[Federal Register Volume 70, Number 42 (Friday, March 4, 2005)]
[Notices]
[Pages 10731-10736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-880]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51245; File No. SR-PCX-2004-117]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto by the Pacific Exchange, Inc. To Trade the streetTRACKS[reg] 
Gold Shares Pursuant to Unlisted Trading Privileges

February 23, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 10, 2004, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The proposal would permit the Exchange to trade the streetTRACKS[reg] 
Gold Shares (``GLD'' or ``Shares'') pursuant to unlisted trading 
privileges (``UTP''). The Shares represent units of fractional 
undivided beneficial interests in and ownership of the 
streetTRACKS[reg] Gold Trust (``Trust''). The Commission previously has 
approved GLD for original listing and trading on the New York Stock 
Exchange (``NYSE'').\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 50603 (October 28, 
2004), 69 FR 64614 (November 5, 2004) (``NYSE Approval Order'').
---------------------------------------------------------------------------

    On January 28, 2005, PCX filed Amendment No. 1 to the proposal.\4\ 
The Commission is publishing this notice and order to solicit comments 
on the proposed rule change, as amended, from interested persons and to 
approve the proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \4\ In Amendment No. 1, PCX replaced the filing in its entirety 
to, among other things: (1) Amend the proposed rule text to 
reference PCXE Rule 8.201(g)-(i); (2) clarify that the Shares would 
trade until 4:15 p.m. New York time; (3) clarify that last sale 
prices for the Shares are disseminated on a real-time basis; (4) 
represent that it would provide a link on its Web site to the NYSE 
Web site and the Trust Web site; (5) state that it would cease 
trading of the Shares if they were delisted from NYSE and not 
relisted on another exchange; (6) clarify that PCXE Rule 8.201(b) 
would be applicable to the Shares; (7) state that the Shares would 
be subject to trade-through provisions; (8) represent that its 
surveillance procedures would be adequate to deter manipulation; and 
(9) state the restrictions of PCXE Rule 8.201(g)-(i) on ETP Holders 
acting as GLD market makers would apply.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PCX, through its wholly owned subsidiary PCX Equities, Inc. 
(``PCXE''), proposes to amend its rules governing the Archipelago 
Exchange (``ArcaEx''), the equities trading facility of PCXE, by 
adopting PCXE Rule 5.2(j)(5). The proposal would permit the Exchange to 
trade GLD on a UTP basis. The text of the proposed rule change is 
available on the Exchange's Web site (http://www.pacificex.com), at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to trade the streetTRACKS[reg] Gold Shares 
(ticker symbol: GLD) pursuant to UTP. The value of each Share will 
correspond to a fixed amount of gold \5\ and fluctuate with the spot 
price of gold. Purchasing Shares in the Trust provides investors a 
mechanism to participate in the gold market.
---------------------------------------------------------------------------

    \5\ 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.
---------------------------------------------------------------------------

    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. The global gold market consists of the following 
components, described briefly below.
    (1) The OTC Market. The OTC market trades on a continuous basis 24 
hours per day 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 Trust's Registration 
Statement, the period of greatest liquidity in the gold market is 
typically 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 Commodity Exchange Inc. (``COMEX''), a division of the New York 
Mercantile Exchange, Inc. (``NYMEX''). 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.
    There are no authoritative published figures for overall worldwide 
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.\6\ 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.\7\ 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

[[Page 10732]]

futures contracts was 4.9 million troy ounces per day.\8\
---------------------------------------------------------------------------

    \6\ 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 
p.m. 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.
    \7\ See NYSE Approval Order, 69 FR at 64614.
    \8\ Information regarding average daily volume estimates by the 
COMEX can be found at http://www.nymex.com/jsp/markets/md_annual_volume6.jsp#2. The statistics are based on gold futures contracts, 
each of which relates to 100 troy ounces of gold.
---------------------------------------------------------------------------

    (2) Futures Exchanges. The most significant gold futures exchanges 
are COMEX and the Tokyo Commodity Exchange (``TOCOM'').\9\ Trading on 
these exchanges is based on fixed delivery dates and transaction sizes 
for the futures and options contracts traded. Trading costs are 
negotiable. 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 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.
---------------------------------------------------------------------------

    \9\ 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.
---------------------------------------------------------------------------

    (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 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 U.K.-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.
    Participants in the U.S. OTC market for gold are generally 
regulated by their institutional supervisors, which regulate their 
activities in 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 regulates 
futures market participants and has established rules designed to 
prevent market manipulation, abusive trade practices, and fraud.
    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 trade 
GLD on a UTP basis. The Shares represent units of fractional undivided 
beneficial interest in and ownership of the Trust. The purpose of the 
Trust is to hold gold bullion. The investment objective of the Trust is 
for the Shares to reflect the performance of the price of gold, less 
the Trust's expenses.
    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 the 1940 Act.
    World Gold Trust Services, LLC, a wholly owned limited liability 
company of the World Gold Council,\10\ 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''). State 
Street Global Markets LLC, a wholly owned subsidiary of State Street 
Corporation, is the Marketing Agent of the Trust (``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 the Shares for their own account as agent for their customer 
and for accounts over which they exercise investment discretion. 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 will not require such information barriers. UBS Securities 
LLC was 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.
---------------------------------------------------------------------------

    \10\ The World Gold Council is a not-for-profit association 
registered under Swiss law.
---------------------------------------------------------------------------

    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 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 net 
asset value (``NAV'') of the Trust.
    d. Description and Characteristics of the Shares. (1) Liquidity
    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 Exchange. While the Shares will trade on the 
Exchange until 4:15 p.m. New York time, liquidity in the OTC market for 
gold will be reduced after the close of 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 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 
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

[[Page 10733]]

(``Cash Deposit'' \11\ 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'' \12\ and 
together with the gold, the ``Redemption Distribution'').
---------------------------------------------------------------------------

    \11\ 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''); and (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.
    \12\ 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 the Depository Trust 
Company (``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.
---------------------------------------------------------------------------

    The Exchange expects that certain Authorized Participants will be 
able 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 would impact the 
price of gold or the price of the Shares. Each Authorized Participant 
is: (1) Regulated as a broker-dealer regulated under the Act and 
registered with NASD; or (2) is exempt from being, or otherwise is not 
required to be, regulated as a broker-dealer under the Act or 
registered with 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. Certain Authorized Participants will be 
regulated under Federal and State banking laws and regulations. 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.
    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 \13\ and daily adjusted NAV 
(``ANAV'') of the Trust on each business day at the earlier of the 
London p.m. Fix for such day or 12 p.m. New York time.\14\ In 
determining the Trust's NAV and ANAV, the Trustee will value the gold 
held by the Trust based on the London p.m. 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.\15\ 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 NYSE.
---------------------------------------------------------------------------

    \13\ The NAV of the Trust is the aggregate value of the Trust's 
assets less its liabilities (which include accrued expenses).
    \14\ The London fix is the most widely used benchmark for daily 
gold prices and is quoted by various financial information sources.
    \15\ The Custodian's fee is not calculated based on ANAV, but 
rather the value of the gold held by the Trust.
---------------------------------------------------------------------------

    The Exchange understands that, upon initiation of trading on NYSE, 
UBS Securities LLC, the Initial Purchaser, purchased 100,000 Shares, 
which comprised the seed Basket. The Initial Purchaser also purchased 
900,000 Shares, which comprise the initial Baskets. The Trust received 
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 Sponsor paid a fee to the Initial Purchaser at 
the time of its purchase of the initial Baskets. In addition, the 
Initial Purchaser received commissions/fees from investors who 
purchased 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, on a real-time basis, over the 
Consolidated Tape by each market trading the Shares. 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 available only for a fee, 
and information available free of charge is subject to delay 
(typically, 20 minutes).
    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. 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. 
Complete real-time data for gold futures and options prices traded on 
COMEX are available by subscription from Reuters and Bloomberg. NYMEX 
also

[[Page 10734]]

provides delayed futures and options information on current and past 
trading sessions and market news free of charge on its Web site. The 
Exchange 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.\16\ Current gold spot 
prices are also available with bid/ask spreads from gold bullion 
dealers.
---------------------------------------------------------------------------

    \16\ 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.
---------------------------------------------------------------------------

    In addition, the Exchange, via a link to the Trust's Web site 
(http://www.streettracksgoldshares.com), 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.pacificex.com, and on 
ArcaEx's Web site at http://www.archipelago.com.\17\ The Trust Web site 
provides 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 the NAV. Although provided free 
of charge, the indicative spot price and IIV per Share will be provided 
on an essentially real-time basis.\18\ The Trust Web site provides the 
NAV of the Trust as calculated each business day by the Sponsor. In 
addition, the Trust Web site contains 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 midpoint of the bid/ask price \19\ 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 Trust Web 
site also provides the Trust's prospectus, as well as the two most 
recent reports to stockholders. Finally, the Trust Web site provides 
the last sale price of the Shares as traded in the U.S. market, subject 
to a 20-minute delay.\20\
---------------------------------------------------------------------------

    \17\ The Trust Web site's gold spot price will be provided by 
The Bullion Desk (http://www.thebulliondesk.com). 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 Exchange will 
cease to trade the Shares.
    \18\ The Trust's Web site, to which the Exchange's Web sites 
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.
    \19\ The bid/ask price is determined using the highest bid and 
lowest offer on the Consolidated Tape as of the time of calculation 
of the closing day IIV.
    \20\ 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.
---------------------------------------------------------------------------

    e. Initial Share Issuance and Continued Trading. The Exchange 
understands that a minimum of three Baskets were outstanding at the 
commencement of trading on NYSE. The number of Shares per Basket is 
100,000.
    The Exchange's applicable continued trading criteria require it to 
delist the Shares if any of the following occur: (1) 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 its Web site to any such unaffiliated gold 
value; (2) the IIV is no longer made available on at least a 15-second 
delayed basis; or (3) 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 the Shares 
from trading upon termination of the Trust or delisting from the NYSE 
without immediate re-listing on another exchange.
    f. Exchange Trading Rules and Policies. The Shares would be subject 
to new PCXE Rule 5.2(j)(5) and existing PCXE Rule 8.201(g)-(i) regard 
the trading of the Shares. PCXE Rule 8.201(b), which refers to 
Commodity-Based Trust Shares, would be applicable to the Shares. Thus, 
the Shares would be subject to all applicable PCX trading rules.
    With respect to trading halts, PCX may consider all relevant 
factors in exercising its discretion to halt or suspend trading in the 
Shares. Trading on PCX in the Shares could be halted because of market 
conditions or for reasons that, in the view of PCX, make trading in the 
Shares inadvisable. These may include: (1) The extent to which trading 
is not occurring in gold; or (2) other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. In addition, PCXE Rule 7.12 sets forth the trading 
parameters, i.e., ``circuit breakers'' applicable to the Shares in 
periods of extraordinary market volatility.
    The Shares would trade on ArcaEx during NYSE trading hours until 
4:15 p.m. New York time each business day, and would trade in a minimum 
price variation of $0.01 pursuant to PCXE Rule 7.6. Trading rules 
pertaining to odd-lot trading in PCX equities \21\ also would apply. 
The Shares would be deemed ``Eligible Securities'' as defined in PCXE 
Rule 7.55(a)(3), for the purpose of the ITS Plan and therefore would be 
subject to the trade-through provisions in PCXE Rule 7.56, which 
requires that ETP Holders avoid initiating trade-throughs for ITS 
securities.
---------------------------------------------------------------------------

    \21\ PCXE Rule 7.38.
---------------------------------------------------------------------------

    g. Surveillance. The Exchange represents that its surveillance 
procedures applicable to trading Shares on ArcaEx are adequate to deter 
manipulation and will be similar to those used for investment company 
units currently trading on PCX and will incorporate and rely upon 
existing PCX surveillance procedures governing equities. In addition, 
for intermarket surveillance purposes, the Exchange entered into a 
reciprocal Memorandum of Understanding (``MOU'') with NYMEX for the 
sharing of information related to any financial instrument based, in 
whole or in part, upon an interest in or performance of gold.
    Further, PCXE Rule 8.201(g)-(i) sets forth certain restrictions on 
ETP Holders acting as registered Market Makers in the Shares to 
facilitate surveillance. PCXE Rule 8.201(h) requires that the ETP 
Holder acting as a registered Market Maker in the Shares provide the 
Exchange with information relating to its trading in physical gold, 
gold futures contracts, options on gold futures, or any other gold 
derivatives. PCXE Rule 8.201(i) prohibits the ETP holder acting as a 
registered Market Maker in the Shares from using any material nonpublic 
information received from any person associated with an ETP Holder 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. In addition, PCXE Rule 8.201(g) prohibits the 
ETP Holder acting as a registered Market Maker in the Shares from being

[[Page 10735]]

affiliated with a market maker in physical gold, gold futures, or 
options on gold futures unless adequate information barriers are in 
place, as provided for in PCXE Rule 7.26.
    h. Suitability. Pursuant to PCXE Rule 9.2(a), each ETP Holder, 
through a general partner, a principal executive officer, or a 
designated authorized person, shall used due diligence to learn the 
essential facts relative to every customer, every order, every account 
accepted or carried by such ETP Holder and every person holding power 
of attorney over any account accepted or carried by such ETP Holder.
    i. Information Circular. The Exchange will distribute an 
Information Circular to its ETP Holders 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 ETP Holders deliver a 
prospectus to investors purchasing the Share prior to or concurrently 
with the confirmation of a transaction, applicable Exchange rules, 
dissemination of 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, ETP Holders will be informed that 
procedures for purchases and redemptions of the Shares in Baskets and 
that the Shares are not individually redeemable but are redeemable only 
in Basket-size aggregations or multiples thereof. The Information 
Circular will also advise ETP Holders 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 p.m. 
Fix for such day or 12 p.m. New York time each day that the NYSE is 
open for trading.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\22\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\23\ in particular, in 
that it is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-PCX-2004-117 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-PCX-2004-117. The 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-PCX-2004-117 and should be submitted on or before March 
25, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the Act and the rules and regulations thereunder 
applicable to national securities exchanges.\24\ In particular, the 
Commission believes that the proposal is consistent with Section 
6(b)(5) of the Act,\25\ which requires that an exchange have rules 
designed, among other things, to promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission believes that 
the proposal will benefit investors by increasing competition among 
markets that trade GLD.
---------------------------------------------------------------------------

    \24\ In approving the proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, the Commission believes that the proposal is 
consistent with Section 12(f) of the Act,\26\ which permits an exchange 
to trade, pursuant to UTP, a security that is listed and traded on 
another exchange.\27\ The Commission

[[Page 10736]]

notes that it previously approved the listing and trading of the Shares 
on NYSE.\28\ The Commission also believes that the proposal is 
consistent with Rule 12f-5 under the Act,\29\ which provides that an 
exchange shall not extend UTP to a security unless the exchange has in 
effect a rule or rules providing for transactions in the class or type 
of security to which the exchange extends UTP. The Exchange represented 
that it meets this requirement because it deems the Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
existing rules of the Exchange governing the trading of equity 
securities, including rules relating to trading hours, trading halts, 
odd lots, and the minimum trading increment.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78l(f).
    \27\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \28\ See NYSE Approval Order, supra note 3.
    \29\ 17 CFR 240.12f-5.
---------------------------------------------------------------------------

    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\30\ which sets forth 
Congress's finding that it is in the public interest and appropriate 
for the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last sale information regarding GLD are 
disseminated through the Consolidated Quotation System. Furthermore, as 
noted by the Exchange, various means exist for investors to obtain 
reliable gold price information exist and thereby monitor the 
underlying spot market in gold relative to the NAV of their Shares. 
Additionally, the Trust's Web site will also provide an updated IIV at 
least every 15 seconds. If the Trust ceases to maintain or to calculate 
the IIV or if the value of the index ceases to be widely available, the 
Exchange would cease trading GLD.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    The Commission notes that, if GLD were to be delisted by NYSE, the 
Exchange would no longer have authority to trade GLD pursuant to this 
order.
    In support of the proposal, the Exchange made the following 
representations:
    1. The Exchange's surveillance procedures are adequate to deter 
manipulation and that its existing surveillance procedures for 
investment company units will be utilized for the Shares. Among other 
things, the Exchange entered into an MOU with NYMEX for the sharing of 
information related to any financial instrument based, in whole or in 
part, upon an interest in or performance of gold.
    2. The Exchange will distribute an information circular to its ETP 
Holders prior to the commencement of trading of GLD on the Exchange 
that explains its terms, characteristics, and risks of trading.
    3. The Exchange will require an ETP Holder with a customer that 
purchases the Shares on the Exchange to provide that customer with a 
product prospectus and will note this prospectus delivery requirement 
in the information circular. This approval order is conditioned on the 
Exchange's adherence to these representations.
    Finally, the Commission believes that the Exchange's rules imposing 
trading restrictions and information barriers on ETP Holder acting as a 
registered Market Maker in the Shares in GLD are reasonable and 
consistent with the Act. These rules generally require an ETP Holder 
acting as a registered Market Maker in the Shares to provide to the 
Exchange with information relating to its trading in physical gold, 
gold futures contracts, options on gold futures, or any other gold 
derivatives. Further, an ETP Holder acting as a registered Market Maker 
in the Shares is prohibited from using any material nonpublic 
information received from any person associated with an ETP Holder 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.
    The Commission finds good cause for approving the proposal, as 
amended, prior to the 30th day after the date of publication of the 
notice of filing thereof in the Federal Register. As noted previously, 
the Commission previously found that the listing and trading of GLD on 
NYSE is consistent with the Act.\31\ The Commission presently is not 
aware of any regulatory issue that should cause the Commission to 
revisit that earlier finding or preclude the trading of GLD on the 
Exchange pursuant to UTP. Therefore, accelerating approval of the 
proposal should benefit investors by creating, without undue delay, 
additional competition in the market for GLD.
---------------------------------------------------------------------------

    \31\ See supra note 3.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (SR-PCX-2004-117), is approved 
on an accelerated basis. 
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-880 Filed 3-3-05; 8:45 am]
BILLING CODE 8010-01-P