[Federal Register Volume 72, Number 23 (Monday, February 5, 2007)]
[Notices]
[Pages 5310-5314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-1781]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55188; File No. SR-NYSE-2006-66]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of a Proposed Rule Change and Amendments No. 1 and 2 
Thereto To List and Trade Exchange-Traded Notes of Barclays Bank PLC 
Linked to the Performance of the Euro/U.S. Dollar Exchange Rate

January 29, 2007.
    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 August 24, 2006 the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On 
December 26, 2006, the Exchange submitted Amendment No. 1.\3\ On 
January 23, 2007, the Exchange submitted Amendment No. 2.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the Exchange's 
original submission in its entirety.
    \4\ Amendment No. 2 replaced and superseded Amendment No. 1 in 
its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade exchange-traded notes 
(``Notes'') of Barclays Bank PLC (``Barclays'') linked to the 
performance of the euro/U.S. dollar exchange rate (the ``EUR/USD 
exchange rate'').

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 IV below. The NYSE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

[[Page 5311]]

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

1. Purpose

The Notes

    Under Section 703.19 of the Listed Company Manual (the ``Manual''), 
the Exchange may approve for listing and trading securities not 
otherwise covered by the criteria of Sections 1 and 7 of the Manual, 
provided the issue is suited for auction market trading. The Exchange 
proposes to list and trade, under Section 703.19 of the Manual, the 
Notes, which are linked to the performance of the EUR/USD exchange 
rate. Barclays intends to issue the Notes under the name 
``iPathSM Exchange Traded Notes.''
    The Exchange believes that the Notes will conform to the initial 
listing standards for equity securities under Section 703.19, as 
Barclays is an affiliate of Barclays PLC, which is a listed company in 
good standing. The Notes will have a minimum life of one year, the 
minimum public market value of the Notes at the time of issuance will 
exceed $4 million, there will be at least one million Notes 
outstanding, and there will be at least 400 holders at the time of 
issuance. The Notes are a series of medium-term debt securities of 
Barclays that provide for a cash payment at maturity or upon earlier 
redemption at the holder's option, based on the performance of the EUR/
USD exchange rate subject to the adjustments described below. The 
original issue price of each Note will be $25. The Notes will trade on 
the Exchange's equity trading floor, and the Exchange's existing equity 
trading rules will apply to trading in the Notes.
    The EUR/USD exchange rate is a foreign exchange spot rate that 
measures the relative values of two currencies, the euro and the U.S. 
dollar. When the euro appreciates relative to the U.S. dollar, the EUR/
USD exchange rate (and the value of the Notes) increases; when the euro 
depreciates relative to the U.S. dollar, the EUR/USD exchange rate (and 
the value of the Notes) decreases. The EUR/USD exchange rate is 
expressed as a rate that reflects the number of U.S. dollars that can 
be exchanged for one euro in the interbank market for settlement in two 
days, as reported each day shortly after 10 a.m. Eastern Time (``ET'') 
on Reuters page 1FED or any successor page.
    The Notes will not have a minimum principal amount that will be 
repaid and, accordingly, payment on the Notes prior to or at maturity 
may be less than the original issue price of the Notes. In fact, the 
EUR/USD exchange rate must increase for the investor to receive at 
least the $25 original issue price per Note at maturity or upon 
redemption. If the EUR/USD exchange rate decreases or does not increase 
sufficiently to offset any negative effect of the adjustment factor 
(described below), the investor will receive less, and possibly 
significantly less, than the $25 original issue price per Note. In 
addition, holders of the Notes will not receive any interest payments 
from the Notes. The Notes will have a term of 30 years. The Notes are 
not callable.
    If the Notes are held to maturity, the holder will receive a cash 
payment at maturity that is linked to the percentage change in the EUR/
USD exchange rate between the inception date and the final valuation 
date. The cash payment at maturity will be equal to (1) the reference 
currency amount times (2) the EUR/USD exchange rate on the final 
valuation date times (3) the adjustment factor as determined on the 
final valuation date. The reference currency amount is the original 
issue price of the Notes divided by the EUR/USD exchange rate on the 
inception date.
    The adjustment factor will be calculated on a daily basis in the 
following manner: The adjustment factor on the inception date will 
equal one. On each subsequent business day until the final valuation 
date, the adjustment factor will equal (1) the adjustment factor on the 
immediately preceding business day times (2) the sum of one plus (a) 
the European Overnight Index Average, as reported on Reuters page EONIA 
or any successor page on the immediately preceding business day (the 
``EONIA'') minus (b) 0.27% minus (c) the investor fee times (3) the 
relevant daycount fraction. The EONIA is the effective overnight 
reference rate for the euro. It is computed as a weighted average of 
all overnight unsecured lending transactions undertaken in the 
interbank market, initiated within the euro area by the contributing 
banks. The investor fee is equal to 0.40% of the reference currency 
amount per year and is the only fee payable by investors in connection 
with an investment in the Notes. The daycount fraction on any business 
day will be the number of calendar days that have elapsed since the 
immediately preceding business day divided by 365. If the maturity date 
is not a business day, the maturity date will be the next following 
business day. If the fifth business day before this day does not 
qualify as a valuation date (as described below), then the maturity 
date will be the fifth business day following the final valuation date. 
In such event penalty interest will not accrue or be payable with 
respect to that deferred payment.
    Prior to maturity, holders may, subject to certain restrictions, 
choose to redeem their Notes on any redemption date during the term of 
the Notes provided that they present at least 100,000 Notes for 
redemption. Holders may also act through a broker or other financial 
intermediary (such as a bank or other financial institution not 
required to register as a broker-dealer to engage in securities 
transactions) that is willing to bundle their Notes for redemption with 
other investors' securities. Barclays may from time to time in its sole 
discretion reduce, in part or in whole, the minimum redemption amount 
of 100,000 Notes. Any such reduction will be applied on a consistent 
basis for all holders of the Notes at the time the reduction becomes 
effective. If holders redeem their Notes on a particular redemption 
date, they will receive a cash payment on such date in an amount equal 
to the weekly redemption value, which equals (1) the reference currency 
amount times (2) the EUR/USD exchange rate on the applicable valuation 
date times (3) the adjustment factor as determined on the applicable 
valuation date. Holders must redeem at least 100,000 Notes at one time 
in order to exercise their right to redeem their Notes on any 
redemption date. Barclays may from time to time in its sole discretion 
reduce, in part or in whole, the minimum redemption amount of 100,000 
Notes. Any such reduction will be applied on a consistent basis for all 
holders of Notes at the time the reduction becomes effective. A 
valuation date is each Thursday from the first Thursday after issuance 
of the Notes until the last Thursday before maturity of the Notes (the 
``final valuation date'') inclusive or, if such date is not a trading 
day, the next succeeding trading day, not to exceed five business days. 
A redemption date is the second business day following a valuation date 
(other than the final valuation date). The final redemption date will 
be the second business day following the valuation date immediately 
prior to the final valuation date.
    To redeem their Notes, Holders must instruct their broker or other 
person with whom they hold their Notes to take the following steps:
     Deliver a notice of redemption to Barclays via email by no 
later than 11 a.m. ET on the business day prior to the applicable 
valuation date. If Barclays receives notice by the time specified in 
the preceding sentence, it will respond

[[Page 5312]]

by sending a form of confirmation of redemption;
     Deliver the signed confirmation of redemption to Barclays 
via facsimile in the specified form by 4 p.m. ET on the same day. 
Barclays or its affiliate must acknowledge receipt in order for 
confirmation to be effective;
     Instruct their DTC custodian to book a delivery vs. 
payment trade with respect to their Notes on the valuation date at a 
price equal to the applicable Weekly Redemption Value, facing Barclays 
Capital DTC 5101; and
     Cause their DTC custodian to deliver the trade as booked 
for settlement via DTC at or prior to 10 a.m. ET on the applicable 
redemption date (the third business day following the valuation date).
    If holders elect to redeem their Notes, Barclays may request that 
Barclays Capital Inc. (a broker-dealer) purchase the Notes for the cash 
amount that would otherwise have been payable by Barclays upon 
redemption. In this case, Barclays will remain obligated to redeem the 
Notes if Barclays Capital Inc. fails to purchase the Notes. Any Notes 
purchased by Barclays Capital Inc. may remain outstanding.
    If an event of default occurs and the maturity of the Notes is 
accelerated, Barclays will pay the default amount in respect of the 
principal of the Notes at maturity. The default amount for the Notes on 
any day will be an amount, determined by the calculation agent in its 
sole discretion, equal to the cost of having a qualified financial 
institution, of the kind and selected as described below, expressly 
assume all Barclays' payment and other obligations with respect to the 
Notes as of that day and as if no default or acceleration had occurred, 
or to undertake other obligations providing substantially equivalent 
economic value to the holders of the Notes with respect to the Notes. 
That cost will equal:
     The lowest amount that a qualified financial institution 
would charge to effect this assumption or undertaking, plus
     The reasonable expenses, including reasonable attorneys' 
fees, incurred by the holders of the Notes in preparing any 
documentation necessary for this assumption or undertaking.
    During the default quotation period for the Notes (described 
below), the holders of the Notes and/or Barclays may request a 
qualified financial institution to provide a quotation of the amount it 
would charge to effect this assumption or undertaking. If either party 
obtains a quotation, it must notify the other party in writing of the 
quotation. The amount referred to in the first bullet point above will 
equal the lowest--or, if there is only one, the only--quotation 
obtained, and as to which notice is so given, during the default 
quotation period. With respect to any quotation, however, the party not 
obtaining the quotation may object, on reasonable and significant 
grounds, to the assumption or undertaking by the qualified financial 
institution providing the quotation and notify the other party in 
writing of those grounds within two business days after the last day of 
the default quotation period, in which case that quotation will be 
disregarded in determining the default amount. The default quotation 
period is the period beginning on the day the default amount first 
becomes due and ending on the third business day after that day, 
unless:
     No quotation of the kind referred to above is obtained, or
     Every quotation of that kind obtained is objected to 
within five business days after the due date as described above.
    If either of these two events occurs, the default quotation period 
will continue until the third business day after the first business day 
on which prompt notice of a quotation is given as described above. If 
that quotation is objected to as described above within five business 
days after that first business day, however, the default quotation 
period will continue as described in the prior sentence and this 
sentence.
    In any event, if the default quotation period and the subsequent 
two business day objection period have not ended before the final 
valuation date, then the default amount will equal the stated principal 
amount of the Notes.

Indicative Value

    An intraday ``Indicative Value'' meant to approximate the intrinsic 
economic value of the Notes will be calculated and published via the 
facilities of the Consolidated Tape Association (``CTA'') every 15 
seconds throughout the NYSE trading day on each day on which the Notes 
are traded on the Exchange.
    Additionally, Barclays or an affiliate will calculate and publish 
the closing Indicative Value of the Notes on each trading day at 
www.ipathetn.com. The last sale price of the Notes will also be 
disseminated over the consolidated tape, subject to a 20 minute delay. 
In connection with the Notes, the term ``Indicative Value'' refers to 
the value at a given time determined based on the following equation:

Indicative Value = Reference Currency Amount x Current EUR/USD Exchange 
Rate x Current Adjustment Factor

Where:
    Current EUR/USD Exchange Rate = The exchange rate as reported on 
that day.

    The Current EUR/USD Exchange Rate used for the calculation of the 
Indicative Value will be the EUR/USD exchange rate disseminated by 
Bloomberg L.P. during the course of the trading day on a 15 second 
delayed basis.

Continued Listing Criteria

    The Exchange prohibits the initial and/or continued listing of any 
security that is not in compliance with Rule 10A-3 under the Act.
    The Exchange will delist the Notes:
     If, following the initial twelve month period from the 
date of commencement of trading of the Notes, (i) the Notes have more 
than 60 days remaining until maturity and there are fewer than 50 
beneficial holders of the Notes for 30 or more consecutive trading 
days; (ii) if fewer than 100,000 Notes remain issued and outstanding; 
or (iii) if the market value of all outstanding Notes is less than 
$1,000,000.
     If, during the time the Notes trade on the Exchange, the 
Indicative Value ceases to be available on a 15 second delayed basis.
     If, during the time the Notes trade on the Exchange, the 
EUR/USD exchange rate ceases to be calculated or available on at least 
a 15 second delayed basis from one or more major market data vendors.
     If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.

Trading Halts

    If the Exchange Rate or the Indicative Value is not being 
disseminated as required, the Exchange may halt trading during the day 
on which the interruption to the dissemination of the Exchange Rate or 
the Indicative Value first occurs. If the interruption to the 
dissemination of the Exchange Rate or the Indicative Value persists 
past the trading day in which it occurred, the Exchange will halt 
trading no later than the beginning of the trading day following the 
interruption.

Rules Applicable to Specialists in Currency-Related Securities

    The Exchange has filed proposed Supplementary Material .10 to Rules 
1300A and 1301A, which will apply the provisions of Rule 1300A(b) and 
Rule 1301A to certain securities listed on the Exchange pursuant to 
Section 703.19 (``Other Securities'') of the Exchange's

[[Page 5313]]

Listed Company Manual.\5\ Specifically, Rules 1300A(b) and 1301A will 
apply to securities listed under Section 703.19 where the price of such 
securities is based in whole or part on the price of (a) a non-U.S. 
currency or currencies, (b) any futures contracts or other derivatives 
based on a non-U.S. currency or currencies, or (c) any index based on 
either (a) or (b) above. As a result of application of Rule 1300A(b), 
the specialist in the Notes, the specialist's member organization and 
other specified persons will be prohibited under paragraph (m) of 
Exchange Rule 105 Guidelines from acting as market maker or functioning 
in any capacity involving market-making responsibilities in the euro, 
options, futures or options on futures on the euro, or any other 
derivatives based on the euro (collectively, ``derivative 
instruments''). If the member organization acting as specialist in the 
Notes is entitled to an exemption under NYSE Rule 98 from paragraph (m) 
of NYSE Rule 105 Guidelines, then that member organization could act in 
a market making capacity in the euro or derivative instruments based on 
the euro, other than as a specialist in the Notes themselves, in 
another market center.
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    \5\ See SR-NYSE-2006-68.
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    Under Rule 1301A(a), the member organization acting as specialist 
in the Notes (1) will be obligated to conduct all trading in the Notes 
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), (2) will be required to file with the Exchange and keep 
current a list identifying all accounts for trading in the euro or 
derivative instruments based on the euro, which the member organization 
acting as specialist may have or over which it may exercise investment 
discretion, and (3) will be prohibited from trading in the euro or 
derivative instruments based on the euro, in an account in which a 
member organization acting as specialist, controls trading activities 
which have not been reported to the Exchange as required by Rule 1301.
    Under Rule 1301A(b), the member organization acting as specialist 
in the Notes will be required to make available to the Exchange such 
books, records or other information pertaining to transactions by the 
member organization and other specified persons for its or their own 
accounts in the euro or derivative instruments based on the euro, as 
may be requested by the Exchange. This requirement is in addition to 
existing obligations under Exchange rules regarding the production of 
books and records.
    Under Rule 1301A(c), in connection with trading the euro or 
derivative instruments based on the euro, the specialist could not use 
any material nonpublic information received from any person associated 
with a member or employee of such person regarding trading by such 
person or employee in the euro or derivative instruments based on the 
euro.

Surveillance

    The Exchange's surveillance procedures will incorporate and rely 
upon existing Exchange surveillance procedures governing equities with 
respect to surveillance of the Notes. The Exchange believes that these 
procedures are adequate to monitor Exchange trading of the Notes and to 
detect violations of Exchange rules, thereby deterring manipulation. In 
this regard, the Exchange currently has the authority under NYSE Rule 
476 to request the Exchange specialist in the Notes to provide NYSE 
Regulation with information that the specialist uses in connection with 
pricing the Notes on the Exchange, including specialist, proprietary or 
other information regarding securities, currencies, futures, options on 
futures or other derivative instruments. The Exchange believes it also 
has authority to request any other information from its members--
including floor brokers, specialists and ``upstairs'' firms--to fulfill 
its regulatory obligations.
    The Exchange's current trading surveillances focus on detecting 
securities trading outside normal patterns. When such situations are 
detected, surveillance analysis follows and investigations are opened, 
where appropriate, to review the behavior of all relevant parties for 
all relevant trading violations.
    The Exchange is able to obtain information regarding trading in the 
Notes, euro options and euro futures through NYSE members, in 
connection with such members' proprietary or customer trades which they 
effect on any relevant market. In addition, the Exchange may obtain 
trading information via the Intermarket Surveillance Group (``ISG'') 
from other exchanges who are members or affiliates of the ISG. 
Specifically, the NYSE can obtain such information from the 
Philadelphia Stock Exchange (the ``Phlx'') in connection with euro 
options trading on the Phlx and from the Chicago Mercantile Exchange 
(the ``CME'') and the Euronext.Liffe Exchange (the ``LIFFE'') in 
connection with euro futures trading on the CME and the LIFFE 
respectively.\6\ These markets are the primary trading markets in the 
world for exchange-traded futures, options and options on futures on 
the exchange rate between the dollar and the euro. The Exchange also 
lists and trades CurrencyShares based on the euro and can therefore 
surveil the trading of those CurrencyShares on the Exchange and on NYSE 
Arca.
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    \6\ The Phlx is a full member and the CME and the LIFFE are 
affiliate members of the ISG.
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Trading Rules

    The Exchange's existing trading rules will apply to trading of the 
Notes. The Notes will trade between the hours of 9:30 a.m. and 4 p.m. 
ET and will be subject to the equity margin rules of the Exchange.

Suitability

    Pursuant to Exchange Rule 405, the Exchange will impose a duty of 
due diligence on its members and member firms to learn the essential 
facts relating to every customer prior to trading the Notes. With 
respect to suitability recommendations and risks, the Exchange will 
require members, member organizations and employees thereof 
recommending a transaction in the Notes: (1) To determine that such 
transaction is suitable for the customer, and (2) to have a reasonable 
basis for believing that the customer can evaluate the special 
characteristics of, and is able to bear the financial risks of, such 
transaction.

Information Memorandum

    The Exchange will, prior to trading the Notes, distribute an 
information memorandum to the membership providing guidance with regard 
to member firm compliance responsibilities (including suitability 
recommendations) when handling transactions in the Notes. The 
information memorandum will note to members language in the prospectus 
used by Barclays in connection with the sale of the Notes regarding 
prospectus delivery requirements for the Notes. In the initial 
distribution of the Notes, and during any subsequent distribution of 
the Notes, NYSE member organizations will deliver a prospectus to 
investors purchasing from such distributors.
    The information memorandum will discuss the special characteristics 
and risks of trading this type of security. Specifically, the 
information memorandum, among other things, will discuss what the Notes 
are, how the Notes are redeemed, applicable Exchange rules, 
dissemination of information regarding the Indicative

[[Page 5314]]

Value, the EUR/USD exchange rate, trading information and applicable 
suitability rules.
    The information memorandum will also notify members and member 
organizations about the procedures for redemptions of Notes and that 
Notes are not individually redeemable but are redeemable only in 
aggregations of at least 100,000 Notes. The information memorandum will 
also discuss any relief, if granted, by the Commission or the staff 
from any rules under the Act. The information memorandum will also 
reference that there is no regulated source of last sale information 
regarding currency exchange rates and that the Commission has no 
jurisdiction over the trading of currencies on which the value of the 
Notes is based.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to, and perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

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

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which NYSE consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    NYSE has requested accelerated approval of this proposed rule 
change prior to the 30th day after the date of publication of the 
notice of the filing thereof. The Commission has determined that a 15-
day comment period is appropriate in this case.

IV. 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-NYSE-2006-66.

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-NYSE-2006-66. 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 the 
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-NYSE-2006-66 and should be submitted on or before 
February 20, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-1781 Filed 2-2-07; 8:45 am]
BILLING CODE 8011-01-P