[Federal Register Volume 70, Number 152 (Tuesday, August 9, 2005)]
[Notices]
[Pages 46244-46252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4274]



[[Page 46244]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52178; File No. SR-NYSE-2005-41]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change and Amendment No. 1 Thereto Relating to iShares(r) MSCI 
EAFE Growth Fund and iShares MSCI EAFE Value Fund

July 29, 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 June 16, 2005 the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
On July 29, 2005, NYSE filed Amendment No. 1 to the proposed rule 
filing.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons and is 
approving the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange clarified and supplemented 
certain aspects of its proposal. Amendment No. 1 supplements the 
information provided in various sections, as indicated, of the 
Exchange's Form 19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE proposes to list and trade the iShares[reg] MSCI EAFE 
Value Index Fund and iShares MSCI EAFE Growth Index Fund (collectively, 
the ``Funds''),\4\ both exchange traded funds, which are a type of 
Investment Company Unit (``ICU'').
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    \4\ iShares is a registered trademark of Barclays Global 
Investors, N.A.
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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 NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III, below, and is set forth in Sections A, B, and C below.

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

1. Purpose
    The Exchange has adopted listing standards applicable to ICUs which 
are consistent with the listing criteria currently used by other 
national securities exchanges, and trading standards pursuant to which 
the Exchange may either list and trade ICUs, or trade such ICUs on the 
Exchange on an unlisted trading privileges (``UTP'') basis.\5\
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    \5\ In 1996, the Commission approved Section 703.16 of the NYSE 
Listed Company Manual (``Manual''), which sets forth the rules 
related to the listing of ICUs. See Securities Exchange Act Release 
No. 36923 (March 5, 1996), 61 FR 10410 (March 13, 1996) (SR-NYSE-95-
23). In 2000, the Commission also approved the Exchange's generic 
listing standards for listing and trading, or the trading pursuant 
to UTP, of ICUs under Section 703.16 of the Manual and NYSE Rule 
1100. See Securities Exchange Act Release No. 43679 (December 5, 
2000), 65 FR 77949 (December 13, 2000) (SR-NYSE-00-46).
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    The Exchange now proposes to list and trade under Section 703.16 of 
the NYSE Listed Company Manual (``Manual'') and NYSE Rule 1100 et seq. 
shares of the Funds, each a series of the iShares Trust (the 
``Trust'').\6\ Because the Funds invest in non-U.S. securities not 
listed on a national securities exchange or the Nasdaq Stock Market, 
the Funds do not meet the ``generic'' listing requirements of Section 
703.16 of the Manual applicable to listing of ICUs (permitting listing 
in reliance upon Rule 19b-4(e) under the Act and cannot be listed 
without a filing pursuant to Rule 19b-4 under the Act).\7\ Therefore, 
to list the Funds (or trade pursuant to UTP), the Exchange must file, 
and obtain Commission approval of, a proposed rule change pursuant to 
Rule 19b-4 under the Act.\8\
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    \6\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a) (the ``Investment Company Act''). On April 15, 
2005, the Trust filed with the Commission a Registration Statement 
for the Funds on Form N-1A under the Securities Act of 1933 (15 
U.S.C. 77a), and under the Investment Company Act relating to the 
Funds (File Nos. 333-92935 and 811-09729) (as amended, the 
``Registration Statement'').
    On March 3, 2004, the Trust filed with the Commission an Amended 
and Restated Application for an Amended Order under Sections 6(c) 
and 17(b) of the Investment Company Act and on September 8, 2004, 
the Trust filed with the Commission a Second Amended and Restated 
Application to Amend Orders under Sections 6(c) and 17(b) of the 
Investment Company Act, for the purpose of exempting the Fund from 
various provisions of the Investment Company Act and the rules 
thereunder (the ``Application''). Applicants requested that the 
Commission amend a prior order received by the Advisor, the Trust 
and the Distributor on August 15, 2001, as amended (the ``Prior 
Order''). On October 5, 2004, the SEC acted on the Application by 
approving an order amending certain prior orders under Section 6(c) 
of the Investment Company Act for an exemption from Sections 
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Investment Company Act and 
Rule 22c-1 under the Investment Company Act, and under Sections 6(c) 
and 17(b) of the Investment Company Act for an exemption from 
Sections 17(a)(1) and (a)(2) thereof. Investment Company Act Release 
No. 26626 (October 5, 2004) (``Amended Order''). See also In the 
Matter of iShares Trust, et al., Investment Company Act Release No. 
25111 (August 15, 2001) as amended by In the Matter of iShares, 
Inc., et al., Investment Company Act Release No. 25623 (June 25, 
2002) and In the Matter of iShares Trust, et al., Investment Company 
Act Release No. 26006 (April 15, 2003). The Amended Order permits 
the Trust to offer the Funds and permits the Funds to invest in 
certain depositary receipts.
    \7\ 17 CFR 240.19b-4.
    \8\ Id.
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    As set forth in detail below, the Funds will hold certain 
securities (``Component Securities'') selected to correspond generally 
to the performance of the MSCI EAFE Value Index and the MSCI EAFE 
Growth Index (the ``Underlying Indexes'').\9\ Each Fund intends to 
qualify as a ``regulated investment company'' (a ``RIC'') under the 
Internal Revenue Code (the ``Code''). Barclays Global Fund Advisors 
(the ``Advisor'' or ``BGFA'') is the investment advisor to the Funds. 
The Advisor is registered under the Investment Advisers Act of 
1940.\10\ The Advisor is the wholly owned subsidiary of Barclays Global 
Investors, N.A. (``BGI''), a national banking association. BGI is an 
indirect subsidiary of Barclays Bank PLC of the United Kingdom. SEI 
Investments Distribution Co. (``SEI'' or ``Distributor''), a 
Pennsylvania corporation and broker-dealer registered under the Act, is 
the principal underwriter and distributor of Creation Unit Aggregations 
of iShares (see ``Issuance of Creation Units Aggregations,'' below.) 
The Distributor is not affiliated with the Exchange or the Advisor. The 
Trust has appointed Investors Bank & Trust Co. (``IBT'') to act as 
administrator (``Administrator''), custodian, fund accountant, transfer 
agent, and dividend disbursing agent for the Funds. The Exchange 
expects that performance of the Administrator's duties and obligations 
will be conducted within the provisions of the Investment Company Act 
and the rules thereunder. There is no affiliation between the 
Administrator and the Trust, the Advisor or the Distributor. MSCI, the 
sponsor and compiler of the Underlying Indexes, is not affiliated

[[Page 46245]]

with the Trust, the Administrator, the Distributor, or with the Advisor 
or its affiliates. The Funds are not sponsored, offered, or sold by 
MSCI.
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    \9\ Each Underlying Index for the MSCI EAFE Value and Growth 
Index Fund is a subset of the MSCI EAFE Index. The MSCI EAFE Index 
is an Underlying Index of an index fund of the Trust subject to the 
Prior Order. At present, the iShares MSCI EAFE Index Fund trades on 
the Exchange pursuant to UTP. Securities Exchange Act Release No. 
50142 (August 3, 2004), 69 FR 48539 (August 10, 2004) (SR-NYSE-2004-
27).
    \10\ 15 U.S.C. 80b.
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    (a) Operation of the Funds.11 The investment objective of the Funds 
will be to provide investment results that correspond generally to the 
price and yield performance of the Underlying Index. In seeking to 
achieve their investment objective, the Funds will utilize ``passive'' 
indexing investment strategies. The Funds may fully replicate their 
respective Underlying Index, but currently intend to use a 
``representative sampling'' strategy to track the applicable Underlying 
Index. A Fund utilizing a representative sampling strategy generally 
will hold a basket of the Component Securities of its Underlying Index, 
but it may not hold all of the Component Securities of its Underlying 
Index. The Application states that the representative sampling 
techniques that will be used by the Advisor to manage the Funds do not 
differ from the representative sampling techniques it uses to manage 
the funds that were the subject of the Prior Order. (See note 6, 
supra.)
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    \11\ The Exchange states that the information provided herein is 
based on information included in the Application, Prior Order and 
the Prior Application. (See note 6, supra.) While the Advisor would 
manage the Funds, the Funds' Board of Directors would have overall 
responsibility for the Funds' operations. The composition of the 
Board is, and would be, in compliance with the requirements of 
Section 10 of the Investment Company Act. The Funds are subject to 
and must comply with Section 303A.06 of the Manual, which requires 
that the Funds have an audit committee that complies with SEC Rule 
10A-3, 17 CFR 240.10A-3.
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    From time to time, adjustments may be made in the portfolio of the 
Funds in accordance with changes in the composition of the Underlying 
Indexes or to maintain compliance with requirements applicable to a RIC 
under the Code.\12\ For example, if at the end of a calendar quarter, a 
Fund would not comply with the RIC diversification tests, the Advisor 
would make adjustments to the portfolio to ensure continued RIC status.
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    \12\ In order for the Funds to qualify for tax treatment as a 
RIC, they must meet several requirements under the Code. Among these 
is a requirement that, at the close of each quarter of the Funds' 
taxable year, (i) at least 50% of the market value of the Funds' 
total assets must be represented by cash items, U.S. government 
securities, securities of other RICs and other securities, with such 
other securities limited for the purpose of this calculation with 
respect to any one issuer to an amount not greater than 5% of the 
value of the Funds' assets and not greater than 10% of the 
outstanding voting securities of such issuer; and (ii) not more than 
25% of the value of their total assets may be invested in securities 
of any one issuer, or two or more issuers that are controlled by the 
Funds (within the meaning of Section 851(b)(4)(B) of the Code) and 
that are engaged in the same or similar trades or business (other 
than U.S. government securities of other RICs).
    Compliance with the above referenced RIC asset diversification 
requirements are monitored by the Advisor, and any necessary 
adjustments to portfolio issuer weights will be made on a quarterly 
basis or as necessary to ensure compliance with RIC requirements. 
When an iShares Fund's Underlying Index itself is not RIC compliant, 
the Advisor generally employs a representative sampling indexing 
strategy (as described in the Funds' prospectus) in order to achieve 
the Fund's investment objective. The Funds' prospectus also gives 
the Funds additional flexibility to comply with the requirements of 
the Code and other regulatory requirements and to manage future 
corporate actions and index changes in smaller markets by investing 
a percentage of fund assets in securities that are not included in 
the Fund's Underlying Index or in American Depositary Receipts and 
Global Depositary Receipts representing such securities.
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    The Exchange states that an index is a theoretical financial 
calculation while each Fund is an actual investment portfolio. The 
performance of the Funds and the Underlying Indexes will vary somewhat 
due to transaction costs, market impact, corporate actions (such as 
mergers and spin-offs) and timing variances. As stated in the 
Application, it is expected that, over time, the correlation between 
each Fund's performance and that of its respective Underlying Index, 
before fees and expenses, will be 95% or better. A figure of 100% would 
indicate perfect correlation. Any correlation of less than 100% is 
called ``tracking error.'' Thus, the Funds are expected to have a 
tracking error relative to the performance of the applicable Underlying 
Index of no more than 5%.\13\ The Funds' investment objectives, 
policies and investment strategies will be fully disclosed in their 
prospectus (``Prospectus'') and statement of additional information 
(``SAI''). The Funds'' board of directors reviews the tracking error of 
the Funds on a quarterly basis and, based upon its review, will 
consider whether any action might be appropriate.
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    \13\ The Web site for the Funds, www.iShares.com, contains 
detailed information on the performance and the tracking error for 
each Fund.
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    The Funds will not concentrate their investments (i.e., hold 25% or 
more of their assets) in a particular industry or group of industries, 
except that the Funds will concentrate their investments to 
approximately the same extent that the respective Underlying Index is 
so concentrated. For purposes of this limitation, securities of the 
U.S. Government (including its agencies and instrumentalities), 
repurchase agreements collateralized by U.S. Government securities, and 
securities of the United States government and their political 
subdivisions are not considered to be issued by members of any 
industry.
    Each of the MSCI EAFE Value and Growth Index Funds (i) will invest 
at least 90% of its assets in Component Securities of its respective 
Underlying Index and in Depositary Receipts (defined below) 
representing such securities and (ii) may invest up to 10% of its 
assets in certain futures, options and swap contracts, cash and cash 
equivalents, including money market mutual funds advised by BGFA,\14\ 
other exchange-traded funds, including other iShares Funds,\15\ and 
stocks not included in the Underlying Index but which the Advisor 
believes will help the Fund track its Underlying Index. For example, 
each of these Funds may invest in securities not included in the 
relevant Underlying Index in order to reflect prospective changes in 
the relevant Underlying Index (such as future corporate actions and 
index reconstitutions, additions, and deletions).
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    \14\ In the Matter of Master Investment Portfolio, et al., 
Investment Company Act Release No. 25158 (September 18, 2001).
    \15\ The Fund, as well as any existing iShares Fund, is 
permitted to invest in shares of another iShares Fund to the extent 
that such investment is consistent with the Fund's investment 
objective, its Registration Statement, and any applicable investment 
restrictions.
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    To the extent the Funds invest in American Depositary Receipts,\16\ 
they will be listed on a national securities exchange or Nasdaq, and to 
the extent the Funds invest in other Depositary Receipts, they will be 
listed on a foreign exchange. The Funds will not invest in any unlisted 
Depositary Receipts or any listed Depositary Receipts that the Advisor 
deems to be illiquid or for which pricing information is not readily 
available. In addition, all Depositary Receipts must be sponsored (with 
the exception of certain pre-1984 ADRs that are listed and unsponsored 
because they are grandfathered).
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    \16\ For the purposes of this proposed rule filing, ``Depositary 
Receipts'' are American Depositary Receipts (``ADRs''), Global 
Depositary Receipts (``GDRs''), and Euro Depositary Receipts 
(``EDRs'') (collectively, ``Depositary Receipts''). Telephone 
conversation between Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, and Michael Cavalier, 
Assistant General Counsel, NYSE, on July 7, 2005.
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    The Exchange believes that these requirements and policies prevent 
the Funds from being excessively weighted in any single security or 
small group of securities and significantly reduce concerns that 
trading in the Funds could become a surrogate for trading in 
unregistered securities.
    (b) Description of the Funds and the Underlying Indexes. Index 
Description. The Funds' Underlying Indexes, the MSCI EAFE Growth Index 
and MSCI EAFE Value Index, are subsets of the

[[Page 46246]]

MSCI EAFE Index. The MSCI EAFE Index, in turn, is a composite of 
certain MSCI single country equity indices.\17\
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    \17\ Thus, the Underlying Indexes are subsets of various MSCI 
single country equity indices, each representing approximately 50% 
of the free float adjusted market capitalization of each underlying 
single country equity index and consists of those securities 
classified by MSCI as most representing the value style or growth 
style, respectively. The MSCI single country standard equity indices 
target an 85% free float-adjusted market representation level within 
each industry group, within each country. According to MSCI, the 
security selection process within each industry group is based on 
the careful analysis of (i) each company's business activities and 
the diversification that its securities would bring to the index, 
(ii) the size (based on free float-adjusted market capitalization) 
and liquidity of the securities of the company; and (iii) the 
estimated free float for the company and its individual share 
classes. MSCI targets for inclusion the most sizable and liquid 
securities in an industry group. MSCI generally does not consider 
securities with inadequate liquidity, and/or securities that do not 
have an estimated free float greater than 15%. Exceptions to this 
general rule are made only in significant cases, where exclusion of 
a security of a large company would compromise the index's ability 
to fully and fairly represent the characteristics of the underlying 
market.
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    Constituents of the MSCI EAFE Index include securities from Europe, 
Australasia (Australia and Asia), and the Far East. Each Underlying 
Index generally represents approximately 50% of the free float-adjusted 
market capitalization of the MSCI EAFE Index and consists of those 
securities classified by MSCI as most representing the growth or value 
style, respectively. Securities classified as growth style generally 
tend to have higher forecasted growth rates, lower book value to price 
ratios, lower forward earnings to price ratios and lower dividend 
yields than securities representing the value style. Securities 
classified as value style generally tend to have higher book value to 
price ratios, higher forward earnings to price ratios, higher dividend 
yields and lower forecasted growth rates than securities representing 
the growth style. MSCI uses a specialized framework to attribute both 
value and growth style characteristics to each security within the MSCI 
EAFE Index. Each security is evaluated based on certain value factors 
and growth factors, which are then used to calculate a value score and 
growth score. Based upon these two scores, MSCI determines the extent 
to which each security is assigned to the value or growth style. It is 
possible for a single security to have representation in both the value 
and growth style indices; however, no more than 100% of a security's 
float-adjusted market capitalization will be included within the 
combined style framework.\18\ Therefore, the combined market 
capitalization of the value and growth style indices would be 
equivalent to the market capitalization of the MSCI EAFE.\19\ The 
Funds' top portfolio holdings can be found at http://www.iShares.com.
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    \18\ The Underlying Indexes are compiled by Morgan Stanley 
Capital International (``MSCI''). MSCI is a partially owned 
subsidiary of Morgan Stanley. When a broker-dealer, or a broker-
dealer's affiliate such as MSCI, is involved in the development and 
maintenance of a stock index upon which a product such as iShares is 
based, the broker-dealer or its affiliate should have procedures 
designed specifically to address the improper sharing of 
information. The Exchange states that MSCI has implemented 
procedures to prevent the misuse of material, non-public information 
regarding changes to component stocks in the MSCI EAFE Value and 
Growth Indices and has provided Commission staff with a letter filed 
under the Freedom of Information Act, 5 U.S.C. 552, describing such 
procedures. Telephone conversation between Florence Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, and 
Michael Cavalier, Assistant General Counsel, NYSE, on July 7, 2005.
    \19\ Telephone conversation between Florence Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, and 
Michael Cavalier, Assistant General Counsel, NYSE, on July 7, 2005. 
Additionally, the MSCI EAFE Index is a capitalization-weighted index 
that aims to capture 85% of the publicly available, total market 
capitalization of European, Australian, and Far Eastern markets. 
Id., on July 29, 2005.
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    MSCI defines the free float of a security as the proportion of 
shares outstanding that are deemed to be available for purchase in the 
public equity markets by international investors. In practice, 
limitations on free float available to international investors include: 
(i) Strategic and other shareholdings not considered part of available 
free float; and (ii) limits on share ownership for foreigners.
    As of March 31, 2005, the MSCI EAFE Growth Index's top three 
holdings were the Vodafone Group, GlaxoSmithKline, Novartis. Its top 
three industries were Financials, Energy and Consumer Discretionary.
    As of March 31, 2005, the MSCI EAFE Growth Index components had a 
total market capitalization of approximately $4.4 trillion.\20\ The 
average total market capitalization was approximately $7.3 billion. The 
10 largest constituents represented approximately 21.2% of the index 
weight. The five highest weighted stocks, which represented 13.2% of 
the Index weight, had an average daily trading volume in excess of 347 
million shares during the past two months. 99.3% of the component 
stocks traded at least 250,000 shares in each of the previous six 
months.
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    \20\ As of June 30, 2005, both the MSCI EAFE Value and Growth 
Indices continued to each have a total market capitalization of over 
$4.4 trillion, and both Indices each contained over 600 component 
securities. See Exhibit A to Amendment No. 1.
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    As of March 31, 2005, the MSCI EAFE Value Index's top three 
holdings were HSBC Holdings (GB), BP and Nestle. Its top three 
industries were Financials, Energy, and Consumer Discretionary.
    As of March 31, 2005, the MSCI EAFE Value Index components had a 
total market capitalization of approximately $4.5 trillion. The average 
total market capitalization was approximately $7.5 billion. The ten 
largest constituents represented approximately 21.2% of the index 
weight. The five highest weighted stocks, which represented 13.6% of 
the Index weight, had an average daily trading volume in excess of 191 
million shares during the past two months. 99.9% of the component 
stocks traded at least 250,000 shares in each of the previous six 
months.
    Additional information regarding the Funds' holdings is available 
at http://www.iShares.com.\21\
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    \21\ Telephone conversation between Florence Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, and 
Michael Cavalier, Assistant General Counsel, NYSE, on July 7, 2005.
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    (c) Changes to the Underlying Indexes for the Funds. As described 
in the SAI for the Funds, overall index maintenance can be described by 
three broad categories of implementation of changes: (i) Annual full 
country index reviews, conducted on a fixed annual timetable, that 
systematically re-assess the various dimensions of the equity universe 
for all countries; (ii) quarterly index reviews, aimed at promptly 
reflecting other significant market events; and (iii) ongoing event-
related changes, such as mergers and acquisitions, which generally are 
rapidly implemented in the indices as they occur.\22\
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    \22\ See MSCI Standard Index Series Methodology, available at 
http://www.msci.com.
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    Potential changes in the status of countries (stand-alone, 
emerging, or developed) follow their own separate timetables. These 
changes are normally implemented in one or more phases at the regular 
annual full country index review and quarterly index review dates.
    The annual full country index review for all the MSCI single 
country standard equity indices is carried out once every 12 months and 
implemented as of the close of the last business day of May. The 
implementation of changes resulting from a quarterly index review 
occurs only on three dates throughout the year: as of the close of the 
last business day of February, August, and November. Any single country 
indices may be impacted at the quarterly index review. MSCI Index 
additions and deletions due to quarterly index rebalancings are 
announced at least two weeks in advance.

[[Page 46247]]

    (d) Issuance of Creation Unit Aggregations
    The Exchange notes that, according to the Application, the issuance 
and redemption of Creation Unit Aggregations will operate in a manner 
identical to that of the funds that are the subject of the Prior 
Order.\23\
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    \23\ See supra note 6.
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    (i) In General. Shares of the Funds (the ``iShares'') will be 
issued on a continuous offering basis in groups of 400,000 iShares, or 
multiples thereof.\24\ These ``groups'' of shares are called ``Creation 
Unit Aggregations.'' The Funds will issue and redeem iShares only in 
Creation Unit Aggregations.\25\
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    \24\ The Exchange notes that, while this Creation Unit size is 
significantly larger than that of most other iShares Funds, the 
iShares Trust recently implemented a split for a number of iShares 
Funds, which began trading on a split-adjusted basis on June 9, 
2005. The iShares MSCI EAFE Index Fund, for example, implemented a 
3-for-1 split, and the size of a Creation Unit for that Fund 
increased from 200,000 iShares to 600,000 iShares as of June 9, 
2005, in order to provide for a comparable post-split Creation Unit 
dollar value. The Exchange does not expect that the Creation Unit 
size for the Funds will adversely impact arbitrage opportunities and 
that the potential for arbitrage should keep the market price of 
shares of the Funds comparable to their net asset values.
    \25\ Each Creation Unit Aggregation will have an estimated 
initial value of approximately $20,000,000.
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    As with other open-end investment companies, iShares will be issued 
at the net asset value (``NAV'') per share next determined after an 
order in proper form is received. The anticipated price at which the 
iShares will initially trade is approximately $50.
    The NAV per share of the Funds is determined as of the close of the 
regular trading session on the Exchange on each day that the Exchange 
is open. The Trust sells Creation Unit Aggregations of the Funds only 
on business days at the next determined NAV of the Funds. Creation Unit 
Aggregations generally will be issued by the Funds in exchange for the 
in-kind deposit of equity securities designated by the Advisor to 
correspond generally to the price and yield performance of the Fund's 
Underlying Index (the ``Deposit Securities'') and a specified cash 
payment. Creation Unit Aggregations generally will be redeemed by the 
Fund in exchange for portfolio securities of the Fund (``Fund 
Securities'') and a specified cash payment. Fund Securities received on 
redemption may not be identical to Deposit Securities deposited in 
connection with creations of Creation Unit Aggregations for the same 
day.
    All orders to purchase iShares in Creation Unit Aggregations must 
be placed through an Authorized Participant. An Authorized Participant 
must be either a ``Participating Party,'' i.e., a broker-dealer or 
other participant in the clearing process through the National 
Securities Clearing Corporation (``NSCC'') Continuous Net Settlement 
System (the ``Clearing Process''), a clearing agency that is registered 
with the SEC, or a Depository Trust Company (``DTC'') participant, and 
in each case, must enter into a Participant Agreement. The Funds impose 
a transaction fee in connection with the issuance and redemption of 
iShares to offset transfer and other transaction costs. The transaction 
fee in connection with the issuance and redemption of Creation Unit 
Aggregations of the Funds are estimated to be approximately between 
$10,000 and $15,000.
    (ii) In-Kind Deposit of Portfolio Securities. Payment for Creation 
Unit Aggregations will be made by the purchasers generally by an in-
kind deposit with the applicable Fund of the Deposit Securities 
together with an amount of cash (``Balancing Amount'') specified by the 
Advisor in the manner described below. The Balancing Amount is an 
amount equal to the difference between (1) the NAV (per Creation Unit 
Aggregation) of the Fund and (2) the total aggregate market value (per 
Creation Unit Aggregation) of the Deposit Securities (such value 
referred to herein as the ``Deposit Amount''). The Balancing Amount 
serves the function of compensating for differences, if any, between 
the NAV per Creation Unit Aggregation and that of the Deposit Amount. 
The deposit of the requisite Deposit Securities and the Balancing 
Amount are collectively referred to herein as a ``Fund Deposit.'' The 
Advisor will make available to the market through the NSCC on each 
business day, prior to the opening of trading on the Exchange 
(currently 9:30 a.m. Eastern Time), the list of the names and the 
required number of shares of each Deposit Security included in the 
current Fund Deposit (based on information at the end of the previous 
business day) for each Fund. The Fund Deposit will be applicable to the 
relevant Fund (subject to any adjustments to the Balancing Amount, as 
described below) in order to effect purchases of Creation Unit 
Aggregations of such Fund until such time as the next-announced Fund 
Deposit composition is made available.
    The identity and number of shares of the Deposit Securities 
required for the Fund Deposit for each Fund will change from time to 
time. The composition of the Deposit Securities may change in response 
to adjustments to the weighting or composition of the Component 
Securities in the Underlying Index. In addition, the Trust reserves the 
right to permit or require the substitution of an amount of cash--i.e., 
a ``cash in lieu'' amount--to be added to the Balancing Amount to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not otherwise be eligible for 
transfer. The Trust also reserves the right to permit or require a 
``cash in lieu'' amount where the delivery of the Deposit Security by 
the Authorized Participant would be restricted under the securities 
laws or where the delivery of the Deposit Security to the Authorized 
Participant would result in the disposition of the Deposit Security by 
the Authorized Participant becoming restricted under the securities 
laws, or in certain other situations. The adjustments described above 
will reflect changes known to the Advisor on the date of announcement 
to be in effect by the time of delivery of the Fund Deposit, in the 
composition of the applicable Underlying Index or resulting from 
certain corporate actions.
    (e) Redemption of iShares. Creation Unit Aggregations of the Funds 
will be redeemable at the NAV next determined after receipt of a 
request for redemption. Creation Unit Aggregations of the Funds 
generally will be redeemed in-kind, together with a balancing cash 
payment (although, as described below, Creation Unit Aggregations may 
sometimes be redeemed for cash). The value of the Funds' redemption 
payments on a Creation Unit Aggregation basis will equal the NAV per 
the appropriate number of Fund shares. Owners of iShares may sell their 
iShares in the secondary market, but must accumulate enough iShares to 
constitute a Creation Unit Aggregation in order to redeem through the 
Fund. Redemption orders must be placed by or through an Authorized 
Participant. Creation Unit Aggregations of the Funds generally will be 
redeemable on any business day in exchange for applicable Fund 
Securities and the Cash Redemption Payment (defined below) in effect on 
the date a request for redemption is made. The Advisor will publish 
daily through NSCC the list of securities which a creator of Creation 
Unit Aggregations must deliver to the Fund (``Creation List'') and 
which a redeemer will receive from the Funds (``Redemption List''). The 
Creation List is identical to the list of the names and the required 
numbers of shares of each Deposit Security included in the current Fund 
Deposit.
    In addition, just as the Balancing Amount is delivered by the 
purchaser of Creation Unit Aggregations to the Funds, the Trust will 
also deliver to the

[[Page 46248]]

redeeming beneficial owner in cash the ``Cash Redemption Payment.'' The 
Cash Redemption Payment on any given business day will be an amount 
calculated in the same manner as that for the Balancing Amount, 
although the actual amounts may differ if the Fund Securities received 
upon redemption are not identical to the Deposit Securities applicable 
for creations on the same day.\26\ To the extent that the Fund 
Securities have a value greater than the NAV of iShares being redeemed, 
a cash payment equal to the differential is required to be paid by the 
redeeming beneficial owner to the applicable Fund. The Trust may also 
make redemptions in cash in lieu of transferring one or more Fund 
Securities to a redeemer if the Trust determines, in its discretion, 
that such method is warranted due to unusual circumstances. An unusual 
circumstance could arise, for example, when a redeeming entity is 
restrained by regulation or policy from transacting in certain Fund 
Securities, such as the presence of such Fund Securities on a redeeming 
investment banking firm's restricted list.
---------------------------------------------------------------------------

    \26\ See discussion under Section II.A.1(d)(ii) ``In-Kind 
Deposit of Portfolio Securities,'' above.
---------------------------------------------------------------------------

    (f) Availability of Information Regarding iShares and the 
Underlying Index. On each business day, the list of names and amount of 
each security constituting the current Deposit Securities of the Fund 
Deposit and the Balancing Amount effective as of the previous business 
day, per outstanding share of each Fund, will be made available. An 
amount per iShare representing the sum of the estimated Balancing 
Amount effective through and including the previous business day, plus 
the current value of the Deposit Securities in U.S. dollars, on a per 
iShare basis (the ``Intra-day Optimized Portfolio Value'' or ``IOPV'') 
will be calculated by an independent third party (the ``IOPV 
Calculator''), such as Bloomberg L.P., every 15 seconds during the 
Exchange's regular trading hours and disseminated every 15 seconds on 
the Consolidated Tape.
    The IOPV reflects the current value of the Deposit Securities and 
the Balancing Amount. The IOPV also reflects changes in currency 
exchange rates between the U.S. dollar and the applicable home foreign 
currency.\27\
---------------------------------------------------------------------------

    \27\ The IOPV ticker is available at www.iShares.com and Intra-
day IOPV is publicly available utilizing this ticker through various 
financial Web sites such as http://finance.yahoo.com. Telephone 
conversation between Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, and Michael Cavalier, 
Assistant General Counsel, NYSE, on July 7, 2005.
---------------------------------------------------------------------------

    Since the Funds will utilize a representative sampling strategy, 
the IOPV may not reflect the value of all securities included in the 
Underlying Indexes. In addition, the IOPV does not necessarily reflect 
the precise composition of the current portfolio of securities held by 
the Funds at a particular point in time. Therefore, the IOPV on a per-
Fund-share basis disseminated during the Exchange's trading hours 
should not be viewed as a real time update of the NAV of the Fund, 
which is calculated only once a day.
    While the IOPV disseminated by the Exchange at 9:30 a.m. New York 
Time is expected to be generally very close to the most recently 
calculated Fund NAV on a per-Fund-share basis, it is possible that the 
value of the portfolio of securities held by each Fund may diverge from 
the Deposit Securities values during any trading day. In such case, the 
IOPV will not precisely reflect the value of each Fund's portfolio. 
However, during the trading day, the IOPV can be expected to closely 
approximate the value per Fund share of the portfolio of securities for 
each Fund, except under unusual circumstances (e.g., in the case of 
extensive rebalancing of multiple securities in a Fund at the same time 
by the Advisor).
    The Exchange believes that dissemination of the IOPV based on the 
Deposit Securities provides additional information regarding the Funds 
that is not otherwise available to the public and is useful to 
professionals and investors in connection with Fund shares trading on 
the Exchange or the creation or redemption of Fund shares.
    There is an overlap in trading hours between the foreign and U.S. 
markets with respect to the Funds. Therefore, the IOPV Calculator will 
update the applicable IOPV every 15 seconds to reflect price changes in 
the applicable foreign market or markets and convert such prices into 
U.S. dollars based on the currency exchange rate. When the foreign 
market or markets are closed but U.S. markets are open, the IOPV will 
be updated every 15 seconds to reflect changes in currency exchange 
rates after the foreign market closes. The IOPV will also include the 
applicable cash component for each Fund.
    In addition, there will be disseminated a value for the Underlying 
Indexes once each trading day, based on closing prices in the relevant 
exchange market. In each MSCI Index, the prices used to calculate the 
MSCI Indices are the official exchange closing prices or those figures 
accepted as such. MSCI reserves the right to use an alternative pricing 
source on any given day.
    To convert the foreign exchange closing price into U.S. dollars, 
MSCI uses the FX rates published by WM/Reuters at 4 p.m. London time. 
MSCI uses WM/Reuters rates for all developed and emerging markets. 
Exchange rates are taken daily at 4 p.m. London time by the WM Company 
and are sourced whenever possible from multi-contributor quotes on 
Reuters. Representative rates are selected for each currency based on a 
number of ``snapshots'' of the latest contributed quotations taken from 
the Reuters service at short intervals around 4 p.m. WM Reuters 
provides closing bid and offer rates. MSCI uses these rates to 
calculate the mid-point to 5 decimal places.
    The NAV for the Fund will be calculated and disseminated daily. The 
Funds' NAV will be calculated by IBT. IBT will disseminate the 
information to BGI, SEI and others, including the NYSE. The Funds' NAV 
will be published in a number of places, including http://www.iShares.com and on the Consolidated Tape.\28\
---------------------------------------------------------------------------

    \28\ In addition, the Web site for the Trust, http://www.iShares.com, which will be publicly accessible at no charge, 
will contain the following information, such as: (i) The prior 
business day's NAV and the mid-point of the bid-ask price at the 
time of calculation of such NAV (``Bid/Ask Price''), and a 
calculation of the premium or discount of such price against such 
NAV; and (ii) data in chart format displaying the frequency 
distribution of discounts and premiums of the Bid/Ask Price against 
the NAV, within appropriate ranges, for each of the four previous 
calendar quarters.
---------------------------------------------------------------------------

    The Exchange states that closing prices of the Funds' Deposit 
Securities are readily available from, as applicable, the relevant 
exchanges, automated quotation systems, published or other public 
sources in the relevant country, or on-line information services such 
as Bloomberg or Reuters. The exchange rate information required to 
convert such information into U.S. dollars is also readily available in 
newspapers and other publications and from a variety of on-line 
services.
    (g) Dividends and Distributions. The Exchange notes that dividends 
are accrued daily from net investment income and will be declared and 
paid to beneficial owners of record at least annually by the Funds. 
Distributions of realized securities gains, if any, generally will be 
declared and paid once a year, but the Funds may make distributions on 
a more frequent basis to comply with the distribution requirements of 
the Code and consistent with the Investment Company Act.
    Dividends and other distributions on iShares of the Funds will be 
distributed on a pro rata basis to beneficial owners of such iShares. 
Dividend payments will

[[Page 46249]]

be made through the DTC and the DTC Participants to beneficial owners 
then of record with amounts received from the Fund.
    The Trust currently does not intend to make the DTC book-entry 
Dividend Reinvestment Service (``Service'') available for use by 
beneficial owners for reinvestment of their cash proceeds, but certain 
individual brokers may make the Service available to their clients. The 
SAI will inform investors of this fact and direct interested investors 
to contact such investor's broker to ascertain the availability and a 
description of the Service through such broker. The SAI will also 
caution interested beneficial owners that they should note that each 
broker may require investors to adhere to specific procedures and 
timetables in order to participate in the Service and such investors 
should ascertain from their broker such necessary details. The Funds 
acquired pursuant to the Service will be held by the beneficial owners 
in the same manner, and subject to the same terms and conditions, as 
for original ownership of the Funds.
    Beneficial owners of the Funds will receive all of the statements, 
notices, and reports required under the Investment Company Act and 
other applicable laws. They will receive, for example, annual and semi-
annual reports, written statements accompanying dividend payments, 
proxy statements, annual notifications detailing the tax status of 
distributions, IRS Form 1099-DIVs, etc. Because the Trust's records 
reflect ownership of iShares by DTC only, the Trust will make available 
applicable statements, notices, and reports to the DTC Participants 
who, in turn, will be responsible for distributing them to the 
beneficial owners.
    (h) Other Issues
    (i) Criteria for Initial and Continued Listing. The Funds are 
subject to the criteria for initial and continued listing of ICUs in 
Section 703.16 of the Manual. A minimum of one Creation Unit (400,000 
iShares) will be required to be outstanding at the start of trading. 
This minimum number of shares of each Fund required to be outstanding 
at the start of trading will be comparable to requirements that have 
been applied to previously traded series of ICUs.
    The Exchange believes that the proposed minimum number of shares of 
each Fund outstanding at the start of trading is sufficient to provide 
market liquidity and to further each Fund's investment objective to 
seek to provide investment results that correspond generally to the 
price and yield performance of its Underlying Index.
    (ii) Original and Annual Listing Fees. The original listing fees 
applicable to the Funds for listing on the Exchange is $5,000 for each 
Fund, and the annual continuing listing fees will be $2,000 for each 
Fund.
    (iii) Stop and Stop Limit Orders. Commentary .30 to NYSE Rule 13 
provides that stop and stop limit orders in an ICU shall be elected by 
a quotation, but specifies that if the electing bid on an offer is more 
than 0.10 points away from the last sale and is for the specialist's 
dealer account, prior Floor Official approval is required for the 
election to be effective. This rule applies to ICUs generally.
    (iv) Rule 460.10. Rule 460.10 generally precludes certain business 
relationships between an issuer and the specialist or its affiliates in 
the issuer's securities.\29\ Exceptions in the Rule permit specialists 
in Fund shares to enter into Creation Unit transactions through the 
Distributor to facilitate the maintenance of a fair and orderly market. 
A specialist Creation Unit transaction may only be effected on the same 
terms and conditions as any other investor, and only at the net asset 
value of the Fund shares. A specialist may acquire a position in excess 
of 10% of the outstanding issue of the Funds' shares, provided, 
however, that a specialist registered in a security issued by an 
investment company may purchase and redeem the investment company unit 
or securities that can be subdivided or converted into such unit, from 
the investment company as appropriate to facilitate the maintenance of 
a fair and orderly market in the subject security in accordance with 
the terms of Rule 460.10.\30\
---------------------------------------------------------------------------

    \29\ Telephone conversation between Florence Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, and 
Michael Cavalier, Assistant General Counsel, NYSE, on July 7, 2005.
    \30\ Telephone conversation between Florence Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, and 
Michael Cavalier, Assistant General Counsel, NYSE, on July 29, 2005 
(as to specific terms of Rule 460.10).
---------------------------------------------------------------------------

    (v) Prospectus Delivery. The Commission has granted the Trust an 
exemption from certain prospectus delivery requirements under Section 
24(d) of the Investment Company Act.\31\ Any product description used 
in reliance on the Section 24(d) exemptive order will comply with all 
representations made therein and all conditions thereto. The Exchange, 
in an Information Memo to Exchange members and member organizations, 
will inform members and member organizations, prior to commencement of 
trading, of the prospectus or product description delivery requirements 
applicable to the Funds and will refer members and member organizations 
to NYSE Rule 1100(b). The Information Memo will also advise members and 
member organizations that delivery of a prospectus to customers in lieu 
of a product description would satisfy the requirements of Rule 
1100(b).
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 80a-24. See In the Matter of iShares, Inc., et 
al., Investment Company Act Release No. 25623 (June 25, 2002).
---------------------------------------------------------------------------

    (vi) Information Memo. The Exchange will distribute an Information 
Memo to its members in connection with the trading of the Funds. The 
Memo will discuss the special characteristics and risks of trading this 
type of security. Specifically, the Memo, among other things, will 
discuss what the Funds are, how the Funds' shares are created and 
redeemed, the requirement that members and member firms deliver a 
prospectus or product description to investors purchasing shares of the 
Funds prior to or concurrently with the confirmation of a transaction, 
applicable Exchange rules, dissemination information, trading 
information and the applicability of suitability rules (including NYSE 
Rule 405). The memo will also discuss exemptive, no-action and 
interpretive relief granted by the Commission from Section 11(d)(1) and 
certain rules under the Act.
    (vii) Trading Halts. In order to halt the trading of the Funds, the 
Exchange may consider, among other things, factors such as the extent 
to which trading is not occurring in underlying security(s) and whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in the Funds' shares is subject to trading halts caused by 
extraordinary market volatility pursuant to NYSE Rule 80B.
    (viii) Due Diligence. The Exchange represents that the Information 
Memo to members will note, for example, Exchange responsibilities 
including that before an Exchange member, member organization, or 
employee thereof recommends a transaction in the Funds, a determination 
must be made that the recommendation is in compliance with all 
applicable Exchange and federal rules and regulations, including due 
diligence obligations under NYSE Rule 405 (Diligence as to Accounts).
    (ix) Purchases and Redemptions in Creation Unit Size. In the Memo 
referenced above, members and member organizations will be informed 
that procedures for purchases and redemptions of shares of the Funds in 
Creation Unit Size are described in the Funds' Prospectus and SAI, and 
that shares of the Funds are not individually redeemable but are 
redeemable only in

[[Page 46250]]

Creation Unit size aggregations or multiples thereof.
    (x) Surveillance. The Exchange will utilize its existing 
surveillance procedures applicable to ICUs to monitor trading in the 
Funds. The Exchange believes that these procedures are adequate to 
monitor Exchange trading of the Funds.
    The Exchange states that its surveillance procedures applicable to 
trading in the proposed iShares are comparable to those applicable to 
other ICUs currently trading on the Exchange. The Exchange represents 
that its surveillance procedures, which the Exchange has filed with the 
Commission, are adequate to properly monitor the trading of the Funds. 
The Exchange's current trading surveillances focus on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations. The Exchange is able to 
obtain information regarding trading in both the Fund shares and the 
component securities through NYSE members, in connection with such 
members' proprietary or customer trades, on any relevant market on 
which such members may trade; in addition, the Exchange may obtain 
trading information via the Intermarket Surveillance Group (``ISG'') 
from other exchanges who are members or affiliates of the ISG.
    (xi) Hours of Trading/Minimum Price Variation. The Funds will trade 
on the Exchange until 4:15 p.m. (Eastern time) each business day. The 
minimum price variation for quoting will be $.01.

1. Statutory Basis

    NYSE believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \32\ requiring that an exchange have rules 
that are designed, among other things, to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to, and perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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-NYSE-2005-41 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NYSE-2005-41. 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 NYSE. 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-NYSE-2005-41 and should be submitted on or before August 
30, 2005.

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

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder, applicable to a national securities exchange.\33\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \34\ and will promote just 
and equitable principles of trade, and facilitate transactions in 
securities, and, in general, protect investors and the public interest.
---------------------------------------------------------------------------

    \33\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the NYSE's proposal should advance the 
public interest by providing investors with increased flexibility in 
satisfying their investment needs and by allowing them to purchase and 
sell Fund shares at negotiated prices throughout the business day that 
generally track the price and yield performance of the targeted 
Underlying Index.\35\
---------------------------------------------------------------------------

    \35\ The Commission notes that, as is the case with similar 
previously approved exchange traded funds, investors in the Fund can 
redeem shares in Creation-Unit-size aggregations only. See, e.g., 
Securities Exchange Act Release Nos. 43679 (December 5, 2000), 65 FR 
77949 (December 13, 2000) (File No. SR-NYSE-00-46); 50505 (October 
8, 2004), 69 FR 61280 (October 15, 2004) (File No. SR-NYSE-2004-55); 
50189 (August 12, 2004), 69 FR 51723 (August 20, 2004) (File No. SR-
Amex-2004-05).
---------------------------------------------------------------------------

    Furthermore, the Commission believes that the proposed rule change 
raises no issues that have not been previously considered by the 
Commission. The Fund is similar in structure and operation to exchange-
traded index funds that the Commission has previously approved for 
listing and trading on national securities exchanges under Section 
19(b)(2) of the Act.\36\ Further, with respect to each of the following 
key issues, the Commission believes that the Fund satisfies established 
standards.
---------------------------------------------------------------------------

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

A. Fund Characteristics

    Similar to other previously-approved, exchange-listed index fund 
shares, the Commission believes that the proposed Funds are reasonably 
designed to provide investors with an investment vehicle that 
substantially reflects in value the performance of the respective 
Underlying Index and will provide investors with an alternative to 
trading a range of securities on an individual basis. The estimated 
cost of individual shares in the Fund, approximately $50,

[[Page 46251]]

should make them attractive to individual retail investors who wish to 
hold a security representing the performance of a portfolio of stocks. 
In addition, investors will be able to trade shares in the Fund 
continuously throughout the business day in secondary market 
transactions at negotiated prices.\37\ Accordingly, the proposed Fund 
will allow investors to: (1) Respond quickly to market changes through 
intra-day trading opportunities; (2) engage in hedging strategies 
similar to those used by institutional investors; and (3) reduce 
transaction costs for trading a portfolio of securities.
---------------------------------------------------------------------------

    \37\ Because of the potential arbitrage opportunities, the 
Commission believes that Fund shares will not trade at a material 
discount or premium in relation to their NAV.
---------------------------------------------------------------------------

    Moreover, the Commission finds that, although the value of the 
Fund's shares will be derived from and based on the value of the 
securities and cash held in the Fund, the Fund is not leveraged. 
Accordingly, the level of risk involved in the purchase or sale of Fund 
shares is similar to the risk involved in the purchase or sale of 
traditional common stock, with the exception that the pricing mechanism 
for shares in the Fund is based on a portfolio of securities.
    The Commission notes that the MSCI EAFE Value and Growth Index 
Funds (i) will invest at least 90% of its assets in Component 
Securities of its respective Underlying Index and in Depositary 
Receipts (defined above) representing such securities and (ii) may 
invest up to 10% of its assets in certain futures, options and swap 
contracts, cash and cash equivalents, including money market mutual 
funds advised by BGFA,\38\ other exchange-traded funds, including other 
iShares Funds,\39\ and stocks not included in the Underlying Index but 
which the Advisor believes will help the Fund track its Underlying 
Index.\40\ It is expected that the Fund will have a tracking error 
relative to the performance of its Underlying Index of no more than 5%. 
As described above, each Index generally represents approximately 50% 
of the free float-adjusted market capitalization of the MSCI EAFE 
Index, itself consisting of various MSCI EAFE country indices, and 
consists of those securities classified by MSCI as most representing 
the growth or value style.
---------------------------------------------------------------------------

    \38\ In the Matter of Master Investment Portfolio, et al., 
Investment Company Act Release No. 25158 (September 18, 2001).
    \39\ The Fund, as well as any existing iShares Fund, is 
permitted to invest in shares of another iShares Fund to the extent 
that such investment is consistent with the Fund's investment 
objective, registration statement, and any applicable investment 
restrictions.
    \40\ The Commission notes that the Funds may invest in sponsored 
ADRs and other Depositary Receipts, but will not invest in any 
unlisted depositary receipts or any listed depositary receipts that 
the Advisor deems to be illiquid or for which pricing information is 
not readily available. See note 16 supra.
---------------------------------------------------------------------------

    Given the market capitalization and liquidity of the Underlying 
Indexes and Funds' Component Securities, the Commission does not 
believe that the Fund shares should be susceptible to manipulation.\41\
---------------------------------------------------------------------------

    \41\ The Exchange states that as of March 31, 2005, the ten 
largest constituents represented approximately 21.2% of the index 
weight for both the MSCI EAFE Growth Index and the MSCI EAFE Value 
Index. The 5 highest weighted stocks, which represented 13.2% of the 
MSCI EAFE Growth Index weight and 13.6% of the MSCI EAFE Value Index 
weight, had an average daily trading volume in excess of 347 million 
shares and 191 million, respectively, during the past two months. 
99.3% of the MSCI EAFE Growth Index and 99.9% of the MSCI EAFE Value 
Index of the component stocks traded at least 250,000 shares in each 
of the previous 6 months. Both Indices each contain over 600 
component securities.
---------------------------------------------------------------------------

    The Exchange further represents that the Fund will not concentrate 
its investments in any particular industry or group of industries, 
except to the extent that the Underlying Index concentrates in the 
stocks of a particular industry or industries. Because each Fund's 
Underlying Index is broad-based and well diversified, the Commission 
does not believe that the Fund will be so highly concentrated such that 
it becomes a surrogate for trading unregistered foreign securities on 
the Exchange.
    While the Commission believes that these requirements should help 
to reduce concerns that the Fund could become a surrogate for trading 
in a single or a few unregistered stocks, if the Fund's characteristics 
changed materially from the characteristics described herein, the Fund 
would not be in compliance with the listing and trading standards 
approved herein, and the Commission would expect the NYSE to file a 
proposed rule change pursuant to Rule 19b-4 of the Act.

B. Disclosure

    The Exchange represents that it will circulate an information memo 
detailing applicable prospectus and product description delivery 
requirements. The memo will also discuss exemptive, no-action and 
interpretive relief granted by the Commission from certain rules under 
the Act. The memo also will address NYSE members' responsibility to 
deliver a prospectus or product description to all investors (in 
accordance with NYSE Rule 1100(b)) and highlight the characteristics of 
the Funds. The memo will also remind members of their suitability 
obligations, including NYSE Rule 405 (Diligence as to Accounts).\42\ 
For example, the information memo will also inform members and member 
organizations that Fund shares are not individually redeemable, but are 
redeemable only in Creation-Unit-size aggregations or multiples thereof 
as set forth in the Fund Prospectus and SAI.\43\ The Commission 
believes that the disclosure included in the information memo is 
appropriate and consistent with the Act.
---------------------------------------------------------------------------

    \42\ NYSE Rule 405 generally requires that members use due 
diligence to learn the essential facts relative to every customer, 
order or account accepted.
    \43\ See discussion under Section II.A.1(a) ``Operation of 
Fund,'' above. The Exchange has represented that the information 
memo will also discuss exemptive, no-action, and interpretive relief 
granted by the Commission from certain rules under the Act.
---------------------------------------------------------------------------

C. Dissemination of Fund Information

    With respect to pricing, once each day, the NAV for the Fund will 
be calculated and disseminated by IBT, to various sources, including 
the NYSE, and made available on http://www.iShares.com and the 
Consolidated Tape.\44\ Also, during the Exchange's regular trading 
hours, the IOPV Calculator will determine and disseminate every 15 
seconds the IOPV for each Fund. The IOPV will reflect price changes in 
the applicable foreign market or markets and changes in currency 
exchange rates.
---------------------------------------------------------------------------

    \44\ The index currently uses the Reuters foreign exchange rate 
at the close of the index (4 p.m. London Time) to compute final 
index values. The Fund intends to use Reuters/WM foreign exchange 
rates at 4:00 p.m. London Time.
---------------------------------------------------------------------------

    The Commission notes that a variety of additional information about 
each Fund will be readily available. Information with respect to recent 
NAV, shares outstanding, estimated cash amount and total cash amount 
per Creation Unit Aggregation will be made available prior to the 
opening of the Exchange. In addition, the Web site for the Trust, 
http://www.iShares.com, which will be publicly accessible at no charge, 
will contain the following information, on a per iShare basis, for the 
Fund: (1) The prior business day's NAV and the mid-point of the bid-ask 
price \45\ at the time of calculation of such NAV (``Bid/Ask Price''), 
and a calculation of the premium or discount of such price against such 
NAV; and (2) data in chart format displaying the frequency distribution 
of discounts and premiums of the Bid/Ask Price against the NAV, within 
appropriate ranges, for each of the four previous calendar

[[Page 46252]]

quarters. Also, the closing prices of the Fund's Deposit Securities are 
available from, as applicable, the relevant exchanges, automated 
quotation systems, published or other public sources in the relevant 
country, or on-line information services such as Bloomberg or Reuters. 
The exchange rate information required to convert such information into 
U.S. dollars is also readily available in newspapers and other 
publications and from a variety of on-line services.
---------------------------------------------------------------------------

    \45\ The Bid-Ask Price of the Fund is determined using the 
highest bid and lowest offer on the Exchange as of the time of 
calculation of the Fund's NAV.
---------------------------------------------------------------------------

    Based on the representations made in the NYSE proposal, the 
Commission believes that pricing and other important information about 
the Fund is adequate and consistent with the Act.

D. Listing and Trading

    The Commission finds that adequate rules and procedures exist to 
govern the listing and trading of the Fund's shares. Fund shares will 
be deemed equity securities subject to NYSE rules governing the trading 
of equity securities, including, among others, rules governing trading 
halts,\46\ responsibilities of the specialist, account opening and 
customer suitability requirements,\47\ and the election of stop and 
stop limit orders.
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    \46\ In order to halt the trading of the Fund, the Exchange may 
consider, among others, factors including: (i) The extent to which 
trading is not occurring in stocks underlying the index; or (ii) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in Fund shares is subject to trading halts caused by 
extraordinary market volatility pursuant to NYSE Rule 80B.
    \47\ Prior to commencement of trading, the Exchange states that 
it will issue an Information Memo informing members and member 
organizations of the characteristics of the Fund and of applicable 
Exchange rules, as well as of the requirements of NYSE Rule 405 
(Diligence as to Accounts).
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    In addition, the Exchange states that iShares are subject to the 
criteria for initial and continued listing of ICUs in Section 703.16 of 
the NYSE Manual. The Commission believes that the listing and delisting 
criteria for Fund shares should help to ensure that a minimum level of 
liquidity will exist in the Fund to allow for the maintenance of fair 
and orderly markets. Accordingly, the Commission believes that the 
rules governing the trading of Fund shares provide adequate safeguards 
to prevent manipulative acts and practices and to protect investors and 
the public interest.
    As noted above, the NYSE expects to require that a minimum of one 
Creation Units (400,000 iShares) will be required to be outstanding at 
the start of trading. The Commission believes that this minimum number 
is sufficient to help to ensure that a minimum level of liquidity will 
exist at the start of trading.\48\
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    \48\ This minimum number of shares required to be outstanding at 
the start of trading is comparable to requirements that have been 
applied to previously listed series of ICUs.
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E. Surveillance

    The Commission finds that NYSE's surveillance procedures are 
reasonably designed to monitor the trading of the proposed iShares, 
including concerns with specialists purchasing and redeeming Creation 
Units. The NYSE represents that its surveillance procedures applicable 
to trading in the proposed iShares are comparable to those applicable 
to other ICUs currently trading on the Exchange. The Exchange also 
represents that its surveillance procedures are adequate to properly 
monitor the trading of the Funds. The Exchange is also able to obtain 
information regarding trading in both the Fund shares and the Component 
Securities by its members on any relevant market; in addition, the 
Exchange may obtain trading information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members or 
affiliates of the ISG.
    As stated, when a broker-dealer, or a broker-dealer's affiliate 
such as MSCI, is involved in the development and maintenance of a stock 
index upon which a product such as iShares is based, the broker-dealer 
or its affiliate should have procedures designed specifically to 
address the improper sharing of information. The Commission notes that 
MSCI has implemented procedures to prevent the misuse of material, non-
public information regarding changes to component stocks in the MSCI 
EAFE Value and Growth Indices. The Commission believes that the 
information barrier procedures put in place by MSCI address the 
unauthorized transfer and misuse of material, non-public information.

F. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\49\ for approving the proposed rule change, as amended, prior 
to the thirtieth day after the date of publication of notice in the 
Federal Register. The Commission notes that the proposal is consistent 
with the listing and trading standards in NYSE Rule 703.16 (ICUs), and 
the Commission has previously approved similar products based on 
foreign indices.\50\ The Funds are substantially identical in structure 
to other iShares Funds based on foreign stock indexes, including the 
iShares MSCI EAFE Index Fund, which have an established and active 
trading history on the NYSE and other exchanges. The Commission does 
not believe that the proposed rule change, as amended, raises novel 
regulatory issues. Consequently, the Commission believes that it is 
appropriate to permit investors to benefit from the flexibility 
afforded by trading these products as soon as possible.
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    \49\ 15 U.S.C. 78s(b)(2).
    \50\ See supra note 35. See also, e.g., Securities Exchange Act 
Release Nos. 44990 (October 25, 2001), 66 FR 56869 (November 13, 
2001) (SR-Amex-2001-45); 42748 (May 2, 2000), 65 FR 30155 (May 10, 
2000) (SR-Amex-98-49); and 36947 (March 8, 1996), 61 FR 10606 (March 
14, 1996) (SR-Amex-95-43).
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    Accordingly, the Commission finds that there is good cause, 
consistent with Section 6(b)(5) of the Act,\51\ to approve the proposal 
on an accelerated basis.
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    \51\ 15 U.S.C. 78s(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSE-2005-41), is hereby approved on 
an accelerated basis.\52\
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    \52\ 15 U.S.C. 78s(b)(2).
    \53\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\53\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4274 Filed 8-8-05; 8:45 am]
BILLING CODE 8010-01-P