[Federal Register Volume 71, Number 250 (Friday, December 29, 2006)]
[Notices]
[Pages 78503-78506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-22402]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55002; File No. SR-NYSEArca-2006-32]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change to 
Trade Various iShares[reg] MSCI Index Funds Pursuant to Unlisted 
Trading Privileges

December 21, 2006.
    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 October 18, 2006, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by the Exchange. The Commission is 
publishing this notice and order to solicit comments on the proposed 
rule change from interested persons and to approve the proposed rule 
change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, through its wholly owned subsidiary NYSE Arca 
Equities, Inc. (``NYSE Arca Equities''), proposes to trade shares 
(``Shares'') of the following Index Funds (``Funds'') pursuant to 
unlisted trading privileges (``UTP'') based on NYSE Arca Rule 
5.2(j)(3):
     iShares MSCI Brazil (Symbol: EWZ)
     iShares MSCI South Africa (EZA)
     iShares MSCI South Korea (EWY)
     iShares MSCI Taiwan (EWT)
    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.nysearca.com), at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange is proposing to trade the Shares of the Funds pursuant 
to UTP. Each Fund seeks investment results that correspond generally to 
the price and yield performance, before fees and expenses, of the 
applicable underlying index (``Index''). Each Index is calculated by 
Morgan Stanley Capital Investment (``MSCI'') for each trading day based 
on official closing prices of the Index components in the applicable 
foreign markets. Each Index consists of stocks traded primarily on the 
respective country's stock exchange. Each Fund utilizes a passive or 
indexing investment approach, which attempts to approximate the 
investment performance of its benchmark index through quantitative 
analytical

[[Page 78504]]

procedures. MSCI generally seeks to have 60% of the capitalization of a 
country's stock market reflected in the MSCI Index for such country.
    The Commission previously approved the original listing and trading 
of the Shares of the Funds on the American Stock Exchange, LLC. 
(``Amex'').\3\ The Funds, with the exception of iShares MSCI South 
Africa, were subsequently listed on The New York Stock Exchange 
(``NYSE'').\4\ The Exchange deems the Shares to be equity securities, 
thus rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Trading hours on the 
Exchange for the Shares are the same as those set forth in NYSE Arca 
Equities Rule 7.34, except that the Shares issued by MSCI Brazil and 
iShares MSCI South Africa will not trade in the Opening Session (4 a.m. 
to 9:30 a.m. Eastern Time) unless the Indicative Optimized Portfolio 
Value (``IOPV'') is calculated and disseminated during that time. The 
iShares MSCI South Korea Index Fund and iShares MSCI Taiwan Index Fund 
will trade during the Opening Session, and there is no overlap in 
trading hours of the Opening Session and the foreign markets trading 
the MSCI South Korea Index and MSCI Taiwan Index securities. The last 
calculated IOPV is available to investors during the Opening Session by 
means of the consolidated tape or major market data vendors. The IOPV 
for these two Funds is unchanged during the Opening Session from its 
last calculated value.
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    \3\ See Securities Exchange Act Release No. 42748 (May 2, 2000), 
65 FR 30155 (May 10, 2000) (SR-AMEX-98-49). The Funds were formerly 
known as World Equity Benchmark Shares or WEBS.
    \4\ See Securities Exchange Act Release No. 52761 (November 10, 
2005), 70 FR 70010 (November 18, 2005) (SR-NYSE-2005-76).
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    Quotations for and last sale information regarding the Funds are 
disseminated through the Consolidated Quotation System. The Index on 
which each Fund is based is calculated by MSCI for each trading day in 
the applicable foreign market based on official closing prices of the 
Index components in such markets. The Indexes are reported periodically 
in major financial publications, and the intra-day value of each Index 
is disseminated every 15 seconds throughout the trading day by 
organizations authorized by MSCI. The net asset value (``NAV'') of each 
Fund is calculated and disseminated each business day, normally at the 
close of regular trading of the NYSE.
    To provide updated information relating to each Fund for use by 
investors, professionals, and persons wishing to create or redeem the 
proposed Funds, the IOPV for each Fund as calculated by Bloomberg, L.P. 
is disseminated through the facilities of the Consolidated Tape 
Association. The IOPV is disseminated on a per-share basis every 15 
seconds during regular NYSE trading hours of 9:30 a.m. to 4:15 p.m. 
Eastern Time, or, for iShares MSCI South Africa (listed on Amex), 9:30 
a.m. to 4 p.m. or 4:15 p.m., depending on the time Amex specifies for 
the trading of such Fund's Shares.
    The IOPV may not reflect the value of all securities included in 
the applicable Index. In addition, the IOPV does not necessarily 
reflect the precise composition of the current portfolio of securities 
held by each Fund at a particular point in time. Therefore, the IOPV on 
a per-share basis disseminated during NYSE's or Amex's regular trading 
hours should not be viewed as a real-time update of the NAV of a 
particular Fund, which is calculated only once a day. The IOPV is 
intended to closely approximate the value per share of the portfolio of 
securities for the Fund and provide for a close proxy of the NAV at a 
greater frequency for investors.
    For the iShares MSCI South Korea Index and MSCI Taiwan Index Funds, 
there is no overlap in trading hours between the foreign markets and 
NYSE. Therefore, for these Funds, the IOPV is calculated based on 
closing prices in the principal foreign market for securities in each 
Fund's portfolio, which are then converted from the applicable foreign 
currency to U.S. dollars. This IOPV is updated every 15 seconds during 
NYSE regular trading hours of 9:30 a.m. to 4:15 p.m. E.T. to reflect 
changes in currency exchange rates between the U.S. dollar and the 
applicable foreign currency.
    The iShares MSCI Brazil and South Africa Index Funds include 
companies trading in markets with trading hours overlapping regular 
NYSE or Amex trading hours. For each of these Funds, the IOPV 
calculator updates the IOPV during the overlap period every 15 seconds 
to reflect price changes in the principal foreign market and converts 
such prices into U.S. dollars based on the current currency exchange 
rate. When the foreign market or markets are closed but NYSE or Amex is 
open for trading, the IOPV is updated every 15 seconds to reflect 
changes in currency exchange rates.
    The Commission has granted each Fund an exemption from certain 
prospectus delivery requirements under Section 24(d) of the Investment 
Company Act of 1940 (``1940 Act'').\5\ Any product description used in 
reliance on the Section 24(d) exemptive order will comply with all 
representations made and all conditions contained in the Funds' 
application for orders under the 1940 Act.\6\
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    \5\ 15 U.S.C. 80a-24(d).
    \6\ See In the Matter of iShares, Inc., et al., Investment 
Company Act Release No. 25623 (June 25, 2002).
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    In connection with the trading of each Fund, the Exchange would 
inform ETP Holders in an Information Circular of the special 
characteristics and risks associated with trading Shares of such Fund, 
including how the Fund Shares are created and redeemed, the prospectus 
or product description delivery requirements applicable to the Fund, 
applicable Exchange rules, how information about the value of the 
underlying index is disseminated, and trading information. The 
Information Circular will disclose that the NAV is determined for 
Brazil, South Korea, or Taiwan at different times than other MSCI Index 
Series. Further, the Information Circular will disclose the possible 
market impact of the Fund buying or selling securities in Brazil, South 
Korea, or Taiwan prior to the calculation of the NAV.
    In addition, before an ETP Holder recommends a transaction in the 
Shares, the ETP Holder must determine the Shares are suitable for the 
customer, as required by NYSE Arca Equities Rule 9.2(a)-(b).
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products to monitor trading in the 
Shares. The Exchange represents that these procedures are adequate to 
monitor Exchange trading of the Shares.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general and Section 6(b)(5) of the 
Act \8\ in particular in that it is designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments and perfect the mechanisms of a free and open 
market, and to protect investors and the public interest. In addition, 
the Exchange believes that the proposal is consistent with Rule 12f-5 
under the Act \9\ because it deems the Shares to be equity securities, 
thus rendering trading in the Shares subject to the Exchange's

[[Page 78505]]

existing rules governing the trading of equity securities.
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    \7\ 15 U.S.C. 78s(b).
    \87\ 15 U.S.C. 78s(b)(5).
    \9\ 17 CFR 240.12f-5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-NYSEArca-2006-32 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSEArca-2006-32. 
This file number should be included on the subject line if e-mail is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEArca-2006-32 and should be submitted on or before 
January 19, 2007.

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

    After careful review, 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.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and in general to protect investors and the public 
interest. The Commission believes that this proposal should benefit 
investors by increasing competition among markets that trade the 
Shares.
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    \10\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\12\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\13\ The Commission notes that it previously approved the 
listing and trading of the Shares on Amex and, with the exception of 
iShares MSCI South Africa, subsequently NYSE.\14\ The Commission also 
finds that the proposal is consistent with Rule 12f-5 under the 
Act,\15\ which provides that an exchange shall not extend UTP to a 
security unless the exchange has in effect a rule or rules providing 
for transactions in the class or type of security to which the exchange 
extends UTP. The Exchange has represented that it meets this 
requirement because it deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities.
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    \12\ 15 U.S.C. 78l(f).
    \13\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \14\ See supra notes 3 and 4.
    \15\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\16\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last sale information regarding the 
Shares are disseminated through the Consolidated Quotation System. 
Furthermore, MSCI updates the applicable IOPV every 15 seconds to 
reflect price changes of the Index components in the principal foreign 
markets, and converts such prices into U.S. dollars based on the 
current currency exchange rate. When the foreign market or markets are 
closed but Amex or NYSE is open for trading, the IOPV will be updated 
every 15 seconds to reflect changes in currency exchange rates. NYSE 
Arca Rule 7.34 describes the situations when the Exchange would halt 
trading when the IOPV or the value of the Index underlying one of the 
Funds is not calculated or widely available.
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    \16\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, if the Shares of any of the Funds should 
be delisted by the listing exchange, the Exchange would no longer have 
authority to trade the Shares pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange's surveillance procedures are adequate to monitor 
the trading of the Shares.
    2. In connection with the trading of the Shares, the Exchange would 
inform ETP Holders in an Information Circular of the special 
characteristics and risks associated with trading the Shares.
    3. The Information Circular would inform participants of the 
prospectus or product delivery requirements applicable to the Shares.
    This approval order is conditioned on the Exchange's adherence to 
these representations.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of

[[Page 78506]]

notice thereof in the Federal Register. As noted previously, the 
Commission previously found that the listing and trading of the iShares 
MSCI South Africa on Amex and the others Shares on NYSE is consistent 
with the Act. The Commission presently is not aware of any regulatory 
issue that should cause it to revisit these earlier findings or would 
preclude the trading of the Shares on the Exchange pursuant to UTP. 
Therefore, accelerating approval of this proposal should benefit 
investors by creating, without undue delay, additional competition in 
the market for the Shares.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-NYSEArca-2006-32) is 
approved on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-22402 Filed 12-28-06; 8:45 am]
BILLING CODE 8011-01-P