specified in section 101(f)(2)(B) of that Act, including certain issues related to the Ticket to Work and Self-Sufficiency Program established under section 101(a) of that Act. Interested parties are invited to attend the meeting. The Panel will use the meeting time to receive briefings, hear presentations, conduct full Panel deliberations on the implementation of TWWIIA, and receive public testimony. The Panel will meet in person commencing on Wednesday, February 23, 2005 from 9 a.m. to 5 p.m. Thursday, February 24, 2005 from 9 a.m. to 5 p.m. (standing committee meetings from 5 p.m. to 6 p.m.); and Friday, February 25, 2005 from 9 a.m. to 1 p.m. *Agenda:* The Panel will hold a quarterly meeting. Briefings from Social Security, presentations on Medicaid and Medicare, full Panel deliberations and other Panel business will be held Wednesday, Thursday, and Friday, February 23, 24, and 25, 2005. Public testimony will be heard in person Wednesday, February 23, 2005 from 3 p.m. to 3:30 p.m. and on Friday, February 25, 2005 from 9 a.m. to 9:30 a.m. Members of the public must schedule a timeslot in order to comment. In the event that the public comments do not take up the scheduled time period for public comment, the Panel will use that time to deliberate and conduct other Panel business. Individuals interested in providing testimony in person should contact the Panel staff as outlined below to schedule time slots. Each presenter will be called on by the Chair in the order in which they are scheduled to testify and is limited to a maximum five-minute verbal presentation. Full written testimony on TWWIIA Implementation, no longer than 5 pages, may be submitted in person or by mail, fax or email on an on-going basis to the Panel for consideration. Since seating may be limited, persons interested in providing testimony at the meeting should contact the Panel staff by e-mailing Shirletta Banks, at *Shirletta.Banks@socialsecurity.gov* or calling
(202)358-6430. The full agenda for the meeting will be posted on the Internet at *http://www.socialsecurity.gov/work/panel* approximately one week before the meeting or can be received in advance electronically or by fax upon request. *Contact Information:* Anyone requiring information regarding the Panel should contact the TWWIIA Panel staff. Records are being kept of all Panel proceedings and will be available for public inspection by appointment at the Panel office. Anyone requiring information regarding the Panel should contact the Panel staff by: ☐ Mail addressed to Social Security Administration, Ticket to Work and Work Incentives Advisory Panel Staff, 400 Virginia Avenue, SW., Suite 700, Washington, DC 20024. ☐ Telephone contact with Shirletta Banks at
(202)358-6430. ☐ Fax at
(202)358-6440. ☐ E-mail to *TWWIIAPanel@socialsecurity.gov.* Dated: January 18, 2005. Carol Brenner, Designated Federal Officer. [FR Doc. 05-1393 Filed 1-25-05; 8:45 am]
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U.S. Code
- Registration, responsibilities, and oversight of self-regulatory organizations§ 78s
- National securities exchanges§ 78f
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Definitions and application§ 78c
- Comprehensive energy plan§ 781
- Short title§ 78a
- National system for clearance and settlement of securities transactions§ 78q–1
4 references not yet in our index
- 17 CFR 240.19
- 17 CFR 240.10
- Pub. L. 107-204
- Pub. L. 106-170
Citation graph
cites case law
Notices
Notice of meetings
Cite17 CFR 240.19
Cite17 CFR 240.10
Pub. L.Pub. L. 107-204
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