[Federal Register Volume 71, Number 57 (Friday, March 24, 2006)]
[Notices]
[Pages 14967-14975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-4268]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53521; File No. SR-Amex-2005-072]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Listing and Trading of Shares of the iShares[supreg]
Silver Trust
March 20, 2006.
I . Introduction
On June 30, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade under Amex
Rules 1200A et seq. iShares[supreg] Silver Trust shares (the ``Silver
Shares'' or ``Shares'').\3\ On September 15, 2005, the Exchange
submitted Amendment No. 1 to the proposed rule change.\4\ The proposed
rule change, as amended, was published for comment in the Federal
Register on January 23, 2006.\5\ The Commission received 255 comment
letters regarding the proposed rule change.\6\ On February 28, 2006,
the Exchange filed a response to these comments.\7\ This order approves
the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ iShares[supreg] is a registered trademark of Barclays Global
Investors, N.A.
\4\ Amendment No. 1 to the proposed rule change clarifies the
valuation procedure that would be used by the Bank of New York to
determine the daily value of the silver contained in the
iShares[supreg] Silver Trust.
\5\ See Securities Exchange Act Release No. 53130 (January 17,
2006), 71 FR 3570 (January 23, 2006) (``Notice'').
\6\ These comment letters are available for review on the
Commission's Web site at http://www.sec.gov/rules/sro/ amex/
amex2005072.shtml.
\7\ See letter from Neal L Wolkoff, Chairman and Chief Executive
Officer, Amex, to Nancy M. Morris, Secretary, Commission, dated
February 28, 2006 (``Wolkoff Letter'').
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II. Description of Proposal
In January 2005, the Exchange adopted rules for the listing and
trading of ``Commodity-Based Trust Shares.'' \8\ Commodity-Based Trust
Shares (the ``Commodity Shares'') are securities issued by a trust that
represent investors' discrete identifiable and undivided beneficial
ownership interest in the commodities deposited into the trust.
Commodity Shares are a form of trust issued receipt (``TIR'') \9\ that
instead of holding one or more discrete securities will hold one or
more physical commodities. The Exchange has listed the iShares COMEX
Gold Trust \10\ and trades pursuant to unlisted trading privileges
(``UTP''), the streetTRACKS Gold Trust,\11\ as Commodity-Based Trust
Shares pursuant to Exchange Rules 1200A et seq.
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\8\ See Securities Exchange Act Release No. 51058 (January 19,
2005), 70 FR 3749 (January 26, 2005) (approving the listing and
trading of the iShares COMEX Gold Trust).
\9\ A Trust Issued Receipt or ``TIR'' is defined in Exchange
Rule 1200(b) as a security (a) that is issued by a trust that holds
specified securities deposited with the trust; (b) that, when
aggregated in some specified minimum number, may be surrendered to
the trust by the beneficial owner to receive the securities; and (c)
that pays beneficial owners dividends and other distributions on the
deposited securities, if any are declared and paid to the trustee by
an issuer of the deposited securities. Under Amex Rule 1201, the
Exchange may approve for listing and trading TIRs based on one or
more securities. The Exchange defines a ``security'' or
``securities'' to include stocks, bonds, options, and other
interests or instruments commonly known as securities. See Article
I, Section 3(j) of the Amex Constitution.
\10\ See supra note 8.
\11\ See Securities Exchange Act Release No. 51446 (March 29,
2005), 70 FR 17272 (April 5, 2005) (approving the UTP trading of the
streetTRACKS Gold Shares).
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Pursuant to Amex Rule 1201A, the Exchange may approve for listing
and trading Commodity Shares on an underlying commodity.\12\
Accordingly, the Amex proposes to list for trading Silver Shares under
Exchange Rule 1200A et. seq.\13\
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\12\ Amex Rule 1200A(b)(2) defines ``commodity'' as set forth in
Section 1(a)(4) of the Commodity Exchange Act (``CEA'').
\13\ See applicable Amex Rules 1200A, 1201A, 1202A, 1203A,
1204A, and 1205A.
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The Exchange proposes to list and trade the Silver Shares, which
represent beneficial ownership interests in the net assets of the
iShares Silver Trust \14\ (the ``Silver Trust'' or ``Trust'')
consisting primarily of silver bullion. Each Silver Share will
initially correspond to 10 ounces of silver.\15\ The Silver Shares will
meet the initial and continued listing criteria under Amex Rule
1202A.\16\
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\14\ The Trust is not an investment company as defined in
Section 3(a) of the Investment Company Act of 1940. The Silver Trust
will be formed under a depositary trust agreement, among Bank of New
York, as Trustee, Barclays Global Investors International, Inc.
(``Barclays'' or ``Sponsor''), the Sponsor, all depositors, if any,
and the holders of Silver Shares.
\15\ The amount of silver associated with each basket (and
individual Silver Share) is expected to decrease over time as the
Trust incurs and pays maintenance fees and other expenses.
\16\ The initial listing standards set forth in Amex Rule
1202A(a) provide that the Exchange establish a minimum number of
TIRs required to be outstanding at the time of the commencement of
trading on the Exchange. As set forth in the section ``Criteria for
Initial and Continued Listing,'' the Exchange expects the minimum
number of Silver Shares required to be outstanding at the time of
trading to be 150,000.
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[[Page 14968]]
In effect, purchasing Silver Shares will provide investors a new
mechanism to participate in the silver market. Information about the
liquidity, depth, and pricing mechanisms of the international silver
market, management and structure of the Trust, and description of the
Silver Shares follows below.
A. Description of the Silver Market
The silver market is a global marketplace consisting of both over-
the-counter (``OTC'') transactions and exchange-traded products. The
OTC market generally consists of transactions in spot, forwards,
options and other derivatives, while exchange-traded transactions
consist of futures and options. In its filing with the Commission, Amex
provided a description of the silver market.\17\
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\17\ See Notice, supra note 5.
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1. The OTC Market
The OTC market trades on a 24-hour continuous basis and accounts
for the substantial portion of global silver trading. The London OTC
market is the largest silver clearing market. The Exchange believes the
period of greatest liquidity in the silver market is typically that
time of day when trading in the European time zone overlaps with
trading in the United States. This occurs when the OTC market trading
in New York, London, Zurich and other centers coincides with futures
and options trading on the Commodity Exchange, Inc. (``COMEX'').\18\
This period lasts for approximately five (5) hours \19\ each New York
business day, from 8:25 a.m.-1:25 p.m. Eastern Time (``ET'').
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\18\ COMEX is a division of the New York Mercantile Exchange,
Inc. (``NYMEX'') where silver futures contracts and related options
are traded. The open outcry trading hours of the COMEX silver
futures contract is from 8:25 a.m. to 1:25 p.m. ET Monday through
Friday. NYMEX ACCESS[supreg], an electronic trading system, is open
for price discovery on COMEX silver futures contracts from 2 p.m.
Monday afternoon until 8 a.m. Friday morning ET; and from 7 p.m.
Sunday night until Monday morning at 8 a.m. ET.
\19\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
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The OTC market has no formal structure and no open-outcry meeting
place. The main centers of the OTC market are London (the largest
market), 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'').\20\
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\20\ Further information about the LBMA may be found at http://www.lbma.org.uk. There are currently nine (9) market-making members
of the LBMA, five of which offer clearing services, and 51 full
members.
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The Exchange indicates that there are no authoritative published
figures for overall worldwide volume in silver trading. There are
published sources that do suggest the significant size of the overall
market. The LBMA publishes statistics compiled from the five (5)
members offering clearing services.\21\ The Exchange notes that the
monthly average daily volume figures published by the LBMA for 2004
range from, a high of 143.4 million to a low of 75.5 million troy
ounces per day. Through May 2005, the monthly average daily volume has
ranged from a high of 152.1 million to a low of 76.9 million. The COMEX
also publishes price and volume statistics for exchange-traded
transactions in contracts for the future delivery of silver (and
related options).\22\
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\21\ 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 millions of troy
ounces; value, measured in U.S. dollars, using the monthly average
London PM 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.
\22\ Information regarding price and average daily volume on the
COMEX can be found at http://www.nymex.com/jsp/markets.md_annual_volume.jsp.
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2. Futures Exchanges
The Exchange states that the most significant silver futures
exchanges are the COMEX and the Tokyo Commodity Exchange
(``TOCOM'').\23\ Trading on these exchanges is based on fixed delivery
dates and transaction sizes for the futures and options contracts
traded. Trading costs on these exchanges are negotiable. The Exchange
represents that as a matter of practice, only a small percentage of the
future market turnover ever comes to physical delivery of the silver
represented by the contracts traded. Both COMEX and TOCUM 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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\23\ There are other silver exchange markets, such as the London
Metals Exchange, the Istanbul Gold Exchange, the Shanghai Gold
Exchange, and the Hong Kong Chinese Gold & Silver Exchange Society.
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3. Silver Market Regulation
There is no direct regulation of the global OTC market in silver.
However, indirect regulation of some of the overseas participants does
occur. In the United Kingdom, responsibility for the regulation of
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
Market Act of 2000 (``FSM Act''). The Exchange states that under the
FSM Act, all UK-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 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.
The Exchange states that participants in the U.S. OTC market for
silver are generally regulated by their institutional supervisors,
which regulate their activities in the other markets in which they
operate. For example, participating banks are regulated by the banking
authorities. In the U.S., the Commodities Futures Trading Commission
(``CFTC''), an independent governmental agency with the mandate to
regulate commodity futures and options markets in the U.S., regulates
market participants and has established rules designed to prevent
market manipulation, abusive trade practices and fraud.
The Exchange states that 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 price movements of futures markets by comparing them with cash
and other derivative markets' prices.
B. Product Description
1. Creation and Redemption Process
Issuances of Silver Shares will be made only in baskets of 50,000
shares or multiples thereof (the ``Basket
[[Page 14969]]
Aggregations'' or ``Baskets'').\24\ The Trust will issue and redeem
Basket Aggregations on a continuous basis, by or through registered
broker-dealers that have entered into participant agreements (each, an
``Authorized Participant'') \25\ with the Sponsor and the Trustee, Bank
of New York (``BNY'').\26\ Following issuance, the Shares will be
traded on the Exchange similar to other equity securities, such as
shares of the iShares COMEX Gold Trust and the streetTRACKS Gold
Trust.\27\
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\24\ Initially, each Share represents 10 ounces of silver.
Telephone conference between Jeffrey Burns, Associate General
Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division
of Market Regulation, Commission, on January 13, 2006.
\25\ An ``Authorized Participant'' is a person, who at the time
of submitting to the Trustee an order to create or redeem one or
more Baskets, (i) is a registered broker-dealer, (ii) is a
Depository Trust Company (``DTC'') Participant or an Indirect
Participant, and (iii) has in effect a valid Authorized Participant
Agreement.
\26\ BNY will charge a transaction fee in connection with the
redemption and/or creation of Baskets. In addition, Barclays
Capital, Inc., the Initial Purchaser, will purchase 150,000 shares
of the Trust that compose the initial Baskets.
\27\ See supra notes 8 and 11.
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Basket Aggregations of Shares will be issued as an in-kind exchange
for a corresponding amount of silver. The basket amount of silver,
measured in ounces (the ``Basket Silver Amount'') will be determined on
each business day by the Trustee, BNY.\28\ Authorized Participants that
wish to purchase a Basket must transfer the Basket Silver Amount to the
Trust in exchange for a Basket of Shares. Authorized Participants that
wish to redeem a Basket of Shares will receive the Basket Silver Amount
in exchange for each Basket surrendered. JP Morgan Chase Bank, N.A.,
London Branch (``JP Morgan Chase'' or ``Custodian'') will be the
custodian for the Trust and responsible for safekeeping the silver.\29\
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\28\ A troy ounce, equal to 1.0971428 ounces avoirdupois, with a
minimum fineness of 0.999. ``Avoirdupois'' is the system of weights
used in the U.S. and U.K. for goods other than precious metals,
gems, and drugs. In that system, a pound is 16 ounces and an ounce
is 16 drams.
\29\ If the total value of the Trust's silver held by the
Custodian exceeds $1 billion, then the Custodian will be under no
obligation to accept additional silver deliveries. In such a case,
the Trustee will retain an additional custodian.
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On each business day, BNY will make available immediately prior to
the opening of trading on the Amex, the Indicative Basket Silver Amount
for the creation of a Basket.\30\ BNY will adjust the quantity of
silver included in the Basket Silver Amount (determined shortly after 4
p.m.) to reflect sales of silver to cover expenses and any loss of
deposited silver that may occur since the previous calculation. The
Amex will disseminate at least every 15 seconds throughout the trading
day, via the facilities of the Consolidated Tape Association (``CTA''),
an amount representing on a per share basis, the current value of the
Basket Silver Amount, known as the ``Indicative Trust Amount.''
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\30\ The Sponsor will also make the next day's Indicative Basket
Silver Amount available on the Trust Web site (http://www.iShares.com) shortly after 4 p.m. ET each business day. The
Basket Silver Amount, Indicative Basket Silver Amount, and net asset
value (``NAV'') will be publicly available simultaneously to all
market participants (to avoid any informational advantage) on either
the Trust Web site or Amex Web site. These items will also be
communicated to Authorized Participants via facsimile or electronic
mail message. Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
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The Shares will not be individually redeemable but will only be
redeemable in Basket Aggregations. To redeem, an Authorized Participant
will be required to accumulate enough Silver Shares to constitute a
Basket Aggregation (i.e., 50,000 shares). An Authorized Participant
redeeming a Basket Aggregation will receive the silver amount of the
Basket Silver Amount announced by the Trustee. Upon the surrender of
the Shares and payment of applicable Trustee's fee and any expenses,
taxes or charges, BNY will deliver to the redeeming Authorized
Participant the amount of silver corresponding to the redeemed Baskets.
Unless otherwise requested by the Authorized Participants, silver will
then be delivered to the redeeming Authorized Participants in the form
of physical bars only. Silver Shares will be registered in book entry
form through DTC.
The Exchange states that the Basket Silver Amount necessary for the
creation of a Basket will slightly diminish each day depending on the
Trust's daily expense accrual. The initial Basket Silver Amount is
500,000 ounces of silver (with each Share initially representing 10
ounces of Silver). On each day that the Amex is open for regular
trading, BNY will adjust the quantity of silver constituting the Basket
Silver Amount as appropriate to reflect sales of silver needed for
payment of the Sponsor's fee (which is similar to an expense ratio)
\31\ and any extraordinary expenses or liabilities not assumed by the
Sponsor. BNY will determine the Basket Silver Amount for a given
business day by subtracting the daily expense accrual from the previous
day's total ounces of silver in the Trust and then dividing by the
number of Baskets outstanding. Fractions of an ounce of silver smaller
than .001 will be disregarded.
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\31\ The Sponsor has agreed to assume the following
administrative and marketing expenses incurred by the Trust: The
Trustee's fee, the Custodian's fee, Amex listing fees, SEC
registration fees, printing and mailing costs, audit fees and
expenses and up to $100,000 per annum in legal fees and expenses.
The Sponsor will also pay the costs of the Trust's organization and
the initial sale of the iShares, including applicable SEC
registration fees. Telephone conference between Jeffrey Burns,
Associate General Counsel, Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, on January 13,
2006.
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The creation/redemption process in connection with the Silver
Shares is an in-kind exchange of silver for Shares, rather than an
exchange of silver for cash. Except for the accrual of the Sponsor's
fee or extraordinary expenses or liabilities, the process is based
entirely on the delivery of silver in exchange for Shares. Thus,
throughout each business day, the Exchange states that the actual
number of ounces required for the Basket Silver Amount usually will not
change even though the value of the Basket Silver Amount may change
based on the market price of silver.
2. Determination of NAV, Basket Silver Amount, and Indicative Basket
Amount
Shortly after 4 p.m. (ET) each business day, the BNY will determine
the NAV of the Trust, utilizing that day's announced London silver fix
price (unless the Sponsor, in consultation with the Trustee, determines
that an alternative publicly available pricing benchmark more fairly
represents the commercial value of the silver held by the Trust).\32\
Once the value of the silver is determined, BNY will then determine an
``adjusted NAV'' by subtracting all accrued fees (other than the fees
to be computed by reference to the value of the Trust or its assets
(i.e., the Sponsor's fee)), expenses, and other liabilities of
[[Page 14970]]
the Trust from the total value of silver and all other assets of the
Trust. This adjusted NAV is then used to compute the Sponsor's fees
that are calculated from the value of Trust assets. Then to determine
the final NAV, BNY will subtract from the adjusted NAV the amount of
accrued fees from the value of Trust assets. BNY will calculate the NAV
per share by dividing the NAV by the number of Silver Shares
outstanding.
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\32\ In Amendment No. 1, Amex clarified that if there is no
London silver fix price on that day, the BNY will use the most
recently announced London silver fix price unless the BNY, in
consultation, with the Sponsor (Barclays), determines such London
silver fix price to be inappropriate.
Barclays, in consultation with the BNY, may determine that an
alternative publicly available pricing benchmark more fairly
represents the commercial value of silver held by the Trust. In the
case of a temporary disruption of the London silver fix price, the
Exchange believes that it is unnecessary for a filing pursuant to
Section 19(b) under the Act to be submitted to the Commission. The
Exchange submits that for a temporary disruption of the London
silver fix, a determination by Barclays, in consultation with the
BNY, to use an alternative pricing source for silver, is
appropriate. However, the Exchange represents that if the use of an
alternative pricing source for the London silver fix price is more
than of a temporary nature, a rule filing will be submitted pursuant
to Section 19(b) of the Act.
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After the NAV is determined, at or about 4 p.m. each business day,
BNY will then determine the Basket Silver Amount for orders placed by
Authorized Participants received before 4 p.m. that day. BNY will also
at the same time determine an ``Indicative Basket Silver Amount'' that
Authorized Participants can use as an indicative amount of silver to be
deposited for issuance of the Silver Shares on the next business day.
Thus, although Authorized Participants place orders to purchase Silver
Shares throughout the trading day, the actual Basket Silver Amount is
determined at 4 p.m. or shortly thereafter.
Shortly after 4 p.m. each business day, BNY and the Sponsor will
disseminate the NAV for the Silver Shares, the Basket Silver Amount
(for orders properly placed by 4 p.m. during the day), and the next
day's Indicative Basket Silver Amount. The Basket Silver Amount, the
Indicative Basket Silver Amount, and the NAV are communicated by BNY to
all Authorized Participants via facsimile or electronic mail message
and on the Trust's Web site at http://www.iShares.com. The Amex will
also disclose the NAV, Basket Silver Amount, and Indicative Basket
Silver Amount on its Web site.
The Sponsor fee, in the absence of any extraordinary expenses and
liabilities, is established at 0.50% of the net assets of the Trust. As
a result, assuming there is no extraordinary movement in the intra-day
market price of silver, the amount of silver by which the Basket Silver
Amount will decrease each day will be predictable (i.e., \1/365\th of
the net asset value of the Trust multiplied by 0.50%). Given the
anticipated predictability of the daily decline in the Basket Silver
Amount, as stated, BNY will disclose and disseminate the Indicative
Basket Silver Amount for the next business day shortly after 4 p.m.
Authorized Participants may use the Indicative Basket Silver Amount as
guidance regarding the amount of silver expected to be deposited with
the custodian, JP Morgan Chase, in connection with the issuance of
Silver Shares on the next business day.
As a result, the amount of silver required for the Basket Silver
Amount is not disseminated during the trading day to correspond to
changes in the value of silver as measured by spot silver prices.\33\
Before 4 p.m., the Authorized Participants may use the Indicative
Basket Silver Amount published by the Sponsor and BNY the day before as
guidance in respect of the amount of silver that they may expect to be
required to deposit. But if the Indicative Basket Silver Amount
published by the Sponsor and BNY turns out to be incorrect (for
example, because the Trust incurred an extraordinary expense such as
legal fees in excess of the amount assumed by the Sponsor), the amount
actually determined by BNY will control.
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\33\ The Amex will disseminate via the facilities of the CTA an
``Indicative Trust Value'' at least every 15 seconds during the
trading day that represents an indicative value for the Silver
Shares based silver dealer pricing. Telephone conference between
Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon,
Senior Special Counsel, Division of Market Regulation, Commission,
on March 9, 2006.
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3. Liquidity
The Exchange states that the amount of the discount or premium in
the trading price relative to the NAV per Share may be influenced by
the non-concurrent trading hours between the major silver markets and
the Amex. While the Silver Shares will trade on the Exchange until 4:15
p.m. ET, the Exchange states that liquidity in the OTC market for
silver will be reduced after the close of the major world silver
markets, including London, Zurich, and the COMEX. As a result, trading
spreads and the resulting premium or discount on the Silver Shares may
widen as a result of reduced liquidity.\34\
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\34\ As noted above in the section titled ``Description of the
Silver Market,'' the period of greatest liquidity in the silver
market is typically that time of the day when trading in the
European time zones overlaps with trading in the United States,
which is when OTC market trading in New York, London, Zurich, and
other centers coincides with futures and options trading on the
COMEX division of the NYMEX. This period lasts for approximately
four hours each New York business day morning.
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The Exchange believes that Silver Shares will not trade at a
material discount or premium to the underlying silver held by the Trust
based on potential arbitrage opportunities. Due to the fact that the
Shares can be created and redeemed only in Basket Aggregations, the
Exchange submits that arbitrage opportunities should provide a
mechanism to mitigate the effect of any premiums or discounts that may
exist from time to time. If the price of the Shares deviates enough
from the price of silver to create a material discount or premium, an
arbitrage opportunity is created. If the Shares are inexpensive
compared to the silver that underlies them, an arbitrageur may buy the
Shares at a discount, immediately redeem them in exchange for silver,
and sell the silver in the cash market at a profit. If the Shares are
expensive compared to the silver that underlies them, an arbitrageur
may sell the Shares short, buy enough silver to acquire the number of
Shares sold short, acquire the Shares through the creation process, and
deliver the Shares to close out the short position. In both instances,
the Exchange states that the arbitrageur serves efficiently to correct
price discrepancies between the Shares and the underlying silver.
C. Availability of Information Regarding Silver Prices
Although the spot price of silver will not be disseminated over the
facilities of CTA, the last sale price for the Shares, as is the case
for all equity securities traded on the Exchange will be disseminated
over the CTA's Network B. In addition, the Exchange states that there
is a considerable amount of silver price and market information
available on public Web sites and through professional and subscription
services.
Investors may obtain on a 24-hour basis silver pricing information
based on the spot price of an ounce of silver from various financial
information service providers, such as Reuters and Bloomberg. In
addition, the daily London silver fix is also disseminated by various
market data vendors and is available from the LBMA's Web site. Reuters
and Bloomberg provide at no charge on their Web sites delayed
information regarding the spot price of silver and last sale prices of
silver futures contracts and related options, as well as information
about news and developments in the silver market. Reuters and Bloomberg
also offer a professional service to subscribers for a fee that
provides information on silver prices directly from market
participants.\35\ Complete real-time data
[[Page 14971]]
for silver futures contracts and options prices traded on the COMEX (a
division of the NYMEX) is available by subscription from Reuters and
Bloomberg and also on a delayed basis free of charge on the NYMEX Web
site at http://www.nymex.com. The Exchange also notes that there are a
variety of other public Web sites providing information on silver,
ranging from those specializing in precious metals to sites maintained
by major newspapers, such as The Wall Street Journal. Current silver
spot prices are also generally available with bid/ask spreads from
silver bullion dealers.
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\35\ In addition, EBS also provides an electronic trading
platform to institutions such as bullion banks and dealers for the
trading of spot silver, as well as a feed of live streaming prices
to Reuters and Moneyline Telerate subscribers. EBS was launched in
September 1993 by a group of the world's largest foreign exchange
market making banks. The Exchange states that EBS is the pre-eminent
provider of precious metals and foreign exchange trading solutions
to the precious metals and interbank spot foreign exchange
community. Approximately 500,000 ounces in gold, 4 million ounces in
silver and $110 billion a day in spot foreign exchange transactions
is traded each day over the EBS trading platform. The shareholders
of EBS include the subsidiaries of the following organizations: ABN
AMRO, Bank of America, Barclays, Citibank, Commerzbank, Credit
Suisse First Boston, Lehman Brothers, HSBC, JPMorgan Chase, The
Royal Bank of Scotland, S-E-Banken, UBS AG and the Minex Corporation
of Japan. See http://www.ebs.com.
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The Amex, via a link to the Trust's Web site, will provide at no
charge continuously updated bids and offers indicative of the spot
price (i.e., real time information) of silver on its own public Web
site at http://www.amex.com.\36\
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\36\ The Trust Web site's silver spot price will be provided by
TheBullionDesk at http://www.thebulliondesk.com. The Amex will
provide a link to the Trust Web site. TheBullionDesk is not
affiliated with the Trust, Sponsor, Custodian or the Exchange. The
silver spot price is indicative only, constructed using a variety of
sources to compile a spot price that is intended to represent a
theoretical quote that might be obtained from a market maker from
time to time. The Trust Web site will indicate, as noted above in
the discussion titled ''Availability of Information Regarding Silver
Prices,'' that there are other sources for obtaining the silver spot
price. In the event that, during Amex trading hours, the Trust Web
site should cease to provide this indicative silver spot price from
an unaffiliated source and the intraday ``Indicative Trust Value''
of the Shares is not disseminated via the CTA, the Exchange will
delist the shares. See ``Criteria for Initial and Continued
Listing,'' below.
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D. Availability of Information Regarding Silver Shares
The Web site for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) The prior business
day's NAV and the reported closing price; (b) the mid-point of the bid-
ask price \37\ in relation to the NAV as of the time the NAV is
calculated (the ``Bid-Asked Price''); (c) calculation of the premium or
discount of such price against such NAV; (d) data in chart form
displaying the frequency distribution of discounts and premiums of the
Bid-Ask Price against the NAV, within appropriate ranges for each of
the four (4) previous calendar quarters; (e) the Basket Silver Amount;
(f) the Indicative Basket Silver Amount: (h) the Prospectus; and (g)
other applicable quantitative information.
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\37\ The bid-ask price of Shares is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------
As described above, the NAV for the Trust will be calculated and
disseminated daily. The Amex also intends to disseminate for the Trust
on a daily basis by means of CTA/CQ High Speed Lines information with
respect to the Indicative Trust Value (as discussed below), recent NAV,
and shares outstanding. As stated, the Trust Web site will also provide
a real time indicative silver spot price through TheBullionDesk at
http://www.thebulliondesk.com.\38\ Notwithstanding that they will be
provided free of charge, the indicative spot price from TheBullionDesk
on the Trust Web site and the Indicative Trust Value per Share
disseminated via the CTA will be provided essentially on a real-time
basis.\39\ The Exchange will also make available on its Web site daily
trading volume, closing prices, NAV, and the Basket Silver Amount, and
the Indicative Basket Silver Amount. The London silver fix price is
readily available from the LBMA at http://www.lbma.org.uk, automated
quotation systems, published or other public sources, or on-line
information services such as Bloomberg or Reuters. In addition, the
Exchange will provide a hyperlink on its Web site at http://www.amex.com to the Trust's Web site at http://www.iShares.com.
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\38\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006.
\39\ These values are subject to an average delay of 5 to 10
seconds. The Indicative Trust Value per Share will not be posted on
the Trust's Web site but will be disseminated via the facilities of
the CTA. Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on March 8, 2006.
---------------------------------------------------------------------------
E. Dissemination of Indicative Trust Value
As noted above, BNY calculates the NAV of the Silver Trust once
each trading day. In addition, BNY causes to be made available on a
daily basis the required amount of silver to be deposited in connection
with the issuance of Silver Shares in Basket Aggregations. In addition,
other investors can request such information directly from the BNY.
In order to provide updated information relating to the Trust for
use by investors, professionals, and Authorized Participants wishing to
create or redeem Silver Shares, the Exchange will disseminate through
the facilities of CTA an updated Indicative Trust Value (the
``Indicative Trust Value''). The Indicative Trust Value will be
disseminated on a per Silver Share basis at least every 15 seconds
during regular Amex trading hours of 9:30 a.m. to 4:15 p.m. ET. The
Indicative Trust Value will be calculated based on the amount of silver
required for creations and redemptions and a price of silver derived
from updated bids and offers indicative of the spot price of silver
from silver dealer pricing.\40\ The Indicative Trust Value on a per
Silver Share basis disseminated during Amex trading hours should not be
viewed as a real time update of the NAV, which is calculated only once
a day.
---------------------------------------------------------------------------
\40\ See supra note 33.
---------------------------------------------------------------------------
The Exchange believes that dissemination of the Indicative Trust
Value based on the amount of silver required for a Basket Aggregation
provides additional information that is not otherwise available to the
public and is useful to professionals and investors in connection with
Silver Shares trading on the Exchange or the creation or redemption of
Silver Shares. In addition, the Trust's Web site at http://www.iShares.com will also provide from TheBullionDesk continuously
updated bids and offers indicative of the spot price of silver in the
OTC market for the purpose of disclosing to investors on a real-time
basis the underlying or spot price of silver.
G. Criteria for Initial and Continued Listing
The Trust will be subject to the criteria in Amex Rules 1201A and
1202A for initial and continued listing of Silver Shares. The continued
listing criteria provides for the delisting or removal from listing of
the Silver Shares under any of the following circumstances:
Following the initial twelve month period from the date of
commencement of trading of the Silver Shares: (i) If the Trust has more
than 60 days remaining until termination and there are fewer than 50
record and/or beneficial holders of the Silver Shares for 30 or more
consecutive trading days; (ii) if the Trust has fewer than 50,000
Silver Shares issued and outstanding; or (iii) if the market value of
all Silver Shares is less than $1,000,000.
If the value of the underlying silver is no longer
calculated or available on at least a 15-second delayed basis from a
source unaffiliated with the Sponsor, Trust, Custodian or the Exchange
or the Exchange stops providing a hyperlink on its Web site to any such
unaffiliated silver value.
[[Page 14972]]
The Indicative Trust Value is no longer made available on
at least a 15-second delayed basis.
If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
It is anticipated that a minimum of 150,000 Silver Shares will be
required to be outstanding at the start of trading. The 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 the iShares COMEX Gold Trust, the streetTRACKS Gold Trust,
trust issues receipts and exchange-traded funds (``ETFs''). It is
anticipated that the initial price of a Silver Share will be
approximately $91.\41\ The Exchange believes that the anticipated
minimum number of Silver Shares outstanding at the start of trading is
sufficient to provide adequate market liquidity and to further the
Trust's objective to seek to provide a simple and cost effective means
of making an investment similar to an investment in silver.
---------------------------------------------------------------------------
\41\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006
(updating initial price of a Silver Share that initially will
represent 10 ounces of silver).
---------------------------------------------------------------------------
The Exchange represents that it prohibits the initial and/or
continued listing of any security that is not in compliance with Rule
10A-3 under the Act.\42\
---------------------------------------------------------------------------
\42\ See The Exchange represents that Silver Shares qualifies
for the exemption in Rule 10A-3(c)(7) under the Act.
---------------------------------------------------------------------------
H. Original and Annual Listing Fees
The Amex original listing fee applicable to the listing of the
Silver Trust is $5,000. In addition, the annual listing fee applicable
under Section 141 of the Amex Company Guide (``Company Guide'') will be
based upon the year-end aggregate number of shares in all series of
Silver Trusts outstanding at the end of each calendar year.
I. Trading Rules
Silver Shares are equity securities subject to Amex Rules governing
the trading of equity securities, including, among others, rules
governing priority, parity and precedence of orders, specialist
responsibilities and account opening and customer suitability (Amex
Rule 411). Initial equity margin requirements of 50% will apply to
transactions in Silver Shares. Silver Shares will trade on the Amex
until 4:15 p.m. ET each business day and will trade in a minimum price
variation of $0.01 pursuant to Amex Rule 127. Trading rules pertaining
to odd-lot trading in Amex equities (Amex Rule 205) will also apply.
Amex Rule 154, Commentary .04(c) provides that stop and stop limit
orders to buy or sell a security (other than an option, which is
covered by Amex Rule 950(f) and Commentary thereto), the price of which
is derivatively priced based upon another security or index of
securities, may with the prior approval of a Floor Official, be elected
by a quotation, as set forth in Commentary .04(c) (i-v). The Exchange
has designated Silver Shares as eligible for this treatment.\43\
---------------------------------------------------------------------------
\43\ See Securities Exchange Act Release No. 29063 (April 10,
1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the
Exchange's designation of equity derivative securities as eligible
for such treatment under Amex Rule 154, Commentary .04(c).
---------------------------------------------------------------------------
Silver Shares will be deemed ``Eligible Securities,'' as defined in
Amex Rule 230, for purposes of the Intermarket Trading System Plan and
therefore will be subject to the trade through provisions of Amex Rule
236, which require that Amex members avoid initiating trade-throughs
for ITS securities.
Specialist transactions of Silver Shares made in connection with
the creation and redemption of Silver Shares will not be subject to the
prohibitions of Amex Rule 190.\44\ Unless exemptive or no-action relief
is available, Silver Shares will be subject to the short sale rule,
Rule 10a-1 and Regulation SHO under the Act.\45\ If exemptive or no-
action relief is provided, the Exchange will issue a notice detailing
the terms of the exemption or relief. The Silver Shares will generally
be subject to the Exchange's stabilization rule, Amex Rule 170, except
that specialists may buy on ``plus ticks'' and sell on ``minus ticks,''
in order to bring the Silver Shares into parity with the underlying
silver and/or futures price. Commentary .01 to Amex Rule 1203A sets
forth this limited exception to Amex Rule 170.
---------------------------------------------------------------------------
\44\ See Commentary .05 to Amex Rule 190.
\45\ The Silver Trust has requested relief in connection with
the trading of Silver Shares from the operation of the short sale
rule, Rule 10a-1, and Regulation SHO under the Act.
---------------------------------------------------------------------------
Amex Rule 1203A relating to certain specialist prohibitions
addresses potential conflicts of interest in connection with acting as
a specialist in the Silver Shares. Specifically, Amex Rule 1203A
provides that the prohibitions in Amex Rule 175(c) apply to a
specialist in the Silver Shares so that the specialist or affiliated
person may not act or function as a market maker in the underlying
silver, related silver futures contract or option, or any other related
silver derivative. An affiliated person of the specialist, consistent
with Amex Rule 193, may be afforded an exemption to act in a market
making capacity, other than as a specialist in the Silver Shares on
another market center, in the underlying silver, related silver futures
or options, or any other related silver derivative. In particular, Amex
Rule 1203A provides that an approved person of an equity specialist
that has established and obtained Exchange approval for procedures
restricting the flow of material, non-public market information between
itself and the specialist member organization, and any member, officer,
or employee associated therewith, may act in a market making capacity,
other than as a specialist in the Silver Shares on another market
center, in the underlying commodity, related commodity futures or
options on commodity futures, or any other related commodity
derivatives.
Amex Rule 1204A(a) provides that the member organization acting as
specialist in Commodity-Based Trust 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 (see Rule 170). In addition, the member
organization acting as specialist in Commodity-Based Trust Shares must
file, with the Exchange, in a manner prescribed by the Exchange, and
keep current a list identifying all accounts for trading the underlying
physical commodity, related commodity futures or options on commodity
futures, or any other related commodity derivatives, which the member
organization acting as specialist may have or over which it may
exercise investment discretion. No member organization acting as
specialist in Commodity-Based Trust Shares shall trade in the
underlying physical commodity, related commodity futures or options on
commodity futures, or any other related commodity derivatives, in an
account in which a member organization acting as specialist, directly
or indirectly, controls trading activities, or has a direct interest in
the profits or losses thereof, which has not been reported to the
Exchange as required by this Rule.\46\
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\46\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006
(inserting discussion of Amex Rule 1204A(a)).
---------------------------------------------------------------------------
Amex Rule 1204A(b) also ensures that specialists handling the
Silver Shares provide the Exchange with all the necessary information
relating to their
[[Page 14973]]
trading in physical silver, related silver futures contracts and
options thereon, or any other silver derivative. As a general matter,
the Exchange has regulatory jurisdiction over its members, member
organizations, and approved persons of a member organization. The
Exchange also has regulatory jurisdiction over any person or entity
controlling a member organization, as well as a subsidiary or affiliate
of a member organization that is in the securities business. A
subsidiary or affiliate of a member organization that does business
only in commodities would not be subject to Exchange jurisdiction, but
the Exchange could obtain information regarding the activities of such
subsidiary or affiliate through surveillance sharing agreements with
regulatory organizations of which such subsidiary or affiliate is a
member.
Amex Rule 1204A(c) also prohibits the specialist in the Silver
Shares from using 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 silver, silver futures
contracts, options on silver futures, or any other silver derivative
(including the Silver Shares).\47\
---------------------------------------------------------------------------
\47\ Telephone conference between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on January 13, 2006
(inserting discussion of Amex Rule 1204A(c)).
---------------------------------------------------------------------------
Prior to the commencement of trading, the Exchange will issue an
Information Circular (described below) to members informing them of,
among other things, Exchange policies regarding trading halts in Silver
Shares. First, the Circular will advise that trading will be halted in
the event the market volatility trading halt parameters set forth in
Amex Rule 117 have been reached. Second, the Circular will advise that,
in addition to the parameters set forth in Amex Rule 117, the Exchange
may halt trading in Silver Shares if conditions in the underlying
silver market have caused disruptions and/or lack of trading. Third,
with respect to a halt in trading that is not specified above, the
Exchange may also consider other relevant factors and the existence of
unusual conditions or circumstances that may be detrimental to the
maintenance of a fair and orderly market. The Exchange will halt
trading in the Shares if the Trust Web site (to which Amex will link)
ceases to provide the value of the silver updated at least every 15
seconds from a source not affiliated with the Sponsor, Trust, or the
Exchange, or the Exchange ceases to provide via the CTA the Indicative
Trust Value per Share updated at least every 15 seconds.\48\
---------------------------------------------------------------------------
\48\ In the event such spot price of silver or Indicative Trust
Value is no longer calculated or disseminated during the time the
Silver Shares trade on Amex, the Exchange would immediately contact
the Commission to discuss measures that may be appropriate under the
circumstances. Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, on January 13,
2006.
---------------------------------------------------------------------------
J. Information Circular
The Amex will distribute an Information Circular (the ``Circular'')
to its members in connection with the trading of Silver 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 Silver Shares are, notify members and member
organizations about the procedures for creation and redemption of
Silver Shares in a basket, the requirement, as described below, that
members and member firms deliver a prospectus to investors purchasing
the Silver Shares prior to or concurrently with the confirmation of a
transaction, applicable Amex rules, dissemination of information
regarding the per share Indicative Trust Value, NAV, and other
information pertaining to the Shares, including trading information,
trading halt procedures, and applicable suitability rules. For example,
in the Information Circular, members and member organizations will be
informed that procedures for purchases and redemptions of Silver Shares
in Basket Aggregations are described in the Prospectus and that Silver
Shares are not individually redeemable but are redeemable only in
Basket Aggregations or multiples thereof. Similarly, the Information
Circular will advise members and member organizations, prior to
commencement of trading, of the prospectus delivery requirements
applicable to the Trust. The Exchange notes that investors purchasing
Silver Shares directly from the Trust (by delivery of the Basket Silver
Amount) will receive a prospectus. Amex members purchasing Silver
Shares from the Trust for resale to investors will deliver a prospectus
to such investors.
The Circular will also explain that the Silver Trust is subject to
various fees and expenses described in the Registration Statement and
that the number of ounces of silver required to create a basket or to
be delivered upon a redemption of a basket will gradually decrease over
time because the Silver Shares comprising a basket will represent a
decreasing amount of silver due to the sale of the Silver Trust's
silver to pay Trust expenses. The Circular will also reference the fact
that there is no regulated source of last sale information regarding
physical silver, that the Commission has no jurisdiction over the
trading of silver as a physical commodity, and that the CFTC has
regulatory jurisdiction over the trading of silver futures contracts
and options on silver futures contracts.
The Circular will advise members of their suitability obligations
with respect to recommended transactions to customers in the Silver
Shares. The Exchange notes that pursuant to Amex Rule 411 (Duty to Know
and Approve Customers), members and member organizations are required
in connection with recommending transactions in the Silver Shares to
have a reasonable basis to believe that a customer is suitable for the
particular investment given reasonable inquiry concerning the
customer's investment objectives, financial situation, needs, and any
other information known by such member.
The Circular will also discuss any relief, if granted, by the
Commission or the staff from any rules under the Act.
K. Surveillance
The Exchange represents that its surveillance procedures applicable
to trading in the proposed Silver Shares will be similar to those
applicable to the iShares COMEX Gold Trust, the streetTRACKS Gold
Trust, trust issued receipts, Portfolio Depository Receipts and Index
Fund Shares currently trading on the Exchange. For intermarket
surveillance purposes, the Exchange currently has in place an
Information Sharing Agreement with the NYMEX for the purpose of
providing information in connection with trading in or related to COMEX
silver futures contracts. The Exchange submits that its surveillance
procedures are adequate to properly monitor the trading of the Shares.
Also, as noted above, the Exchange states that Amex Rule 1204A(b),
which requires that the specialist handling the Silver Shares provide
the Exchange with information relating to its trading in physical
silver, silver futures contracts, options on silver futures, or any
other silver derivative, will facilitate surveillance of specialist
handling Silver Shares.
III. Discussion
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent
[[Page 14974]]
with the Act \49\ and the rules and regulations thereunder applicable
to a national securities exchange.\50\
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\49\ 15 U.S.C. 78f(b).
\50\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission received a total of 255 comment letters on the
Exchange's proposed rule change. Of these 255 comment letters, 248
comments supported the proposed rule change and 7 comments opposed the
proposed rule change. In general, those commenters opposed to the
proposed rule change argued that approval of the Silver Shares would
result in serious liquidity problems in the silver market.\51\ In
particular, these commenters contended that the Silver Shares would
negatively impact the silver market because their creation would
require the holding of silver in allocated accounts, which would drain
large amounts of silver from the open market and cause higher prices
for silver products.\52\ Furthermore, the commenters asserted that the
higher silver prices caused by the creation of the Silver Shares would
cause the loss of jobs specific to the silver industry.\53\
---------------------------------------------------------------------------
\51\ See letters from Congressman J. Gresham Barrett (3rd
District, SC) to Christopher Cox, Chairman, Commission, dated
February 16, 2006; Paul A. Miller, Executive Director, Silver Users
Association, to Nancy M. Morris, Secretary, Commission, dated
February 13, 2006; John Patrick, Vice President, Fujifilm America,
Inc., to Nancy M. Morris, Secretary, Commission, dated February 7,
2006; James F. Kirsch, President and Chief Executive Officer, Ferro
Corporation, to Nancy M. Morris, Secretary, Commission, dated
February 2, 2006; a Memorandum from the CPM Group regarding Silver
Inventories, dated January 30, 2006; a Web Comment from Justin D.
Reynolds, dated January 29, 2006; and a Web Comment from George
Bloom, Jr., dated January 29, 2006. A Web Comment from Theodore
Butler, dated February 6, 2006, made positive and negative
conclusions about the proposed rule change.
\52\ Id.
\53\ Id.
---------------------------------------------------------------------------
The Exchange responded to these comments by stating that it
believes that the listing and trading of Silver Shares will make the
market for silver more efficient and transparent by providing investors
with an easier and more cost-effective alternative for investing in
silver. The Exchange asserts that a transparent marketplace for Silver
Shares will allow for a more accurate representation of the supply and
demand for silver, and therefore, a more accurate market price.\54\ The
Exchange also disagrees with some commenters' assertions that the Trust
will reduce the amount of silver in the marketplace. In this regard,
the Exchange notes that, at the commencement of trading, the Exchange
will require 150,000 Silver Shares to be outstanding, which will
require 1.5 million ounces of silver to be deposited with the custodian
of the Trust. The Exchange states that Trust assets will grow only to
the extent that demand for the Silver Shares grows and that a wide
variety of factors are capable of influencing supply and demand for
silver.\55\
---------------------------------------------------------------------------
\54\ See Wolkoff Letter, supra note 7.
\55\ Id.
---------------------------------------------------------------------------
The Commission agrees with Amex that, like other derivative
products, the Silver Shares will increase the efficiency and
transparency of the market for the underlying instrument, i.e., silver.
In this regard, the Commission finds that the proposed rule change is
in the public interest.\56\ The Commission also does not believe that
the Silver Shares are likely to cause serious liquidity problems in the
silver market such that approval of the proposed rule change is not
consistent with the Act.\57\
---------------------------------------------------------------------------
\56\ 15 U.S.C. 78f(b)(5).
\57\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
A. Surveillance
The Commission also finds that the rules of the Exchange are
designed to prevent fraudulent and manipulative acts and practices.\58\
In its response to comment letters, the Amex represents that it has
safeguards to ensure that the trading of the Silver Shares is fair and
consistent with the operation of a public marketplace and the
protection of investors and that surveillance procedures at the
Exchange serve to deter and detect potential misconduct and
manipulative acts by members and investors.\59\
---------------------------------------------------------------------------
\58\ 15 U.S.C. 78f(b)(5).
\59\ See Wolkoff Letter, supra note 7.
---------------------------------------------------------------------------
In addition, the Exchange has an information sharing agreement with
NYMEX for the purpose of providing information in connection with
trading in or related to silver futures contracts.\60\ Information
sharing agreements with markets trading securities underlying a
derivative product are an important part of a self-regulatory
organization's ability to monitor for trading abuses in derivative
products. Although an information sharing agreement with the OTC silver
market is not possible, the Commission believes that Amex's information
sharing agreement with NYMEX (of which COMEX is a division) and
Exchange Rules 1203A and 1204A, create the basis for Amex to monitor
for fraudulent and manipulative practices in the trading of the Silver
Shares.
---------------------------------------------------------------------------
\60\ Id.
---------------------------------------------------------------------------
The Exchange also represents that it will review firms that have
been actively acquiring or selling Silver Shares.\61\ Moreover, Amex
Rule 1204A will require that the specialist handling the Silver Shares
provide the Exchange with information relating to its trading in
physical silver, silver futures contracts, options on silver futures,
or any other silver derivative. The Commission believes these reporting
and record-keeping requirements will assist the Exchange in identifying
situations potentially susceptible to manipulation. Amex Rule 1204A
will also prohibit the specialist in the Silver Shares from using 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 silver, silver futures contracts, options on
silver futures, or any other silver derivatives (including the Silver
Shares). In addition, Amex Rule 1203A will prohibit the specialist in
the Silver Shares from being affiliated with a market maker in physical
silver, silver futures, or options on silver futures unless adequate
information barriers are in place and approved by the Exchange.
---------------------------------------------------------------------------
\61\ See Wolkoff Letter, supra note 7.
---------------------------------------------------------------------------
B. Dissemination of Information About the Silver Shares
The Commission finds that sufficient venues for obtaining reliable
silver price information exist so that investors in the Silver Shares
can adequately monitor the underlying spot market in silver relative to
the NAV of their Silver Shares. As discussed more fully above, the
Commission notes that there is a considerable amount of silver price
and silver market information available 24 hours per day on public Web
sites and through professional and subscription services. The Trust at
its Web site (http://www.iShares.com) will provide a real time
indicative silver spot price through TheBullionDesk at http://www.thebuilliondesk.com. In addition, the Trustee will disseminate each
day an estimated amount representing the Basket Silver Amount. The
Exchange will also disseminate through the CTA the Indicative Trust
Value on a per share basis at least every 15 seconds during regular
Amex trading hours of 9:30 a.m. to 4:15 p.m. New York time. The last
sale price for Silver Shares will also be disseminated on a real-time
basis over the CTA.
The Commission also notes that the Trust's Web site at http://www.iShares.com is and will be publicly accessible at no charge and
will contain the NAV of the Silver Shares and the Basket Silver Amount
as of the prior business day, the Indicative Basket Amount, the Bid-Ask
Price, and a
[[Page 14975]]
calculation of the premium or discount of the Bid-Ask Price in relation
to the closing NAV. Additionally, the Trust's Web site, to which the
Amex will link, will also provide data in chart form 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 Prospectus, and other applicable
quantitative information. The Commission believes that dissemination of
this information will facilitate transparency with respect to the
Silver Shares and diminish the risk of manipulation or unfair
informational advantage.
C. Listing and Trading
Further, the Commission finds that the Exchange's proposed rules
and procedures for the listing and trading of the proposed Silver
Shares are consistent with the Act. For example, Silver Shares will be
subject to Amex rules governing trading halts, responsibilities of the
specialist, and customer suitability requirements. In addition, the
Silver Shares will be subject to Amex Rules 1201A and 1202A for initial
and continued listing of Silver Shares.
The Commission believes that listing and delisting criteria for the
Silver Shares should help to maintain a minimum level of liquidity and
therefore minimize the potential for manipulation of the Silver Shares.
Finally, the Commission believes that the Exchange's Information
Circular adequately will inform members and member organizations about
the terms, characteristics, and risks in trading the Silver Shares.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\62\ that the proposed rule change (SR-Amex-2005-072), as amended,
is hereby approved.
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\62\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\63\
---------------------------------------------------------------------------
\63\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-4268 Filed 3-23-06; 8:45 am]
BILLING CODE 8010-01-P