[Federal Register Volume 77, Number 244 (Wednesday, December 19, 2012)]
[Notices]
[Pages 75239-75241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30503]



[[Page 75239]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68430; File No. SR-NYSEArca-2012-111]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade 
Units of the Sprott Physical Platinum and Palladium Trust Pursuant to 
NYSE Arca Equities Rule 8.201

December 13, 2012.

I. Introduction

    On October 9, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``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 units (``Units'') of the Sprott Physical Platinum and 
Palladium Trust (``Trust'') pursuant to NYSE Arca Equities Rule 8.201. 
On October 24, 2012, the Exchange submitted Amendment No. 1 to the 
proposed rule change. The proposed rule change was published for 
comment in the Federal Register on October 30, 2012.\3\ The Commission 
received no comment letters regarding the proposed rule change. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 68101 (October 24, 
2012), 77 FR 65732 (``Notice'') (noticing the filing of the proposed 
rule change as modified by Amendment No. 1).
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II. Description of the Proposal

    The Exchange proposes to list and trade the Units \4\ under NYSE 
Arca Equities Rule 8.201. NYSE Arca represents that the Units satisfy 
the requirements of NYSE Arca Equities Rule 8.201 and thereby qualify 
for listing and trading on the Exchange.\5\
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    \4\ Each Unit will represent an equal, fractional, undivided 
interest in the net assets of the Trust attributable to the 
particular class of Units. See Notice, supra note 3, 77 FR at 65735.
    \5\ With respect to application of Rule 10A-3 under the Act, the 
Trust relies on the exemption contained in Rule 10A-3(c)(7). See 
Notice, supra note 3, 77 FR at 65733 n.17.
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    Sprott Asset Management LP is the sponsor and manager of the Trust 
(``Sponsor'' or ``Manager'').\6\ RBC Investor Services (``RBC'') is the 
trustee and valuation agent of the Trust (``Valuation Agent''), as well 
as the custodian of the Trust's assets other than physical platinum and 
palladium bullion.\7\ The Royal Canadian Mint is the custodian for the 
physical platinum and palladium bullion owned by the Trust (``Platinum 
and Palladium Custodian'').
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    \6\ The Manager is a limited partnership existing under the laws 
of Ontario, Canada, and acts as manager of the Trust pursuant to the 
trust agreement and the management agreement. The Manager has 
adopted a policy pursuant to which no entity or account that is (a) 
managed or (b) for whom investment decisions are made, directly or 
indirectly, by a person that is involved in the decision-making 
process of, or has nonpublic information about, follow-on offerings 
of the Trust (``Decision Maker'') is permitted to invest in the 
Trust, and no Decision Maker is permitted to invest in the Trust for 
the Decision Maker's account or benefit, directly or indirectly. See 
Notice, supra note 3, 77 FR at 65732 n.11. Additional details 
regarding the Trust are set forth the registration statement for the 
Trust, most recently amended on September 4, 2012 (No. 333-179017) 
(``Registration Statement'').
    \7\ RBC is affiliated with a broker-dealer. RBC has represented 
to the Exchange that it has put in place and will maintain the 
appropriate information barriers and controls between itself and the 
broker-dealer affiliate so that the broker-dealer affiliate will not 
have access to information concerning the composition and/or changes 
to the Trust's holdings that are not available on the Trust's Web 
site. See Notice, supra note 3, 77 FR at 65732 n.12.
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    The Trust will issue the Units in an initial public offering.\8\ 
The Trust may not issue additional Units following the completion of 
the initial public offering except under certain conditions. NYSE Arca 
will require that a minimum of 1,000,000 Units be outstanding at the 
start of trading.
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    \8\ To purchase physical platinum and palladium bullion, the 
Manager will create an order internally and send it for pre-trade 
compliance review. Once the order has been approved, the order will 
be placed by one of the Manager's traders. Orders generally will be 
placed by phone and through electronic dealing systems. Lists of the 
plates and ingots available to fill the buy order will be sent to 
the Manager by a bullion broker with whom the Manager has an 
established relationship. While the Manager will work with a bullion 
broker with whom the Manager has an established relationship, the 
Manager has represented that it will make all purchases of physical 
platinum and palladium bullion on an arms-length basis and will not 
make purchases from affiliated entities. See Notice, supra note 3, 
77 FR at 65735.
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    The Trust's investment objective is to invest and hold 
substantially all of its assets in physical platinum and palladium 
bullion. Except with respect to cash held by the Trust to pay expenses 
and anticipated cash redemptions,\9\ the Trust expects to own only 
physical platinum and palladium bullion that is certified as conforming 
to the Good Delivery Standard (``Good Delivery'') of the London 
Platinum and Palladium Market. The Trust will purchase approximately 
equal dollar amounts of physical platinum and palladium. The Manager 
expects to invest and hold approximately 97% of the total net assets of 
the Trust in physical platinum and palladium bullion.
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    \9\ The Trust can hold no more than ten percent of the assets in 
cash or other specified investments. See Notice, supra note 3, 77 FR 
at 65734-35 n.21.
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    The Units will be redeemable monthly for physical platinum and 
palladium bullion or for cash at the option of the Unitholder, subject 
to certain conditions. Redemption requests for physical platinum and 
palladium bullion must be for a minimum of 25,000 Units. A redemption 
request for physical platinum and palladium bullion must be received by 
the Trust's transfer agent no later than 4:00 p.m. E.T. on the 15th day 
of the month in which such redemption notice will be processed, or if 
such day is not a Business Day,\10\ then on the immediately following 
day that is a Business Day.\11\ Generally, the Units redeemed for 
physical platinum and palladium bullion will have a redemption value 
equal to the aggregate value of the net asset value (``NAV'') per Unit 
of the redeemed Units on the last day on which the Exchange is open for 
trading in the month during which the redemption request is processed, 
less applicable expenses (``Redemption Amount''). The Manager will 
allocate the Redemption Amount to physical platinum and palladium 
bullion in direct proportion to the value of physical platinum and 
palladium bullion held by the Trust at the time of redemption 
(``Bullion Redemption Amount'').\12\
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    \10\ A ``Business Day'' is a day on which the Exchange or the 
Toronto Stock Exchange (``TSX'') is open for trading. The Exchange 
states that the Units will trade on both the Exchange and the TSX. 
See Notice, supra note 3, 77 FR at 65735.
    \11\ Any bullion redemption notice received after such time will 
be processed in the next month.
    \12\ Any Bullion Redemption Amount in excess of the value of the 
Good Delivery plates or ingots, as the case may be, of the 
particular metal to be delivered to the redeeming Unitholder will be 
paid in cash, as such excess amount will not be combined with any 
excess amounts in respect of the other metal for the purpose of 
delivering additional physical platinum and palladium bullion. See 
Notice, supra note 3, 77 FR at 65736.
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    The Units redeemed for cash will receive a redemption price equal 
to 95% of the lesser of: (i) the volume-weighted average trading price 
of the Units traded on NYSE Arca or, if trading has been suspended on 
NYSE Arca, the volume-weighted average trading price of the Units 
traded on the TSX, for the last five days on which the respective 
exchange is open for trading during the month in which the redemption 
request is processed; or (ii) the NAV per Unit of the redeemed Units on 
the last day of such month on which NYSE Arca is open for trading.
    Additional information can be found in the Notice and in the 
Registration Statement regarding: the Trust; the Units; the Trust's 
investment objectives,

[[Page 75240]]

strategies, policies, and restrictions; fees and expenses; creation and 
redemption of Units; the physical platinum and palladium markets; 
availability of information; trading rules and halts; and surveillance 
procedures.\13\
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    \13\ See Notice and the Registration Statement, supra notes 3 
and 6, respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \14\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\15\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\16\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and 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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    \14\ 15 U.S.C. 78f.
    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal to list and 
trade Units on NYSE Arca is consistent with Section 11(a)(1)(C)(iii) of 
the Act,\17\ which sets forth Congress's finding that it is in the 
public interest and appropriate for the protection of investors to 
assure the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities. Quotation and last-sale information for the Units will be 
available via the Consolidated Tape Association. The Trust's Web site 
will provide an intraday indicative value (``IIV'') per unit for the 
Units, as calculated by a third-party financial data provider during 
NYSE Arca's Core Trading Session (9:30 a.m. to 4:00 p.m. E.T.).\18\ In 
addition, the Trust's Web site will contain the following information, 
on a per-Unit basis, for the Trust: (a) the midpoint of the bid-ask 
price at the close of trading in relation to the NAV as of the time the 
NAV is calculated (``Bid/Ask Price''), and a calculation of the premium 
or discount of such price against such NAV; and (b) data in chart 
format 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 Trust's Web site will 
also provide the Trust's prospectus, the two most recent reports to 
Unitholders, the last sale price of the Units as traded in the U.S. 
market, and a breakdown, calculated on a daily basis, of the holdings 
of the Trust by metal type. In addition, NYSE Arca will make available 
over the Consolidated Tape quotation information, trading volume, 
closing prices, and NAV per Unit from the previous day.
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    \17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \18\ The IIV will be calculated by: (1) Multiplying the total 
number of ounces of physical platinum bullion held by the Trust as 
of the close of business on the previous day with the mid-price of 
spot platinum per ounce (``Platinum IIV''); (2) multiplying the 
total number of ounces of physical palladium bullion held by the 
Trust as of the close of business on the previous day with the mid-
price of spot palladium per ounce (``Palladium IIV''); (3) adding 
the Platinum IIV to the Palladium IIV and the fair market value of 
the assets of the Trust that are not physical platinum or palladium 
bullion as of the close of business on the previous day (such sum, 
``IIV Assets''); (4) subtracting the fair market value of the 
Trust's total liabilities (excluding all liabilities represented by 
the outstanding Units, if any) as of the close of business on the 
previous day from the IIV Assets; and (5) dividing the result by the 
number of Units outstanding as of the close of business on the 
previous day.
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    The Commission believes that the proposal to list and trade the 
Units is reasonably designed to promote fair disclosure of information 
that may be necessary to price the Units appropriately and to prevent 
trading when a reasonable degree of transparency cannot be assured. As 
discussed above, the Trust will publish on its Web site: a breakdown of 
the holdings of the Trust by metal type; the NAV of the Trust; the IIV 
per Unit; the Trust's prospectus; and the last sale price of the Units 
as traded in the U.S. market. The Commission notes that the Exchange 
will obtain a representation from the Trust prior to the commencement 
of trading of the Units that the NAV per Unit will be calculated daily 
and made available to all market participants at the same time.
    Under NYSE Arca Equities Rule 7.34(a)(5), if the Exchange becomes 
aware that the NAV is not being disseminated to all market participants 
at the same time, it must halt trading on the NYSE Marketplace until 
such time as the NAV is available to all market participants. 
Additionally, if the IIV is not being disseminated as required, the 
Exchange may halt trading during the day in which the disruption 
occurs. If the interruption persists past the day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption. Further, the Exchange will 
consider suspension of trading pursuant to NYSE Arca Rule 8.201(e)(2) 
if, after the initial 12-month period following commencement of 
trading: (1) the value of platinum or palladium is no longer calculated 
or available on at least a 15-second delayed basis from a source 
unaffiliated with the Sponsor, Trust, or Platinum and Palladium 
Custodian, or the Exchange stops providing a hyperlink on its Web site 
to any such unaffiliated commodity value; or (2) if the IIV is no 
longer made available on at least a 15-second delayed basis.\19\ NYSE 
Arca will halt trading in the Units on the Exchange in the event the 
Trust directs the Trust's Valuation Agent to suspend the calculation of 
the value of the net assets of the Trust and the NAV.\20\ NYSE Arca 
Equities Rule 8.201(e)(2) also provides that NYSE Arca may seek to 
delist the Units in the event the value of the underlying commodity or 
the IIV is no longer calculated or available as required.
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    \19\ More generally, NYSE Arca may halt trading on the Exchange 
in the Units because of market conditions or for reasons that, in 
the Exchange's view, make trading in the Units inadvisable, 
including: (1) the extent to which conditions in the underlying 
platinum or palladium market have caused disruptions and/or lack of 
trading; (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present; or (3) if trading in the Units is halted on TSX. See 
Notice, supra note 3, 77 FR at 65738. Additionally, trading in the 
Units will be subject to trading halts caused by extraordinary 
market volatility pursuant to NYSE Arca's ``circuit breaker'' rule. 
See NYSE Arca Equities Rule 7.12.
    \20\ See Notice, supra note 3, 77 FR at 65739.
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    In support of this proposal, NYSE Arca has made representations, 
including:
    (1) The Units will be subject to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.201.
    (2) NYSE Arca's surveillance procedures are adequate to properly 
monitor Exchange trading of the Units in all trading sessions and to 
deter and detect violations of NYSE Arca rules and applicable federal 
securities laws.\21\
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    \21\ To support this, NYSE Arca states that, pursuant to NYSE 
Arca Equities Rule 8.201(g), it is able to obtain information 
regarding trading in the Units; physical platinum and palladium; 
platinum or palladium futures contracts; options on platinum or 
palladium futures; or any other platinum or palladium derivative 
from ETP Holders acting as registered Market Makers, in connection 
with their proprietary or customer trades. More generally, NYSE Arca 
states that it has regulatory jurisdiction over its ETP Holders and 
their associated persons, which includes any person or entity 
controlling an ETP Holder. With respect to a subsidiary or affiliate 
of an ETP Holder that does business only in commodities or futures 
contracts, the Exchange states that it 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. Further, NYSE Arca 
states that it may obtain trading information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges that are members 
of the ISG, including the Commodity Exchange, Inc. (``COMEX''). The 
Exchange also states that The Investment Industry Regulatory 
Organization of Canada and the New York Mercantile Exchange, of 
which COMEX is a division, are ISG members. The Investment Industry 
Regulatory Organization of Canada oversees Canadian broker-dealers 
and trading activity on the TSX. See Securities Exchange Act Release 
No. 63043 (October 5, 2010), 75 FR 62615, 62619 n.26 (October 12, 
2010).

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[[Page 75241]]

    (3) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Units. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Units; (b) NYSE Arca 
Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP 
Holders to learn the essential facts relating to every customer prior 
to trading the Units; (c) the requirement that ETP Holders deliver a 
prospectus to investors purchasing newly issued Units prior to or 
concurrently with the confirmation of a transaction; (d) the 
possibility that trading spreads and the resulting premium or discount 
on the Units may widen as a result of reduced liquidity of platinum and 
palladium trading during the Core and Late Trading Sessions after the 
close of the major world platinum and palladium markets; and (e) 
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trading information.

This approval order is based on the Exchange's representations.

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \22\ and the rules and regulations thereunder 
applicable to a national securities exchange.
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    \22\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSEArca-2012-111), as 
modified by Amendment No. 1, is approved.
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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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30503 Filed 12-18-12; 8:45 am]
BILLING CODE 8011-01-P