[Federal Register Volume 72, Number 5 (Tuesday, January 9, 2007)]
[Notices]
[Pages 1044-1047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-63]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55017; File No. SR-NYSEArca-2006-34]


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

December 28, 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 proposal 
from interested persons and to approve the proposal 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 Equities Rule 
5.2(j)(3):

     iShares MSCI Belgium (Symbol: EWK)
     iShares MSCI France (EWQ)
     iShares MSCI Hong Kong (EWH)
     iShares MSCI Italy (EWI)
     iShares MSCI Japan (EWJ)
     iShares MSCI Malaysia (EWM)
     iShares MSCI Netherlands (EWN)
     iShares MSCI Singapore (EWS)
     iShares MSCI Spain (EWP)
     iShares MSCI Sweden (EWD)
     iShares MSCI Switzerland (EWL)
     iShares MSCI United Kingdom (EWU).

    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 pursuant to UTP. Each 
Fund seeks investment results that correspond generally to the price 
and yield performance, before fees and expenses, of publicly traded 
securities in the aggregate in the respective country's markets, as 
measured by the applicable MSCI Index (each, an ``Index''). Each MSCI 
Index is calculated by Morgan Stanley Capital Investment (``MSCI'') and 
consists of stocks traded primarily on the respective country's stock 
exchange. Information regarding the largest stocks and industry 
categories in each Index can be found in the iShares MSCI Series 
prospectus, which is available via the iShares Web site (http://www.ishares.com). Each Fund uses a representative sampling strategy to 
track the applicable Index and normally will invest at least 95% of its 
total assets in stocks that are represented in the relevant Index and 
will at all times invest at least 90% of its total assets in such 
stocks.
    The Commission previously approved the original listing and trading 
of the Shares of the Funds on the American Stock Exchange, LLC 
(``Amex'').\3\ The Commission subsequently approved listing of the 
Shares on the New York Stock Exchange (``NYSE'').\4\ The Exchange deems 
the Shares to be equity securities, thus rendering trading in the

[[Page 1045]]

Shares subject to the Exchange's existing rules governing the trading 
of equity securities. The trading hours for the Shares on the Exchange 
are the same as those set forth in NYSE Arca Equities Rule 7.34, except 
that the iShares MSCI Belgium, France, Italy, Netherlands, Spain, 
Sweden, Switzerland, and United Kingdom Index Funds will not trade 
during 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 Hong Kong, Japan, 
Malaysia, and Singapore Index Funds will trade during the Opening 
Session since there is no overlap in trading hours of the Opening 
Session and the foreign markets trading the applicable Index 
securities. The last calculated IOPV for each of these four Funds is 
available to investors during the Opening Session through facilities of 
the Consolidated Tape Association (``CTA'') or major market data 
vendors. These IOPVs are unchanged during the Opening Session from 
their last calculated value.
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    \3\ See Securities Exchange Act Release No. 36947 (March 8, 
1996), 61 FR 10606 (March 14, 1996) (SR-Amex-95-43). The Funds were 
formerly known as World Equity Benchmark Shares or WEBS.
    \4\ See Securities Exchange Act Release No. 52816 (November 21, 
2005), 70 FR 71574 (November 29, 2005) (SR-NYSE-2005-70).
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    Quotations for and last sale information regarding the Shares for 
each Fund are disseminated through the Consolidated Quotation System. 
The MSCI 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 in such markets. The value of each underlying MSCI Index 
is updated intra-day on a real-time basis as individual component 
securities of each underlying Index change in price. The intra-day 
values of these MSCI Indices are 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 
Shares, NYSE disseminates through the facilities of the CTA the IOPV 
for each Fund as calculated by Bloomberg, L.P. 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.
    The IOPV may not reflect the value of all securities included in 
the applicable underlying 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 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 a Fund and provide for a close proxy of the NAV at a 
greater frequency for investors.
    For the iShares MSCI Hong Kong, Japan, Malaysia, and Singapore 
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 the Funds' portfolios, 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 Belgium, France, Italy, Netherlands, Spain, 
Sweden, Switzerland, and United Kingdom Index Funds include companies 
trading in markets with trading hours overlapping regular NYSE trading 
hours. For 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 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 the Shares, the Exchange would 
inform ETP Holders in an Information Circular of the special 
characteristics and risks associated with trading the Shares, including 
how Shares are created and redeemed, the prospectus or product 
description delivery requirements applicable to the Shares, applicable 
Exchange rules, how information about the value of each underlying 
Index is disseminated, and trading information.
    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 proposal 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 existing rules 
governing the trading of equity securities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(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 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

    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 Exchange Act. Comments may be submitted 
by any of the following methods:

[[Page 1046]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send e-mail to [email protected]. Please include File 
Number SR-NYSEArca-2006-34 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-2006-34. 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-2006-34 and should be submitted on or before 
January 30, 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 subsequently on 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, an IOPV calculator updates the applicable IOPV every 15 
seconds to reflect price changes of the applicable 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 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 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 notice thereof in the 
Federal Register. As noted previously, the Commission previously found 
that the listing and trading of the Shares on Amex and subsequently 
NYSE is consistent with the Act. The Commission presently is not aware 
of any regulatory issue that should cause it to revisit that earlier 
finding or preclude the trading of 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-2006-34) is 
approved on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).


[[Page 1047]]


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    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. E7-63 Filed 1-8-07; 8:45 am]
BILLING CODE 8011-01-P