[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]
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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\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 50603 (October 28,
2004), 69 FR 64614 (November 5, 2004) (``NYSE Approval Order'').
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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.
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\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.
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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.
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\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.
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a. Description of the Gold Market. The global trade in gold
consists of over-the-counter (``OTC'') transactions in spot, forwards,
and options and other derivatives, together with exchange-traded
futures and options. 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\
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\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.
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(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.
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\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.
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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 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.
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\10\ The World Gold Council is a not-for-profit association
registered under Swiss law.
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c. Trust Expenses and Management Fees. Generally, the assets of the
Trust (e.g., gold bullion) will be sold to pay Trust expenses and
management fees. 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'').
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\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.
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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.
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\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.
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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.
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\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.
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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\
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\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.
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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.
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\21\ PCXE Rule 7.38.
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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.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
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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.
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\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).
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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.
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\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.
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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.
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\30\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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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.
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\31\ See supra note 3.
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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.
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\32\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-880 Filed 3-3-05; 8:45 am]
BILLING CODE 8010-01-P