Federal Register, Volume 70 Issue 16 (Wednesday, January 26, 2005)

[Federal Register Volume 70, Number 16 (Wednesday, January 26, 2005)]
[Notices]
[Pages 3749-3756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-283]

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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[reg] 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[reg] 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

[[Page 3750]]

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.
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\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.
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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
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\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.
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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
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\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'').
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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\
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\15\ For more information on the gold market and gold supply and
demand, see Notice, supra note 6.
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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.
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\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([reg]), 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.
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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

[[Page 3751]]

and options was 6.08 million (60,817 contracts) and 2.01 million
(20,173 contracts), respectively.\18\
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\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.
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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.
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\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.
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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.
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\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.
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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.
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\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).
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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
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.
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\22\ See Amendment No. 5, supra note 7.
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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

[[Page 3752]]

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.
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\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.
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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.
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\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%).
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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.
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\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.
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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.
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\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.
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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.
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\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.

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[[Page 3753]]

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.
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\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'').
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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.
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\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.
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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

[[Page 3754]]

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\
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\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).
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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.
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\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.''
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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

[[Page 3755]]

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\
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\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\
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\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\
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\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).

[[Page 3756]]

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.
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\41\ See Amendments Nos. 1 and 2, supra notes 4 and 5.
\42\ 15 U.S.C. 78s(b)(2).
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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 [email protected]. 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.
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\43\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-283 Filed 1-25-05; 8:45 am]
BILLING CODE 8010-01-P