[Federal Register Volume 68, Number 28 (Tuesday, February 11, 2003)]
[Notices]
[Pages 6974-6975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3381]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47312; File No. SR-Amex-2002-96]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC 
to Permit Limited Side-by-Side Trading and Integrated Market Making of 
Certain iShares Lehman Treasury Index Exchange-Traded Fund Shares and 
Their Related Options

February 5, 2003.

I. Introduction

    On November 18, 2002, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to permit limited side-by-side 
trading and integrated market making of certain iShares Lehman Treasury 
Index exchange-traded fund shares and their related options.\3\ The 
Exchange filed Amendment No. 1 to the proposed rule change on December 
3, 2002.\4\ The proposed rule change, as amended, was published for 
comment in the Federal Register on December 27, 2002.\5\ The Commission 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The exchange traded funds (``ETFs'') covered by this 
proposal are the iShares Lehman 1-3 Year Treasury Bond Fund (the 
``1-3 Year Bond Fund''), the iShares Lehman 7-10 Year Treasury Bond 
Fund (the ``7-10 Year Bond Fund''), the iShares Lehman 20+ Year 
Treasury Bond Fund (the ``20+Year Bond Fund'') (collectively, the 
``iShares Lehman Treasury Index ETFs'').
    \4\ See letter from Jeffrey P. Burns, Assistant General Counsel, 
Amex, to Kelly McCormick-Riley, Senior Special Counsel, Division of 
Market Regulation (``Division''), Commission, dated November 27, 
2002 (``Amendment No. 1'').
    \5\ See Securities Exchange Act Release No. 47071 (December 18, 
2002), 67 FR 79174.
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    After careful review, 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.\6\ In particular, the Commission finds that the 
proposed rule change to permit limited side-by-side trading and 
integrated market making of iShares Lehman Treasury Index ETFs and 
their related options is consistent with Section 6(b)(5) of the Act.\7\
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    \6\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    Previously, the Commission approved a similar proposed rule change 
by the Amex to allow side-by-side trading and integrated market making 
of ETFs and trust issued receipts (``TIRs'') and their related options, 
so long as the component securities of the ETF or TIR satisfy certain 
criteria.\8\ The Exchange now proposes to permit side-by-side trading 
and integrated market making of broad based iShares Lehman Treasury 
Index ETFs (composed of highly liquid treasury securities) and their 
related options. The Commission believes that this proposal does not 
raise significant new regulatory issues. Specifically, ETFs and TIRs 
are securities that are based on groups of stocks and whose prices are 
based on the prices of their component securities. Accordingly, the 
Commission believes that a market participant's ability to manipulate 
the price of the ETF, TIR or related option is limited. In addition, 
the Treasury securities that compose the iShares Lehman Treasury Index 
ETFs have more than $150 million par outstanding and

[[Page 6975]]

are highly liquid, which should reduce the likelihood that any market 
participant has an unfair information advantage about the ETF, its 
related options, or its component securities, or that a market 
participant would be able to manipulate the prices of the ETF or 
related options. Moreover, to address concerns about any market 
participant having an unfair competitive advantage over others in the 
crowd, Exchange Rule 174 requires integrated specialists in a side-by-
side trading environment to disclose trading interest on the limit 
order book in iShares Lehman Treasury Index ETFs and related options 
upon request.\9\ Lastly, the Commission expects the Exchange to 
continuously surveil these trading arrangements regularly and to assess 
its surveillance procedures to determine whether they are adequate for 
the new trading arrangements to ensure that market participants do not 
engage in manipulative or improper trading practices.
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    \8\ See Securities Exchange Act Release No. 46213 (July 16, 
2002), 67 FR 48232 (July 23, 2002). The criteria that the component 
securities of an ETF or TIR must meet are set forth in Commentary 
.03(a) to Amex Rule 1000 and Commentary .02(a) to Amex Rule 1000A.
    \9\ Telephone conversation between Jeffrey P. Burns, Assistant 
General Counsel, Amex, and Christopher Solgan, Attorney, Division, 
Commission, on February 4, 2003.
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II. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Amex-2002-96), as amended, 
is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-3381 Filed 2-10-03; 8:45 am]
BILLING CODE 8010-01-P