[Federal Register Volume 70, Number 61 (Thursday, March 31, 2005)]
[Notices]
[Pages 16530-16536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51433; File No. SR-BSE-2004-54]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
Nos. 1, 2, and 3 Thereto by the Boston Stock Exchange, Inc. To Trade 
the streetTRACKS [reg] Gold Shares Pursuant to Unlisted Trading 
Privileges

March 24, 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 November 29, 2004, the Boston Stock Exchange, Inc. (``BSE'' 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 December 17, 2004, BSE filed Amendment No. 1,\4\ on January 28, 
2005, BSE filed Amendment No. 2,\5\ and on March 11, 2005, BSE filed 
Amendment No. 3 \6\ 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 proposal on an 
accelerated basis.
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    \4\ In Amendment No. 1, BSE revised its proposal by specifically 
indicating additions to existing rule text.
    \5\ In Amendment No. 2, BSE replaced the amended filing in its 
entirety to, among other things: (1) M ake certain corrections to 
reflect that the Shares were listed and have been trading on NYSE; 
(2) clarify that last sale prices for the Shares are disseminated on 
a real-time basis; (3) state that BSE would provide a link to the 
Trust's Web site; (4) add a description of the initial Shares 
issuance and continued trading of the Shares; (5) clarify that the 
Shares would trade on the Exchange until 4:15 p.m. Eastern Time; and 
(6) that its surveillance procedures would be adequate to detect and 
deter manipulation.
    \6\ In Amendment No. 3, BSE amended the proposed rule text to 
specify that an approved person of an equity specialist that has 
established and obtained Exchange approval of procedures restricting 
the flow of material, non-public market information between itself 
and the specialist member organization pursuant to BSE Chapter II, 
Section 36 and any member, officer, or employee associated 
therewith, may act in a market-making capacity, other than as a 
specialist in the Shares on another market center, in gold or gold 
derivatives.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BSE proposes to trade GLD pursuant to UTP. The text of the proposed 
rule change is available on the Exchange's Web site (http://www.bostonstock.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 \7\ 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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    \7\ 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.

[[Page 16531]]

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 
suggest the significant size of the overall market. The LBMA publishes 
statistics compiled from the five members offering clearing 
services.\8\ 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.\9\ COMEX publishes price and volume statistics for 
transactions in contracts for the future delivery of gold. COMEX 
figures for 2003 indicate that the average daily volume for gold 
futures contracts was 4.9 million troy ounces per day.\10\
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    \8\ 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 the 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.
    \9\ See NYSE Approval Order, 69 FR at 64614.
    \10\ 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'').\11\ Trading on these exchanges is based 
on fixed delivery dates and transaction sizes for the futures and 
options contracts traded. Trading costs are negotiable. 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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    \11\ 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,\12\ 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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    \12\ The World Gold Council is a not-for-profit association 
registered under Swiss law.

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[[Page 16532]]

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.
    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'' \13\ 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'' \14\ and 
together with the gold, the ``Redemption Distribution'').
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    \13\ 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.
    \14\ 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 \15\ 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.\16\ 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.\17\ To determine the Trust's NAV, the Trustee will subtract from 
the ANAV the amount of estimated accrued

[[Page 16533]]

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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    \15\ The NAV of the Trust is the aggregate value of the Trust's 
assets less its liabilities (which include accrued expenses).
    \16\ The London fix is the most widely used benchmark for daily 
gold prices and is quoted by various financial information sources.
    \17\ 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 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.\18\ Current gold spot 
prices are also available with bid/ask spreads from gold bullion 
dealers.
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    \18\ 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.bostonstock.com.\19\ 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.\20\ 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 
\21\ 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.\22\
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    \19\ 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.
    \20\ 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.
    \21\ 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.
    \22\ 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
    Proposed BSE Chapter XXIV-C, Section 1 deals with the trading of 
the Shares. Paragraph (c) of that Section states that the Shares are 
included in the definition of ``securities'' under the Exchange's 
Constitution and Rules and are subject to all applicable Exchange 
trading rules. In addition, proposed BSE Chapter XXIV-C, Section 1 sets 
forth that an equity specialist, his member organization, other member, 
allied member, or approved person in such member organization or 
officer or employee thereof, is prohibited from acting as a market 
maker or functioning in any capacity involving market-making 
responsibilities in the physical

[[Page 16534]]

gold, gold futures or options on gold futures, or any other gold 
derivatives. However, an approved person of an equity specialist that 
has established and obtained Exchange approval of procedures 
restricting the flow of material, non-public market information between 
itself and the specialist member organization pursuant to BSE Chapter 
II, Section 36 and any member, officer, or employee associated 
therewith, may act in a market-making capacity, other than as a 
specialist in the Shares on another market center, in physical gold, 
gold futures or options on gold futures, or any other gold derivatives.
    Proposed BSE Chapter IIIV-C, Section 2 requires trading and 
information barriers for member organizations acting as specialist in 
the Shares. Specifically, a member organization acting as specialist in 
the Shares is obligated to conduct all trading in the Shares in its 
specialist account, subject only to the ability to have one or more 
investment accounts, all of which must be reported to the Exchange. 
Such member organization acting as specialist must also report to the 
Exchange and keep current a list identifying all accounts for trading 
physical gold, gold futures or options on gold futures, or any other 
gold derivatives, which the specialist may have or over which it may 
exercise investment discretion. Under the rule, any trading by the 
member organization that is the specialist in GLD of physical gold or 
gold derivatives in an account over which the member organization 
controls, directly or indirectly, trading activities or has a direct 
interest in the profits or losses is prohibited, except to the extent 
such accounts and trading activities are reported to the Exchange as 
required under the rule. Furthermore, a member organization that is the 
specialist in the Shares will be required to make its books, records, 
and other relevant information pertaining to its transactions and those 
of any member, allied member, approved person, registered or non-
registered employee affiliated with the member for its or their own 
accounts in physical gold and gold derivatives available to the 
Exchange upon request. In addition, the registered specialist in GLD 
will be prohibited from using any material nonpublic information from 
any person associated with a member or employee of such person 
regarding trading of physical gold or any gold derivative products.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading on the Exchange in the Shares may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in gold, or 
(2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. In addition, 
trading in the Shares is subject to trading halts caused by 
extraordinary market volatility pursuant to the Exchange's ``circuit 
breaker'' rule.\23\
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    \23\ Chapter II, Section 34A of the BSE Rules.
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    Trading in the Shares on the Exchange will be effected normally 
until 4:15 p.m. Eastern Time each business day. The minimum trading 
increment for the Shares on the Exchange will be $0.01, in accordance 
with BSE Chapter II, Section 41. Additionally, the Shares will be 
subject to the Exchange's rules pertaining to odd-lot trading, as set 
forth in BSE Chapter XII, as well as the Exchange's rules governing 
trading over the Intermarket Trading System (``ITS'') set forth in 
Chapter XXXI, including those provisions in Section 4 governing trade-
throughs and locked markets.
g. Surveillance
    BSE represents that the surveillance procedures it will utilize to 
surveil trading activity in the Shares are sufficient to detect and 
deter manipulation of the market. The Exchange's existing surveillance 
procedures for exchange-traded funds (``ETFs'') will be utilized for 
the Shares. In addition, for intermarket surveillance purposes, the 
Exchange has 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.
    The Exchange is also proposing the adoption of BSE Chapter XXIV-C, 
Section 2 to ensure that specialists handling the Shares provide the 
Exchange with all necessary information relating to their trading in 
physical gold and in gold futures contracts and options thereon or any 
other gold derivative.\24\ As a general matter, the Exchange has 
regulatory jurisdiction over its member organizations and any person or 
entity controlling a member organization. The Exchange also has 
regulatory jurisdiction over a subsidiary or affiliate of a member 
organization that is in the securities business. A member organization 
subsidiary or affiliate that does business only in commodities would 
not be subject to BSE jurisdiction, but the Exchange could obtain 
certain information regarding the activities of such subsidiary or 
affiliate through reciprocal agreements with regulatory organizations 
of which such subsidiary or affiliate is a member.
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    \24\ The proposed section also states that, in connection with 
trading physical gold, gold futures or options on gold futures, or 
any other gold derivatives (including the Shares), the specialist 
shall not use any material nonpublic information received from any 
person associated with a member or employee of such person regarding 
trading by such person or employee in physical gold, gold futures or 
options on gold futures, or any other gold derivatives.
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h. Suitability
    Under the general principals of customer suitability, as discussed 
in BSE Chapter VII, Section 2, before a member, member organization, 
allied member, or employee of such member organization undertakes to 
recommend a transaction in the Shares, such member or member 
organization should make a determination that the Shares are suitable 
for such customer. Before any recommendation is made with respect to 
the Shares, the person making the recommendation should have a 
reasonable basis for believing at the time of making the recommendation 
that the customer has such knowledge and experience in financial 
matters that he or she may reasonably be expected to be capable of 
evaluating the risks and any special characteristics of the recommended 
transaction, and is financially able to bear the risks of the 
recommended transaction.
i. Information Circular
    The Exchange will distribute an information circular to its members 
in connection with the trading in the Shares. The circular will discuss 
the special characteristics and risks of trading this type of security. 
Specifically, the circular, among other things, will discuss what the 
Shares are, how a Basket is created and redeemed, the requirement that 
members and member firms deliver a prospectus to investors purchasing 
the Shares prior to or concurrently with the confirmation of a 
transaction, applicable Exchange rules, dissemination information 
regarding the indicative price of gold and the IIV, trading 
information, and the applicability of the Exchange suitability rule. 
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

[[Page 16535]]

sale of the Trust's gold to pay the Trust's expenses. The information 
circular will also reference the fact that there is no regulated source 
of last-sale information regarding physical gold, and that the 
Commission has no jurisdiction over the trading of gold as a physical 
commodity.
    In the information circular, members and member organizations will 
be informed that procedures for purchases and redemptions of 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 members of their suitability 
obligations with respect to recommended transactions to customers in 
the Shares. The circular will also discuss any relief if granted by the 
Commission or the staff from any rules under the Act.
    The information circular will likewise disclose that the NAV for 
the Shares will be calculated as of the earlier of the London p.m. fix 
for such day or 12 p.m. Eastern Time each day that BSE 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,\25\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\26\ 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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    \25\ 15 U.S.C. 78f(b).
    \26\ 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-BSE-2004-54 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-BSE-2004-54. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference 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-BSE-2004-54 and should be submitted on or before April 
21, 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.\27\ In particular, the 
Commission believes that the proposal is consistent with Section 
6(b)(5) of the Act,\28\ 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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    \27\ In approving the proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \28\ 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,\29\ which permits an exchange 
to trade, pursuant to UTP, a security that is listed and traded on 
another exchange.\30\ The Commission notes that it previously approved 
the listing and trading of the Shares on NYSE.\31\ The Commission also 
believes that the proposal is consistent with Rule 12f-5 under the 
Act,\32\ 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 
ITS, trading halts, odd-lots, and the minimum trading increment.
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    \29\ 15 U.S.C. 78l(f).
    \30\ 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.
    \31\ See NYSE Approval Order, supra note 3.
    \32\ 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,\33\ 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

[[Page 16536]]

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 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.
---------------------------------------------------------------------------

    \33\ 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 sufficient to detect and deter manipulation and comparable 
to the procedures used for reviewing trading in other securities 
(including ETFs) 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 an information circular 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 member organization 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 specialists in GLD are 
reasonable and consistent with the Act. These rules generally require a 
specialist to report to the Exchange a list of all accounts for trading 
gold or gold derivatives over which the specialist exercises investment 
discretion or has an interest. Furthermore, specialists 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.\34\ 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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    \34\ See supra note 3.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\35\ that the proposed rule change (SR-BSE-2004-54) as amended, is 
approved on an accelerated basis.
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    \35\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1410 Filed 3-30-05; 8:45 am]
BILLING CODE 8010-01-P