[Federal Register Volume 69, Number 214 (Friday, November 5, 2004)]
[Notices]
[Pages 64614-64620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3018]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50603; File No. SR-NYSE-2004-22]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendments No. 1 and No. 2 Thereto to the 
Proposed Rule Change by the New York Stock Exchange, Inc. Regarding 
Listing and Trading of streetTRACKS[supreg] Gold Shares

October 28, 2004.

I. Introduction

    On June 7, 2004, the New York Stock Exchange, Inc. (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 
streetTRACKS[supreg] Gold Shares (``Shares''), which represent units of 
fractional undivided beneficial interests in and ownership of the 
streetTRACKS[supreg] Gold TrustSM (``Trust''). The proposed 
rule change was published for comment in the Federal Register on June 
17, 2004.\3\ On September 13, 2004, the Exchange filed Amendment No. 1 
to the proposal.\4\ On October 28, 2004, the Exchange filed Amendment 
No. 2 to the proposal.\5\ The Commission received no comment letters 
regarding the proposed rule change. This order approves the Exchange's 
rule change as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 49849 (June 10, 
2004), 69 FR 31437 (June 17, 2004) (``Notice'').
    \4\ See Amendment No. 1 that reflects certain amendments to the 
Registration Statement about the addition of a marketing agent, a 
wholly-owned subsidiary of State Street Corporation, and changes to 
fees and expenses.
    \5\ In Amendment No. 2, the Exchange (1) requested accelerated 
approval of the proposal, as amended; (2) clarified that the 
Exchange, via a Web site link to the Trust's Web site, would 
disseminate at least every 15 seconds an updated indicative spot 
price of gold and Intraday Indicative Value (``IIV''); (3) clarified 
that the continuous dissemination of the updated indicative spot 
price of gold and IIV via the Exchange's Web site link to the 
Trust's Web site were a condition of continued listing of the 
Shares; (4) confirmed that the NYSE would file a proposed rule 
change before exempting the shares from the Exchange's ``Market-on-
Close/Limit-on-Close/Pre-opening Price Indications'' Policy; (5) 
clarified additional information about the Shares to be provided on 
the Exchange's Web site, via a link to the Trust's Web site; and (6) 
clarified proposed rule text relating to Investment Company Units 
(``ICUs'') and provisions in the information circular given to 
members, describing the Shares.
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II. Description of Proposal

    The NYSE proposes to list and trade shares in a new type of trust 
that will hold gold as its sole asset. The value of each Share, which 
will correspond to a fixed amount of gold,\6\ will fluctuate with the 
spot price of gold. In effect, purchasing Shares in the Trust will 
provide investors a new mechanism to participate in the gold market. To 
facilitate trading of the new product, the NYSE has proposed new Rules 
1300 and 1301 that will govern the trading of Shares on the 
Exchange.\7\ Information about the liquidity, depth, and pricing 
mechanisms of the international gold market, management and structure 
of the Trust, and description of the Shares follows below.
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    \6\ Initially, each Share will correspond to one-tenth of a troy 
ounce of gold. The amount of gold associated with each Share is 
expected to decrease over time as the Trust incurs and pays 
maintenance fees and other expenses.
    \7\ The applicability of the new rules is expressly limited to 
the Shares. As set forth in the Notice for the proposal, the 
proposed rules incorporate by reference other NYSE rules governing 
ICUs and, in addition, set forth guidelines for member organizations 
acting as specialist in the Shares.
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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. In its filing with 
the Commission, the NYSE provided a description of the world-wide gold 
market as well as a description of the characteristics of gold supply 
and demand. The global gold market consists of the following 
components, described briefly below.\8\
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    \8\ For more information on the gold market and gold supply and 
demand, see the Notice, supra note 3.
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The OTC Market
    The OTC market trades on a 24-hour per day continuous basis and 
accounts for most 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. According to the Registration Statement, the period of greatest 
liquidity in the gold market is typically that time of the day when 
trading in the European time zones overlaps with trading in the United 
States, which is when OTC market trading in London, New York and other 
centers coincides with futures and options trading on the COMEX. This 
period lasts for approximately four hours each New York business day 
morning.
    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 
members offering clearing services.\9\ 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. 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 contracts was 4.9 million troy ounces per day.\10\
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    \9\ 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 million 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.
    \10\ 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 troy ounces of 
gold.
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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'').\11\ Trading on these exchanges is based on fixed 
delivery dates and transaction sizes for the futures and options 
contracts traded. Trading costs are negotiable. According to the 
Exchange, as a matter of practice, only a small percentage of the 
futures market turnover ever comes to physical delivery of the gold 
represented by the contracts traded. Both exchanges permit

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trading on margin. COMEX operates through a central clearance system. 
TOCOM has a similar clearance system. In each case, the exchange acts 
as a counterparty for each member for clearing purposes.
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    \11\ 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.
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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 the 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 Markets Act 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, an independent government agency with the mandate 
to regulate commodity futures and option 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 the 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 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.\12\ The 
investment objective of the Trust is for the Shares to reflect the 
performance of the price of gold, less the Trust's expenses.
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    \12\ The Exchange states that the Commission has permitted the 
listing of prior 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 Exchange 
also states that there are other securities trading on regulated 
markets that invest in commodities or in royalty interests based on 
commodities. See, e.g., Central Fund of Canada (Registration No. 
033-15180) (symbol CEF)); Hugoton Royalty Trust (Registration No. 
333-68441) (symbol HGT).
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    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 
Trust is not a registered investment company under the Investment 
Company Act of 1940 (``1940 Act'') and is not required to register 
under such Act.
    World Gold Trust Services, LLC, a wholly owned limited liability 
company of the World Gold Council,\13\ is the sponsor of the Trust 
(``Sponsor''). The Bank of New York is the trustee of the Trust 
(``Trustee''), HSBC Bank USA, an indirect wholly owned subsidiary of 
HSBC Holdings plc, is the custodian of the Trust (``Custodian''), and 
State Street Global Markets LLC, a wholly-owned subsidiary of State 
Street Corporation, is the Marketing Agent of the Trust (the 
``Marketing Agent''). The Marketing Agent and Custodian are registered 
broker-dealers. The Custodian and Marketing Agent and their affiliates, 
and affiliates of the Trustee, may act as Authorized Participants or 
purchase or sell gold or Shares for their own account as agent for 
their customer and for accounts over which they exercise investment 
discretion.\14\ The Exchange states, that to the extent deemed 
appropriate by these entities, information barriers will exist between 
the Custodian, Marketing Agent, Trustee, and their affiliates 
transacting in the gold cash market or the Shares; however, the 
Exchange is not requiring such information barriers. UBS Securities LLC 
is to be the initial purchaser of the Shares (``Initial Purchaser''), 
as described below. The Sponsor, Trustee, Custodian and Initial 
Purchaser are not affiliated with one another or with the Exchange.
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    \13\ The World Gold Council is a not-for-profit association 
registered under Swiss law.
    \14\ See infra note 18.
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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. In Amendment No. 1, the 
NYSE amended the proposal to reflect an increase in these management 
fees.\15\ These expenses and fees will reduce the value of an 
investor's 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, (4) fees 
paid to the Marketing Agent, and (5) various Trust administration fees, 
including printing and mailing costs, legal and audit fees, 
registration fees, and NYSE listing fees. The Trust's estimated 
ordinary operating expenses are accrued daily and reflected in the NAV 
of the Trust.
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    \15\ See Amendment No. 1, supra note 4.
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D. Description and Characteristics of the Shares

1. Liquidity
    The Exchange states that the Shares may trade at a discount or 
premium relative to the NAV per Share because of non-concurrent trading 
hours between the major gold markets and the NYSE. While the Shares 
will trade on the NYSE until 4:15 p.m. New York time, liquidity in the 
OTC market for gold will be reduced after the close of the COMEX at 
1:30 p.m. New York time. During this time, trading spreads and the 
resulting premium or discount on the Shares may widen as a result of 
reduced liquidity in the OTC gold market.
    Because of the potential for arbitrage inherent in the structure of 
the Trust, the Sponsor believes that the Shares will not trade at a 
material discount or premium to the underlying gold held by the Trust. 
The Exchange states that the arbitrage process, which in general 
provides investors the opportunity to profit from differences in prices 
of assets, increases the efficiency of the markets, serves to prevent 
potentially manipulative efforts, and can be expected to operate 
efficiently in the case of the Shares and gold.
2. Creation and Redemption of Trust Shares
    The Trust will create Shares on a continuous basis only in 
aggregations of 100,000 Shares (such aggregation referred to as a 
``Basket''). Authorized Participants are the only persons that may 
place orders to create and redeem

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Baskets. Authorized Participants purchasing Baskets will be able to 
separate a Basket into individual Shares for resale.
    Authorized Participants purchasing a Basket must make an in-kind 
deposit of gold (``Gold Deposit''), together with, if applicable, a 
specified cash payment (``Cash Deposit'',\16\ and together with the 
Gold Deposit, the ``Creation Basket Deposit''). The Sponsor anticipates 
that in the ordinary course of the Trust's operations a cash deposit 
will not be required for the creation of Baskets. Similarly, the Trust 
will redeem Shares only in Baskets, principally in exchange for gold 
and, if applicable, a cash payment (``Cash Redemption Amount'' \17\ and 
together with the gold, the ``Redemption Distribution'').
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    \16\ The amount of any required Cash Deposit will be determined 
as follows: (1) The fees, expenses and liabilities of the Trust will 
be subtracted from any cash held or receivable by the Trust as of 
the date an Authorized Participant places an order to purchase one 
or more Baskets (``Purchase Order''); (2) the remaining amount will 
be divided by the number of Baskets outstanding and then multiplied 
by the number of Baskets being created pursuant to the Purchase 
Order. If the resulting amount is positive, that amount will be the 
required Cash Deposit. If the resulting amount is negative, the 
amount of the required Gold Deposit will be reduced by a number of 
fine ounces of gold equal in value to that resulting amount, 
determined by reference to the price of gold used in calculating the 
NAV of the Trust on the Purchase Order date. Fractions of an ounce 
of gold of less than 0.001 of an ounce included in the Gold Deposit 
amount will be disregarded.
    \17\ The Cash Redemption Amount is equal to the excess (if any) 
of all assets of the Trust other than gold less all estimated 
accrued but unpaid fees, expenses, and other liabilities, divided by 
the number of Baskets outstanding and multiplied by the number of 
Baskets included in the Authorized Participant's order to redeem one 
or more Baskets (``Redemption Order''). The Trustee will distribute 
any positive Cash Redemption Amount through DTC to the account of 
the Authorized Participant at DTC. If the Cash Redemption Amount is 
negative, the credit to the Authorized Participant's unallocated 
account (``Authorized Participant Unallocated Account'') will be 
reduced by the number of fine ounces of gold equal in value to that 
resulting amount, determined by reference to the price of gold used 
in calculating the NAV of the Trust on the Redemption Order date. 
Fractions of a fine ounce of gold included in the Redemption 
Distribution of less than 0.001 of an ounce will be disregarded. 
Redemption Distributions will be subject to the deduction of any 
applicable tax or other governmental charges due.
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    The Exchange states that certain Authorized Participants are 
expected to have the facility to participate directly in the gold 
bullion market and the gold futures market. The Sponsor believes that 
the size and operation of the gold bullion market make it unlikely that 
an Authorized Participant's direct activities in the gold or securities 
markets will impact the price of gold or the price of the Shares. The 
Exchange states that each Authorized Participant is (i) regulated as a 
broker-dealer regulated under the Act and registered with the National 
Association of Securities Dealers, Inc. (``NASD''), or (ii) is exempt 
from being, or otherwise is not required to be, regulated as a broker-
dealer under the Act or registered with the NASD, and in either case is 
qualified to act as a broker or dealer in the states or other 
jurisdictions where the nature of its business so requires.\18\ Certain 
Authorized Participants will be regulated under federal and state 
banking laws and regulations. The Exchange states that each Authorized 
Participant will have its own set of rules and procedures, internal 
controls, and information barriers as it determines is appropriate in 
light of its own regulatory regime. Authorized Participants may act for 
their own accounts or as agents for broker-dealers, custodians, and 
other securities market participants that wish to create or redeem 
Baskets. An order for one or more Baskets may be placed by an 
Authorized Participant on behalf of multiple clients.
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    \18\ The Commission notes that as of October 1, 2003, the 
temporary exemption for banks from the definition of ``dealer'' 
under the Exchange Act expired. Accordingly, banks that act as 
Authorized Participants should consider whether they are ``dealers'' 
under the federal securities laws. See Exchange Act Section 3(a)(5); 
Securities Exchange Act Release No. 47364 (February 14, 2003).
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    The total amount of gold and any cash required for the creation or 
redemption of each Basket will be in the same proportion to the total 
assets of the Trust (net of accrued and unpaid fees, expenses and other 
liabilities) on the date the Purchase Order is properly received as the 
number of Shares to be created in respect of the Creation Basket 
Deposit bears to the total number of Shares outstanding on the date the 
Purchase Order is received. Except when aggregated in Baskets, the 
Shares are not redeemable. The Trust will impose transaction fees in 
connection with creation and redemption transactions.
    The Trustee will determine the NAV \19\ and daily adjusted NAV 
(``ANAV'') of the Trust on each business day at the earlier of the 
London PM Fix for such day or 12 p.m. New York time.\20\ In determining 
the Trust's NAV and ANAV, the Trustee will value the gold held by the 
Trust based on the London PM Fix price for a troy ounce of gold. Once 
the value of the gold has been determined, the Trustee will determine 
the ANAV of the Trust by subtracting all accrued fees (other than the 
fees to be computed by reference to the ANAV or custody fees based on 
the value of the gold held by the Trust), expenses, and other 
liabilities of the Trust from the total value of the gold and all other 
assets of the Trust (other than any amounts credited to the Trust's 
reserve account, if established). Then the ANAV of the Trust is used to 
compute the Trustee's, the Sponsor's, and Marketing Agent's fees.\21\ 
To determine the Trust's NAV, the Trustee will subtract from the ANAV 
the amount of estimated accrued but unpaid fees that are based on the 
ANAV (e.g., the Trustee's, the Sponsor's and Marketing Agent's fees) 
and the amount of custody fees, which are based on the value of the 
gold held by the Trust. The Trustee will also determine the NAV per 
Share by dividing the NAV of the Trust by the number of the Shares 
outstanding as of the close of trading on the NYSE.
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    \19\ The NAV of the Trust is the aggregate value of the Trust's 
assets less its liabilities (which include accrued expenses).
    \20\ According to the Exchange, the London fix is the most 
widely used benchmark for daily gold prices and is quoted by various 
financial information sources.
    \21\ The Custodian's fee is not calculated based on ANAV, but 
rather the value of the gold held by the Trust.
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    UBS Securities LLC, the Initial Purchaser, is expected to purchase 
100,000 Shares, which will comprise the seed Basket. The Initial 
Purchaser has, subject to conditions, also agreed to purchase 900,000 
Shares, which comprise the initial Baskets. The Trust will receive all 
proceeds from the offering of the seed Basket and the initial Baskets 
in gold bullion. In connection with the offering and sale of the 
initial Baskets, the Initial Purchaser will be paid a fee by the 
Sponsor at the time of its purchase of the initial Baskets. In 
addition, the Initial Purchaser may receive commissions/fees from 
investors who purchase Shares from the initial Baskets through their 
commission/fee-based brokerage accounts.
3. Information About Underlying Gold Holdings
    The last sale price for the Shares will be disseminated over the 
Consolidated Tape. 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

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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. 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. The Exchange states that complete real-time data for gold 
futures and options prices traded on the COMEX (a division of the 
NYMEX) 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. The Exchange also notes that there are a variety of other public 
Web sites providing information on gold, ranging from those 
specializing in precious metals to sites maintained by major 
newspapers, such as The Washington Post. Many of these sites offer 
price quotations drawn from other published sources, and as the 
information is supplied free of charge, it generally is subject to time 
delays.\22\ Current gold spot prices are also available with bid/ask 
spreads from gold bullion dealers.
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    \22\ There may be incremental differences in the gold spot price 
among the various information service sources. While the Exchange 
believes the differences in the gold spot price may be relevant to 
those entities engaging in arbitrage or in the active daily trading 
of gold or gold-based products, the Exchange believes such 
differences are likely of less concern to individual investors 
intending to hold the Shares as part of a long-term investment 
strategy.
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    In addition, the NYSE, via a link to the Trust's Web site, will 
provide at no charge continuously updated bids and offers indicative of 
the spot price of gold on its own public Web site, http://www.nyse.com.\23\ The Trust Web site will also provide an a calculation 
of the estimated NAV (also known as the Intraday Indicative Value or 
``IIV'') of a Share as calculated by multiplying the indicative spot 
price of gold by the quantity of gold backing each Share. Comparing the 
IIV with the last sale price of the Shares helps an investor to 
determine whether, and to what extent, Shares may be selling at a 
premium or a discount to NAV. Notwithstanding that they will be 
provided free of charge, the indicative spot price and IIV per Share 
will be provided on an essentially real-time basis.\24\ The Trust Web 
site will also provide the NAV of the Trust as calculated each business 
day by the Sponsor. In addition, the Web site for the Trust will 
contain the following information, on a per Share basis, for the Trust: 
(a) The IIV as of the close of the prior business day and the mid-point 
of the bid-ask price \25\ in relation to such IIV (``Bid/Ask Price''), 
and a calculation of the premium or discount of such price against such 
IIV; and (b) data in chart format displaying the frequency distribution 
of discounts and premiums of the Bid/Ask Price against the IIV, within 
appropriate ranges, for each of the four previous calendar quarters. 
The Web site for the Trust will also provide the Trust's prospectus, as 
well as the two most recent reports to stockholders. Finally, the Trust 
Web site will also provide the last sale price of the Shares as traded 
in the United States market, subject to a 20-minute delay.\26\
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    \23\ The Trust Web site's gold spot price will be provided by 
The Bullion Desk (http://www.thebulliondesk.com). The NYSE will 
provide a link to the Trust Web site. The Bullion Desk is not 
affiliated with the Trust, Sponsor, Custodian, or the Exchange. The 
Exchange states that it has been informed that the gold spot price 
is indicative only, constructed using a variety of sources to 
compile a spot price that is intended to represent a theoretical 
quote that might be obtained from a market maker from time to time. 
The Trust Web site will indicate that there are other sources for 
obtaining the gold spot price. In the event that the Trust Web site 
should cease to provide this indicative spot price from an 
unaffiliated source (and the intraday indicative value) of the 
Shares, the NYSE will delist the shares.
    \24\ The Trust's Web site, to which the Exchange's Web site will 
link, will disseminate an indicative spot price of gold and the IIV 
and indicate that these values are subject to an average delay of 5 
to 10 seconds.
    \25\ The bid-ask price of the Trust is determined using the 
highest bid and lowest offer on the Consolidated Tape as of the time 
of calculation of the closing day IIV.
    \26\ The last sale price of the Shares in the secondary market 
is available on a real-time basis for a fee from regular data 
vendors.
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E. Initial Share Issuance and Continued Listing

    It is anticipated that a minimum of three Baskets will be 
outstanding at the commencement of trading on the Exchange. The number 
of Shares per Basket is 100,000.
    The Exchange's applicable continued listing criteria require it to 
delist the Shares if any of the following occur: (1) Following the 
initial twelve-month period beginning upon the commencement of trading 
of the Shares, there are fewer than 50 record and/or beneficial holders 
of the Shares for 30 or more consecutive trading days; (2) the value of 
gold is no longer calculated or available on at least a 15-second 
delayed basis from a source unaffiliated with the Sponsor, the Trust, 
the Custodian, Marketing Agent, or the Exchange, or the Exchange stops 
providing the hyperlink on the Exchange's Web site to any such 
unaffiliated gold value; (3) the IIV is no longer made available on at 
least a 15-second delayed basis; or (4) such other event shall occur or 
condition exist that, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable. In addition, the Exchange will 
remove Shares from listing and trading upon termination of the Trust.
    The Exchange's original listing fee applicable to the listing of 
the Trust will be $5,000. The annual continued listing fee for the 
Trust will be $2,000.

F. Exchange Trading Rules and Policies

    New NYSE Rule 1300 (``Equity Gold Shares'') deals with the trading 
of the Shares. New NYSE Rule 1300(c) establishes that the Shares are 
included in the definition of ``securities'' under NYSE Rule 3 and are 
subject to all applicable trading rules. New NYSE Rule 1300(a) states 
that, for purposes of NYSE Rule 13 (``Definitions of Orders''), NYSE 
Rule 36.30 (``Communications Between Exchange and Members'' Offices''), 
NYSE Rule 98 (``Restrictions on Approved Person Associated With a 
Specialist's Member Organization''), NYSE Rule 104 (``Dealings by 
Specialists''), NYSE Rule 105(m) (``Guidelines for Specialists'' 
Specialty Stock Option Transactions Pursuant to Rule 105''), NYSE Rule 
460.10 (``Specialists Participating in Contests''), NYSE Rule 1002 
(``Availability of Automatic Feature''), NYSE Rule 1005 (``Orders May 
Not Be Broken Into Smaller Accounts''), and all other rules that refer 
to ICUs, the Shares will be treated the same as ICUs. New NYSE Rule 
1300(b) adapts NYSE Rule 105(m) (``Guidelines for Specialists'' 
Specialty Stock Option Transactions Pursuant to Rule 105'') to the 
Shares. As is the case with ICUs, an equity specialist, his member 
organization, other member, allied member or approved person in such 
member organization or officer or employee thereof is prohibited from 
acting as a market maker or functioning in any capacity involving 
market-making responsibilities in the physical gold, gold futures or 
options on gold futures, or any other gold derivatives. However, an 
approved person of an equity specialist entitled to an exemption from 
NYSE Rule 105(m) under NYSE Rule 98 may act in a market making 
capacity, other than as a specialist in the Shares on another market 
center, in physical gold, gold futures or options on gold futures, or 
any other gold derivatives. Additionally, the Exchange does not 
currently intend

[[Page 64618]]

to exempt the Shares from the Exchange's ``Market-on-Close/Limit-on-
Close/Pre-Opening Price Indications'' Policy, although the Exchange may 
do so in the future if, after having experience with the trading of the 
Shares, the Exchange believes such an exemption is appropriate.\27\
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    \27\ To do so, the Exchange acknowledges it would file a 
proposed rule change. See Amendment No. 2.
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    New NYSE Rule 1301 requires trading and information barriers for 
member organizations acting as specialist in the Shares. Specifically, 
a member organizations acting as specialist in the Shares is obligated 
to conduct all trading in the Shares in its specialist account, subject 
only to the ability to have one or more investment accounts, all of 
which must be reported to the Exchange (see NYSE Rules 104.12 an 
104.13). Such member organization acting as specialist must also report 
to the Exchange and keep current a list identifying all accounts for 
trading physical gold, gold futures or options on gold futures, or any 
other gold derivatives, which the specialist may have or over which it 
may exercise investment discretion. Under the rule, any trading by the 
member organization that is the specialist in the Shares of physical 
gold or gold derivatives in an account over which the member 
organization controls, directly or indirectly, trading activities or 
has a direct interest in the profits or losses is prohibited, except to 
the extent such accounts and trading activities are reported to the 
Exchange as required under the rule. Furthermore, a member organization 
that is the specialist in the Shares will be required to make its 
books, records and other relevant information pertaining to its 
transactions and those of any member, allied member, approved person, 
registered or non-registered employee affiliated with the member for 
its or their own accounts in physical gold and gold derivatives 
available to the Exchange upon request. In addition, the registered 
specialist in the Shares will be prohibited from using any material 
nonpublic information from any person associated with a member or 
employee of such person regarding trading of physical gold or any gold 
derivative products.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading on the Exchange in the Shares may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may include 
(1) the extent to which trading is not occurring in gold or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in Shares is subject to trading halts caused by extraordinary 
market volatility pursuant to the Exchange's ``circuit breaker'' 
rule.\28\
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    \28\ NYSE Rule 80B.
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    Trading in Shares on the Exchange will be effected normally until 
4:15 p.m. each business day. The minimum trading increment for Shares 
on the Exchange will be $0.01.

G. Surveillance

    The Exchange's surveillance procedures will be comparable to those 
used for ICUs currently trading on the Exchange and will incorporate 
and rely upon existing NYSE surveillance procedures governing equities. 
In addition, for intermarket surveillance purposes, the Exchange has 
entered into a reciprocal Memorandum of Understanding (``MOU'') with 
the NYMEX (of which COMEX is a division) for the sharing of information 
related to any financial instrument based, in whole or in part, upon an 
interest in or performance of gold.
    The Exchange will also adopt new NYSE Rule 1301 (``Equity Gold 
Shares: Securities Accounts and Orders of Specialists'') to ensure that 
specialists handling Equity Gold Shares provide the Exchange with all 
necessary information relating to their trading in physical gold and in 
gold futures contracts and options thereon or any other gold 
derivative.\29\ As a general matter, the Exchange has regulatory 
jurisdiction over its member organizations and any person or entity 
controlling a member organization. The Exchange also has regulatory 
jurisdiction over a subsidiary or affiliate of a member organization 
that is in the securities business. A member organization subsidiary or 
affiliate that does business only in commodities would not be subject 
to NYSE jurisdiction, but the Exchange could obtain certain information 
regarding the activities of such subsidiary or affiliate through 
reciprocal agreements with regulatory organizations of which such 
subsidiary or affiliate is a member.
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    \29\ NYSE Rule 1301 also states that, in connection with trading 
physical gold, gold futures or options on gold futures or any other 
gold derivatives (including Shares), the specialist shall not use 
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 or 
options on gold futures, or any other gold derivatives. For the 
purpose of NYSE Rule 1301, ``person associated with a member'' shall 
have the same meaning ascribed to it in Section 3(a)(21) of the Act.
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H. Suitability

    Pursuant to NYSE Rule 405, before a member, member organization, 
allied member or employee of such member organization undertakes to 
recommend a transaction in Shares, such member or member organization 
should make a determination that such Shares are suitable for such 
customer. The Exchange states that any recommendation is made with 
respect to such Shares, the person making the recommendation should 
have a reasonable basis for believing at the time of making the 
recommendation that the customer has such knowledge and experience in 
financial matters that he or she may reasonably be expected to be 
capable of evaluating the risks and any special characteristics of the 
recommended transaction, and is financially able to bear the risks of 
the recommended transaction.

I. Information Circular

    The Exchange will distribute an information circular to its members 
in connection with the trading in the Shares. The circular will discuss 
the special characteristics and risks of trading this type of security. 
Specifically, the circular, among other things, will discuss what the 
Shares are, how a Basket is created and redeemed, the requirement that 
members and member firms deliver a prospectus to investors purchasing 
the Share prior to or concurrently with the confirmation of a 
transaction, applicable Exchange rules, dissemination information 
regarding the indicative price of gold and IIV, trading information, 
and the applicability of suitability rules. The information circular 
will also explain that the 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 
Shares comprising a Basket will represent a decreasing amount of gold 
due to the sale of the Trust's gold to pay the Trust's 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.
    In the information circular, members and member organizations will 
be informed that procedures for purchases and redemptions of Shares in 
Baskets and that Shares are not individually

[[Page 64619]]

redeemable but are redeemable only in Basket-size aggregations or 
multiples thereof. The information circular will also advise members of 
their suitability obligations with respect to recommended transactions 
to customers in the Shares. The circular will also discuss any relief 
if granted by the Commission or the staff from any rules under the Act.
    The Information Circular will likewise disclose that the NAV for 
Trust Shares will be calculated as of the earlier of the London PM Fix 
for such day or 12 p.m. New York time each day that the NYSE is open 
for trading.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the Act \30\ and the rules and 
regulations thereunder applicable to a national securities 
exchange.\31\ In particular, the Commission believes that the Exchange 
will be able to monitor for trading abuses in the Shares and thereby 
satisfying its obligations under Section 6(b)(1) of the Act \32\ to 
enforce compliance by its members with the Act and its own rules.
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    \30\ 15 U.S.C. 78f(b).
    \31\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \32\ 15 U.S.C. 78f(b)(1).
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A. Surveillance

    Information sharing agreements with markets trading securities 
underlying a derivative are an important part of a self-regulatory 
organization's ability to monitor for trading abuses in derivative 
products. It is not possible, however, to enter into an information 
sharing agreement with the OTC gold market. Nevertheless, the 
Commission believes that the unique liquidity and depth of the gold 
market, together with the MOU with NYMEX (of which COMEX is a Division) 
and NYSE Rules 1300(b) and 1301, create the basis for the NYSE to 
monitor for fraudulent and manipulative practices in the trading of the 
Shares.
    The Commission has 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.\33\ The Commission reasoned that the underlying currency spot 
market was active and that the inter-bank foreign currency spot market, 
in general, ``was an extremely large, diverse market comprised of banks 
and other financial institutions worldwide.''\34\ The Commission 
further noted that the foreign currency spot market is supplemented by 
``equally deep and liquid markets for standardized options and futures 
on foreign currencies and options on those futures.''\35\ The depth and 
liquidity of the underlying spot market allayed some of the 
Commission's concerns with improper trading practices involving the 
options market and a related market, such as capping, pegging, front-
running and mini-manipulation.
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    \33\ See 1982 Approval Order, supra note 12.
    \34\ See Securities Exchange Act Release No. 33732 (March 8, 
1994), 59 FR 12023-01 (March 15, 1994).
    \35\ Id.
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    The Commission believes that the OTC market for gold has many of 
the same qualities as the market for foreign currencies. In particular, 
the gold spot market is extremely deep and liquid. The LBMA estimates 
that the monthly average daily volume for 2003 ranged from a high of 19 
million to a low of 13.6 million troy ounces per day.\36\ In addition, 
COMEX figures for 2003 indicate that the average daily volume for gold 
futures contracts was 4.9 million ounces per day.\37\ In addition, the 
NYSE has entered into a MOU with NYMEX (of which COMEX is a division), 
the U.S. market that trades gold futures and options on such futures.
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    \36\ 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.
    \37\ 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.
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    Finally, NYSE Rule 1301 will require that the specialist handling 
the Shares provide the Exchange with information relating to its 
trading in physical gold and in gold futures contracts and options or 
any other gold derivative. These reporting and recordkeeping 
requirements will assist the exchange in identifying situations 
potentially susceptible to manipulation. NYSE Rule 1301 will also 
prohibit the specialist in the 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 or options or gold futures, or any other 
gold derivatives (including the Shares). In addition, NYSE Rule 1300(b) 
will prohibit the specialist in the Shares from being affiliated with a 
market maker in physical gold, gold futures, or options on gold futures 
unless information barriers are in place that satisfy the requirements 
in NYSE Rule 98. The Commission believes that the NYSE can adequately 
surveil trading in the Shares, notwithstanding the lack of a 
surveillance sharing agreement with the market trading the product on 
which Shares are based.

B. Dissemination of Information About the Shares

    The Commission believes that sufficient venues for obtaining 
reliable gold price information exist so that investors in the Shares 
can monitor the underlying spot market in gold relative to the NAV of 
their Shares. 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 NYSE, 
via a link to the Trust's Web site, will provide at no charge 
continuously updated (at least every 15 seconds) bids and offers 
indicative of the spot price of gold on its own public Web site, http://www.nyse.com from a source unaffiliated with the Sponsor, the Trust, 
the Custodian, Marketing Agent, or the Exchange.
    The Commission also notes that the Trust's Web site is and will be 
publicly accessible at no charge, and will contain the Share's NAV as 
of the prior business day, a calculation of the premium or discount of 
the Bid-Asked Price of the Shares as of close of trading in relation to 
the closing IIV. Additionally, the Trust's Web site, to which the NYSE 
will link, will also provide the IIV updated at least every 15 
seconds.\38\ The Commission believes that dissemination of this 
information will facilitate transparency with respect to the proposed 
Shares and diminish the risk of manipulation or unfair informational 
advantage.
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    \38\ The Commission notes that the Sponsor, not the Trustee, 
calculates the Shares' NAV. Similarly, the Sponsor, not the Trustee 
or an independent third-party calculates the IIV. Concerns about the 
Sponsor's role in calculating these values are mitigated because of 
the widely accessible information about the value of gold, which is 
the sole asset of the Trust.
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C. Listing and Trading

    The Commission finds that the Exchange's proposed rules and 
procedures for the listing and trading of the proposed Shares are 
consistent with the Act. Shares will trade as equity securities subject 
to NYSE rules

[[Page 64620]]

including, among others, rules governing trading halts, 
responsibilities of the specialist, account opening, and customer 
suitability requirements. In addition, the Shares will be subject to 
NYSE listing and delisting/suspension rules and procedures governing 
the trading of ICUs on the NYSE.\39\ The Commission believes that 
listing and delisting criteria for the Shares should help to maintain a 
minimum level of liquidity and therefore minimize the potential for 
manipulation of the Shares. Finally, the Commission believes that the 
information circular the Exchange will distribute will inform members 
and member organizations about the terms, characteristics and risks in 
trading the Shares.
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    \39\ See NYSE Rule 1300.
---------------------------------------------------------------------------

IV. Amendment Nos. 1 and 2

    The NYSE has requested that the Commission grant accelerated 
approval to Amendment Nos. 1 and 2 to the proposed rule change.\40\ The 
Commission believes that the amendments proposed in Amendment No. 1 
regarding the Marketing Agent, a registered broker-dealer, 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. 
Similarly, Amendment No. 2 clarifies the dissemination of the IIV and 
indicative spot price of gold, additional information about the Shares 
to be provided on the NYSE Web site, and rule text relating to ICUs and 
requests accelerated approval of Amendments Nos. 1 and 2. Because these 
amendments clarify and make other minor changes to the proposal, the 
Commission therefore finds good cause, consistent with Section 19(b)(2) 
of the Act,\41\ to approve Amendment Nos. 1 and 2 to the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register.
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    \40\ See Amendments Nos. 1 and 2, supra notes 4 and 5.
    \41\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the Amendment No. 
1 and No. 2 are 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 [email protected]. Please include 
File Number SR-NYSE-2004-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NYSE-2004-22. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
NYSE. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSE-2004-22 and should be submitted on or before November 26, 2004.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\42\ that the proposed rule change (SR-NYSE-2004-22), is approved 
and Amendment Nos. 1 and 2 are approved on an accelerated basis.
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    \42\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\43\
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3018 Filed 11-4-04; 8:45 am]
BILLING CODE 8010-01-P