[Federal Register Volume 72, Number 248 (Friday, December 28, 2007)]
[Notices]
[Pages 73934-73936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-25200]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57014; File No. SR-ISE-2007-111]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change To List and Trade Options on the iShares MSCI 
Mexico Index Fund

December 20, 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 November 16, 2007, the International Securities Exchange, LLC ( 
``Exchange'' or ``ISE'') 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 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 ISE proposes to list and trade options on the iShares MSCI 
Mexico Index Fund (the ``Fund Options''). ISE is not proposing any 
changes to the rules of the Exchange.

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. 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 parts of such 
statements.

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

1. Purpose
    The purpose of this rule change is to obtain approval to list for 
trading on the Exchange options on the iShares MSCI Mexico Index Fund 
(``Fund''). The Exchange currently has in place initial listing and 
maintenance standards set forth in ISE Rules 502(h) and 503(h), 
respectively (the ``Listing Standards''), that are designed to allow 
the Exchange to list funds structured as open-end investment companies 
such as the Fund without having to file for Commission approval to list 
for trading options on the Fund.\3\ The Exchange submits that the Fund 
meets substantially all of the Listing Standard requirements. In 
particular, all of the requirements set forth in ISE Rule 502(h) are 
met except for the requirement concerning the existence of a 
comprehensive surveillance sharing agreement (``CSSA''). However, the 
Exchange submits that sufficient mechanisms exist that would provide 
the Exchange with adequate surveillance and regulatory information with 
respect to the Fund.
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    \3\ ISE Rules 502(h) and 503(h) set forth the initial listing 
and maintenance standards for registered investment companies (or 
series thereof) organized as open-end management investment 
companies, unit investment trusts or other similar entities that are 
traded on a national securities exchange or through the facilities 
of a national securities exchange.
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    The Fund is registered pursuant to the Investment Company Act of 
1940 as a management investment company designed to hold a portfolio of 
securities which track the MSCI Mexico Index (``Index'').\4\ The Index 
consists of stocks traded primarily on the Bolsa Mexicana de Valores 
(the ``Bolsa''). The Fund employs a ``representative sampling'' 
methodology to track the Index, which means that the Fund invests in a 
representative sample of securities in the Index that have a similar 
investment profile as the Index.\5\ Barclays Global Fund Advisors 
(``BGFA'' or the ``Adviser'') expects the Fund to closely track the 
Index so that, over time, a tracking error of 5%, or less, is 
exhibited. Securities selected by the Fund have aggregate investment 
characteristics (based on market capitalization and industry 
weightings), fundamental characteristics (such as return variability, 
earnings valuation and yield) and liquidity measures similar to those 
of the Index. The Fund will not concentrate its investments (i.e., hold 
25% or more of its total assets in the stocks of a particular industry 
or group of industries), except, to the extent practicable, to reflect 
the concentration in the Index. The Fund will invest at least 80% of 
its assets in the securities comprising the Index and/or in American 
Depositary Receipts (``ADRs''). In addition, at least 90% of the Fund's 
assets will be invested in the securities comprising the Index or in 
other related Mexican securities or ADRs. The Fund may also invest its 
other assets in futures contracts, options on futures contracts, listed 
options, over-the-counter (``OTC'') options and swaps related to the 
Index, as well as cash and cash equivalents. The Exchange believes that 
these requirements and policies prevent the Fund from being excessively 
weighted in any single security or small group of securities and 
significantly reduce concerns that trading in the Fund could become a 
surrogate for trading in unregistered securities.
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    \4\ Morgan Stanley Capital International Inc. (``MSCI'') created 
and maintains the Index.
    \5\ As of July 31, 2007, the Fund was comprised of 27 
securities. America Movil SA de CV-Series L had the greatest 
individual weight at 25.57%. The aggregate percentage weighting of 
the top 5 and 10 securities in the Fund were 58.51% and 78.39%, 
respectively.
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    Shares of the Fund (``Fund Shares'') are issued and redeemed, on a 
continuous basis, at net asset value (``NAV'') in aggregation size of 
100,000 shares, or multiples thereof (a ``Creation Unit''). Following 
issuance, Fund Shares are traded on an exchange like other equity 
securities. The Fund Shares trade in the secondary markets in amounts 
less than a Creation Unit and the price per Fund Share may differ from 
its NAV which is calculated once daily as of the regularly scheduled 
close of business of the New York Stock Exchange (``NYSE'').\6\
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    \6\ The regularly scheduled close of trading in the NYSE is 
normally 4:00 p.m. Eastern Time (``ET'').
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    State Street Bank and Trust Company, the administrator, custodian, 
and transfer agent for the Fund, calculates the Fund's NAV. Detailed 
information on the Fund can be found at http://www.ishares.com.
    The Exchange has reviewed the Fund and determined that the Fund 
Shares satisfy the Listing Standards except for the requirement set 
forth in ISE Rule 502(h)(1), which requires the Fund to meet the 
following condition: ``any non-U.S. component stocks in the index or 
portfolio on which the Fund Shares are based that are not subject to 
comprehensive surveillance agreements do not in the aggregate represent 
more than 50% of the weight of the index or portfolio.'' The Exchange 
currently does not have in place a surveillance agreement with Bolsa.
    The Exchange understands that the Commission has been willing to 
allow a national securities exchange to rely on a memorandum of 
understanding entered into between regulators in the event that the 
exchanges themselves cannot enter into a CSSA.
    The Exchange further understands that the American Stock Exchange 
(``Amex'') has previously attempted to

[[Page 73935]]

enter into a surveillance agreement with Bolsa as part of seeking 
approval to list and trade options on the Mexico Index.\7\ The Chicago 
Board Options Exchange (``CBOE'') has also previously attempted to 
enter into a surveillance agreement with Bolsa at or about the time 
when the CBOE sought approval to list for trading options on the CBOE 
Mexico 30 Index in 1995, which was comprised of stocks trading on 
Bolsa.\8\ Since Bolsa was unable to provide a surveillance agreement, 
the Commission allowed the CBOE to rely on the memorandum of 
understanding executed by the Commission and the CNBV,\9\ dated as of 
October 18, 1990 (``MOU'').\10\ The Commission noted that in cases 
where it would be impossible to secure a CSSA, the Commission relied in 
the past on surveillance sharing agreements between the relevant 
regulators.\11\ The Commission further noted that, pursuant to the 
terms of the MOU, it was the Commission's understanding that both the 
Commission and the CNBV could acquire information from, and provide 
information to, the other similar to that which would be required in a 
CSSA between exchanges and, therefore, should the Exchange or the CBOE 
need information on Mexican trading in the component securities of the 
Mexico Index or the CBOE Mexico 30 Index, the Commission could request 
such information from the CNBV under the MOU.\12\
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    \7\ See Securities Exchange Act Release No. 34500 (August 8, 
1994), 59 FR 41534 (August 12, 1994).
    \8\ See infra New Product Release at note 13.
    \9\ The National Commission for Banking and Securities, or 
``CNBV,'' is Mexico's regulatory body for financial markets and 
banking.
    \10\ See Securities Exchange Act Release No. 36415 (October 25, 
1995), 60 FR 55620 (November 1, 1995) (SR-CBOE-95-45).
    \11\ Id.
    \12\ Id.
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    The practice of relying on surveillance agreements or MOUs between 
regulators when a foreign exchange was unable, or unwilling, to provide 
an information sharing agreement was affirmed by the Commission in the 
Commission's New Product Release (``New Product Release'').\13\ The 
Commission noted in the New Product Release that if securing a CSSA is 
not possible, an exchange should contact the Commission prior to 
listing a new derivative securities product. The Commission also noted 
that it may determine instead that it is appropriate to rely on a 
memorandum of understanding between the Commission and the foreign 
regulator.
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    \13\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998), at note 101.
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    The Exchange has also recently contacted Bolsa with a request to 
enter into a surveillance agreement. Until such time that the Exchange 
is able to secure a surveillance agreement with Bolsa, the Exchange 
requests that the Commission allow the listing and trading of the Fund 
Shares without a CSSA, upon reliance on the MOU entered into between 
the Commission and the CNBV. The Exchange believes this request is 
reasonable and notes that the Commission has provided similar relief in 
the past. For example, the Commission approved, on a pilot basis, an 
ISE proposal to list and trade options on the iShares MSCI Emerging 
Markets Fund.\14\
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    \14\ See Securities Exchange Act Release No. 56324 (August 27, 
2007), 72 FR 50426 (August 31, 2007) (SR-ISE-2007-72).
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    The Commission's approval of this request to list and trade options 
on the Fund would otherwise render the Fund compliant with all of the 
Listing Standards.
2. Statutory Basis
    The basis for this proposed rule change is found in section 6(b)(5) 
of the Act,\15\ in that the proposed change will serve to remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest. Further, this proposed rule change is similar to a 
proposal previously submitted by Amex and recently approved by the 
Commission.\16\
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See Securities Exchange Act Release No. 56778 (November 9, 
2007), 72 FR 65113 (November 19, 2007) (SR-Amex-2007-100).
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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 not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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-ISE-2007-111 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-ISE-2007-111. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of Amex. 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-ISE-2007-111 and should be 
submitted on or before January 18, 2008.

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

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities

[[Page 73936]]

exchange.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with section 6(b)(5) of the Act,\18\ 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.
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    \17\ 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).
    \18\ 15 U.S.C. 78f(b)(5).
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    The listing of the Fund Options does not fully satisfy ISE's 
applicable Listing Standards, specifically the requirement set forth in 
ISE Rule 502(h)(1), which requires the Fund to meet the following 
condition: ``Any non-U.S. component stocks in the index or portfolio on 
which the Fund Shares are based that are not subject to comprehensive 
surveillance agreements do not in the aggregate represent more than 50% 
of the weight of the index or portfolio.'' The Exchange currently does 
not have in place a surveillance agreement with Bolsa.
    The Commission has been willing to allow an exchange to rely on a 
memorandum of understanding entered into between regulators where the 
listing SRO finds it impossible to enter into an information sharing 
agreement.\19\ In this case, ISE has attempted unsuccessfully to reach 
such an agreement with Bolsa.
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    \19\ See supra note 10; See also New Product Release, supra note 
13.
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    Consequently, the Commission has determined to approve CBOE's 
listing and trading of the Fund Options and to allow ISE to rely on the 
MOU \20\ with respect to the underlying Fund components trading on 
Bolsa. The Commission believes that, regardless of the Commission's 
willingness to permit reliance on the MOU, ISE should continue to use 
its best efforts to obtain a comprehensive surveillance agreement with 
Bolsa, which shall reflect the following: (1) Express language 
addressing market trading activity, clearing activity, and customer 
identity; (2) the Bolsa's reasonable ability to obtain access to and 
produce requested information; and (3) based on the CSSA and other 
information provided by the Bolsa, the absence of existing rules, law 
or practices that would impede the Exchange from obtaining foreign 
information relating to market activity, clearing activity, or customer 
identity, or in the event such rules, laws, or practices exist, they 
would not materially impede the production of customer or other 
information.
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    \20\ See supra note 10.
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    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission finds good cause, consistent with section 
19(b)(2) of the Act,\21\ for approving this proposed rule change before 
the thirtieth day after the publication of notice thereof in the 
Federal Register because it will enable the Exchange to immediately 
consider listing and trading the Fund Options, similar to products 
already traded on the Exchange,\22\ and because it does not raise any 
new regulatory issues.
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ See supra note 14.
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-ISE-2007-111) be, and it 
hereby is approved on an accelerated basis.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-25200 Filed 12-27-07; 8:45 am]
BILLING CODE 8011-01-P