[Federal Register Volume 70, Number 44 (Tuesday, March 8, 2005)]
[Notices]
[Pages 11284-11290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-936]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51284; File No. SR-CHX-2004-41]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto by the Chicago Stock Exchange, Incorporated to 
Trade the streetTRACKS[supreg] Gold Shares Pursuant to Unlisted Trading 
Privileges

March 1, 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 20, 2004, the Chicago Stock Exchange, Incorporated (``CHX'' 
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[supreg] 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[supreg] 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 31, 2005, CHX filed Amendment No. 1 \4\ and on February 
23, 2005, CHX filed Amendment No. 2 \5\ to the proposal. 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, CHX replaced the filing in its entirety 
to, among other things: (1) Add a description regarding gold market 
regulation; (2) address the category of entities that could act as 
Authorized Participants (as defined below) and information barriers 
requirements amongst such entities; (3) address the ability of 
Authorized Participants to separate Baskets (as defined below); (4) 
state when Shares may be redeemed; (5) clarify that last sale prices 
for the Shares are disseminated on a real-time basis; and (6) 
clarify that the Shares would trade until 4:15 p.m. Eastern Time.
    \5\ In Amendment No. 2, CHX replaced the filing in its entirety 
by amending the proposed rule text to: (1) Replace the phrase 
``member organization'' with the word ``Participant'' to reflect the 
demutualization of CHX; (2) allow an Associated Person of a 
Participant Firm acting as a specialist in the Shares to act in a 
market-making capacity if the Associated Person obtains prior 
written consent from the Exchange that the Associated Person and the 
Participant have established information barriers sufficient to 
restrict the flow of privileged information between the Associated 
Person and the Specialist Participant; and (3) describe such 
information barriers.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to trade GLD pursuant to UTP. The text of the proposed 
rule change is available on the Exchange's Web site (http://www.chx.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 \6\ 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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    \6\ Initially, each Share will correspond to one-tenth of a troy 
ounce of gold. The amount of gold associated with each Share is 
expected to decrease over time as the Trust incurs and pays 
maintenance fees and other expenses.
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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.\7\ 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.\8\ 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 11285]]

futures contracts was 4.9 million troy ounces per day.\9\
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    \7\ 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.
    \8\ See NYSE Approval Order, 69 FR at 64614.
    \9\ Information regarding average daily volume estimates by 
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'').\10\ 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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    \10\ 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 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,\11\ 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 customers 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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    \11\ 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. eastern time, liquidity in the OTC market for 
gold will be reduced after the close of COMEX at 1:30 p.m. eastern 
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.

[[Page 11286]]

    Authorized Participants purchasing a Basket must make an in-kind 
deposit of gold (``Gold Deposit''), together with, if applicable, a 
specified cash payment (``Cash Deposit'' \12\ 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'' \13\ and 
together with the gold, the ``Redemption Distribution'').
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    \12\ The amount of any required Cash Deposit will be determined 
as follows: (1) The fees, expenses, and liabilities of the Trust 
will be subtracted from any cash held or receivable by the Trust as 
of the date an Authorized Participant places an order to purchase 
one or more Baskets (``Purchase Order''); (2) the remaining amount 
will be divided by the number of Baskets outstanding and then 
multiplied by the number of Baskets being created pursuant to the 
Purchase Order. If the resulting amount is positive, that amount 
will be the required Cash Deposit. If the resulting amount is 
negative, the amount of the required Gold Deposit will be reduced by 
a number of fine ounces of gold equal in value to that resulting 
amount, determined by reference to the price of gold used in 
calculating the NAV of the Trust on the Purchase Order date. 
Fractions of an ounce of gold of less than 0.001 of an ounce 
included in the Gold Deposit amount will be disregarded.
    \13\ 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 \14\ 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. eastern time.\15\ 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.\16\ 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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    \14\ The NAV of the Trust is the aggregate value of the Trust's 
assets less its liabilities (which include accrued expenses).
    \15\ The London fix is the most widely used benchmark for daily 
gold prices and is quoted by various financial information sources.
    \16\ 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

[[Page 11287]]

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 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.\17\ Current gold spot prices are also available with bid/ask 
spreads from gold bullion dealers.
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    \17\ 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.chx.com.\18\ 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.\19\ 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: (1) The IIV as of the 
close of the prior business day and the midpoint of the bid/ask price 
\20\ in relation to such IIV (``Bid/Ask Price''), and a calculation of 
the premium or discount of such price against such IIV; and (2) 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.\21\
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    \18\ 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.
    \19\ 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.
    \20\ 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.
    \21\ 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
    Unless the context otherwise requires, the provisions of the 
Exchange's constitution and all other rules and policies of the Board 
of Governors are applicable to the trading on the Exchange of the 
Shares. The Shares are included within the definition of ``security'' 
or ``securities'' as those terms are used in the constitution and rules 
of the Exchange.
    The Exchange is proposing new Rule 24, in Article XXX, to set out 
new obligations with respect to a specialist's trading of the Shares. 
First, the Participant \22\ acting as specialist in the Shares 
(``Specialist Participant'') is obligated to conduct all trading in the 
Shares in its specialist account, subject only to the ability to have 
one or more investment accounts, all of which must be reported to the 
Exchange. In addition, the Specialist Participant must file with the 
Exchange, in a manner prescribed by the Exchange, and keep current, a 
list identifying all accounts for trading physical gold, gold futures, 
options on gold futures, or any other gold derivative, which the 
Specialist Participant may have or over which it may exercise 
investment discretion. Under the proposed rule, no Specialist 
Participant may trade in physical gold, gold futures, options on gold 
futures, or any other gold derivative, in an account in which a 
Specialist Participant, directly or indirectly, controls trading 
activities or has a direct interest in the profits or losses thereof, 
which has not been reported to the Exchange.
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    \22\ CHX demutualized on February 9, 2005. As a result of the 
demutualization, CHX changed its organizational structure from a 
not-for-profit, non-stock corporation owned by its members to a 
wholly owned subsidiary of a holding company, CHX Holdings, Inc. CHX 
members, who received shares of common stock of the holding company 
in exchange for their CHX memberships, are now stockholders of the 
new, for-profit, stock corporation. Those members who were qualified 
to trade on the Exchange at the time of the demutualization have 
received trading permits giving them continued access to the 
Exchange's trading facilities. Telephone conversation between Ellen 
J. Neely, Senior Vice President and General Counsel, CHX, and Steve 
L. Kuan, Attorney, Division of Market Regulation (``Division''), 
Commission, on February 25, 2005.
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    Additionally, the proposed rule would provide that no Specialist 
Participant, co-specialist, or relief specialist in the Shares and no 
partner, officer, director, Associated Person or employee of such 
Participant may act as a market maker or function in any capacity 
involving market-making responsibilities in physical gold, gold 
futures, options on gold futures, or any other gold derivative, except 
that an Associated Person of the Specialist Participant may act in a 
market-making capacity, other than as a specialist in equity gold 
shares on another market center, in physical gold, gold futures, 
options on gold futures, or any other gold derivative, so long as the 
Associated Person obtains prior written consent from the Exchange that 
the Associated Person and the Specialist Participant have established 
procedures

[[Page 11288]]

that are sufficient to restrict the flow of privileged information 
between the Associated Person and the Specialist Participant 
(``Information Barriers'').
    As set out in the proposed rule, these Information Barriers must: 
(1) Provide for the organizational separation of the Associated Person 
and the Specialist Participant; (2) ensure that the Associated Person 
does not exert influence over the Specialist Participant; (3) ensure 
that information relating to each entity's stock positions, trading 
activities, and clearing and margin arrangements is not improperly 
shared (except with persons in senior management who are involved in 
exercising general managerial oversight of one or both entities); (4) 
require the Associated Person and the Specialist Participant to 
maintain separate books and records (and separate financial 
accounting); (5) require each entity to separately meet all required 
capital requirements; (6) ensure the confidentiality of the Specialist 
Participant's book as provided by Exchange rules; and (7) must ensure 
that any other material, non-public information (such as information 
related to any business transactions between the Associated Person and 
the issuer of equity gold shares or any research reports or 
recommendations issued by the Associated Person) is not made improperly 
available to the Specialist Participant, its officers, directors, 
partners, or employees in any manner that would allow the Specialist 
Participant to take undue advantage of that information in the trading 
of equity gold shares. The Specialist Participant and the Associated 
Person must submit the proposed Information Barriers in writing to the 
Exchange, and the Exchange will not approve any exemption from the 
requirements of proposed CHX Rule 24(b) until it has determined that 
the Information Barriers are acceptable to the Exchange.
    Further, in addition to the existing obligations under Exchange 
rules regarding the production of books and records, the proposed rule 
would require the Specialist Participant to make available to the 
Exchange such books, records, or other information pertaining to 
transactions by the Specialist Participant, the co-specialist, the 
relief specialist or any partner, officer, director, employee, or 
Associated Person in the Specialist Participant for its or their own 
accounts in physical gold, gold futures, options on gold futures, or 
any other gold derivative, as may be requested by the Exchange.
    Finally, the proposed rule would provide that, in connection with 
trading physical gold, gold futures, options on gold futures, or any 
other gold derivative (including equity gold shares), the Specialist 
Participant must not use any material nonpublic information received 
from any person associated with a Participant or any employee of such 
person regarding trading by that person in physical gold, gold futures, 
options on gold futures, or any other gold derivative.
    The Shares would be subject to the Exchange rule relating to 
trading halts due to extraordinary market volatility \23\ and the 
Exchange rule that allows Exchange officials to halt trading in 
specific securities, under certain circumstances.\24\ In exercising the 
discretion described above, appropriate Exchange officials may consider 
a variety of factors, including the extent to which trading is not 
occurring in gold or whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.
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    \23\ See CHX Article IX, Rule 10A.
    \24\ See CHX Article IX, Rule 10(b).
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    Trading in the Shares on the Exchange will normally occur until 
3:15 p.m. central time (4:15 p.m. eastern time), each business day. The 
minimum quoting increment for Shares on the Exchange will be $0.01, 
pursuant to CHX Article XX, Rule 22.
g. Surveillance
    The Exchange's surveillance procedures for reviewing trading in GLD 
will be comparable to the procedures used for reviewing trading in 
other securities (including exchange-traded funds) on the Exchange. In 
addition, for intermarket surveillance purposes, the Exchange has 
entered into a memorandum of understanding (``MOU'') with NYMEX that 
permits the sharing of information relating to products based, in whole 
or in part, upon an interest in, or the performance of the market for, 
gold. The rules described above that relate to the obligations of the 
Specialist Participant, particularly the rules that require the 
Specialist Participant to provide information to the Exchange, will aid 
in the Exchange's ability to review the conduct of the Specialist 
Participant.
h. Suitability
    Under Article VIII, Rule 25 of the Exchange's rules, in 
recommending to a customer the purchase, sale, or exchange of the 
Shares, the Participant must have reasonable grounds for believing that 
the recommendation is suitable for the customer. In addition, this rule 
confirms that, prior to the execution of a transaction recommended to a 
customer, a Participant must make reasonable efforts to obtain a 
variety of information about the customer, including, but not limited 
to, the customer's financial status, tax status, and investment 
objectives.
i. Notice to Participants
    The Exchange will issue a Notice to Participants in connection with 
the trading of the Shares. The notice will describe the characteristics 
of the Shares and the risks of trading this type of security. 
Specifically, the notice, among other things, will discuss what the 
Shares are; how a Basket is created and redeemed; the requirement that 
Participants deliver a prospectus to investors purchasing the Shares 
prior to, or concurrently with, the confirmation of a transaction; \25\ 
applicable Exchange rules; dissemination of information regarding the 
indicative price of gold and the IIV; trading information; the 
applicability of CHX Article VIII, Rule 25 regarding suitability; and 
any relief granted by the Commission or the staff from any rules under 
the Act. In describing the procedures for creating and redeeming a 
Basket, the notice will state that the Shares are not individually 
redeemable but are redeemable only in Basket-size aggregations. The 
notice will also explain that the Trust is subject to various fees and 
expenses described in the registration statement and prospectus and 
that the number of ounces of gold required to create a Basket or to be 
delivered by the Trust upon the 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 notice will also note 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. Finally, the notice will 
disclose that the NAV for the Shares will be calculated as of the 
earlier of the London p.m. fix for that day or 12 p.m. eastern time 
each day that NYSE is open for trading.
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    \25\ Telephone conversation between Ellen J. Neely, Senior Vice 
President and General Counsel, CHX, and Steve L. Kuan, Attorney, 
Division, Commission, on February 25, 2005.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\26\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\27\

[[Page 11289]]

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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    \26\ 15 U.S.C. 78f(b).
    \27\ 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-CHX-2004-41 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-CHX-2004-41. 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-CHX-2004-41 and should be submitted on or before March 
29, 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 a national securities exchange.\28\ In particular, the 
Commission believes that the proposal is consistent with Section 
6(b)(5) of the Act,\29\ 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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    \28\ In approving the proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \29\ 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,\30\ which permits an exchange 
to trade, pursuant to UTP, a security that is listed and traded on 
another exchange.\31\ The Commission notes that it previously approved 
the listing and trading of the Shares on NYSE.\32\ The Commission also 
believes that the proposal is consistent with Rule 12f-5 under the 
Act,\33\ 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, and the minimum trading increment.
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    \30\ 15 U.S.C. 78l(f).
    \31\ 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.
    \32\ See NYSE Approval Order, supra note 3.
    \33\ 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,\34\ 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 and thereby to 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 IIV ceases to be widely available, the Exchange would cease trading 
GLD.
---------------------------------------------------------------------------

    \34\ 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 for reviewing trading in 
GLD will be comparable to the procedures used for reviewing trading in 
other securities (including exchange-traded funds) on the Exchange. In 
addition, 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 the performance of gold.
    2. The Exchange will distribute a Notice to Participants prior to 
the commencement of trading of GLD on the Exchange that explains its 
terms, characteristics, and risks of trading GLD.
    3. The Exchange will require a Participant with a customer that 
purchases the Shares on the Exchange to provide that customer with a 
product

[[Page 11290]]

prospectus and will note this prospectus delivery requirement in the 
Notice to Participants.
    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 Specialist 
Participants in GLD are reasonable and consistent with the Act. These 
rules generally require a Specialist Participant to report to the 
Exchange a list of all accounts for trading gold or gold derivatives 
over which the Specialist Participant exercises investment discretion 
or has an interest. Furthermore, Specialist Participants and their 
affiliated persons will be required to make available to the Exchange, 
upon request, their books and records pertaining to transactions in 
gold and gold derivatives.
    The Commission finds good cause for approving the proposal 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.\35\ 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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    \35\ See supra note 3.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\36\ that the proposed rule change (SR-CHX-2004-41) as amended, is 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-936 Filed 3-7-05; 8:45 am]
BILLING CODE 8010-01-P