[Federal Register Volume 69, Number 236 (Thursday, December 9, 2004)]
[Notices]
[Pages 71446-71456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27018]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50792; File No. SR-Amex-2004-38]


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change and Amendment Nos. 2, 3 and 4 Thereto by the American Stock 
Exchange LLC Relating to the Listing and Trading of the iShares([reg]) 
COMEX Gold Trust

December 3, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended (``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on May 24, 2004, the American Stock Exchange LLC 
(``Amex'' 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 November 9, 2004, Amex amended its proposal; however, the 
Exchange withdrew this amendment on November 17, 2004. On November 10, 
2004 the Exchange submitted a second amendment.\3\ On November 16, 
2004, the Exchange submitted a third amendment.\4\ On December 1, 2004, 
the Exchange submitted a fourth amendment.\5\ 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\ See Amendment No. 2, dated November 10, 2004 (``Amendment 
No. 2''). In Amendment No. 2, the Exchange revised the proposed rule 
text and corresponding description. Amendment No. 2 replaced Amex's 
original filing in its entirety.
    \4\ See Amendment No. 3, dated November 16, 2004 (``Amendment 
No. 3''). In Amendment No. 3, the Exchange proposed clarifying 
changes to certain aspects of Amendment No. 2 and modified the 
proposed rule text.
    \5\ See Amendment No. 4, dated December 1, 2004 (``Amendment No. 
4''). In Amendment No. 4, the Exchange provided additional 
description of the creation and redemption process for the Gold 
Trust shares and made clarifying changes to the proposed rule text. 
Amendment No. 4 replaced Amex's amended proposal 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 under new Amex Rules 1200A 
et seq. iShares([reg]) COMEX Gold Trust Shares (``Gold Shares''). The 
text of the proposed rule change, as amended, is set forth below. 
Proposed new language is in italics; proposed deletions are in 
brackets.
* * * * *

Exchange Rules

Commodity-Based Trust Shares

    Rule 1200A. (a) Applicability. The Rules in this Section are 
applicable only to Commodity-Based Trust Shares. In addition, except to 
the extent specific Rules in this Section govern or unless the context 
otherwise requires, the provisions of the Trust Issued Receipt rules 
and the Constitution and all other rules and policies of the Board of 
Governors shall be applicable to the trading on the Exchange of such 
securities. Pursuant to the provisions of Article I, Section 3(i) of 
the Constitution, Commodity-Based Trust Shares are included within the 
definition of ``security'' or ``securities'' as such terms are used in 
the Constitution and Rules of the Exchange.
    (b) Definitions. The following terms as used in the Rules shall, 
unless the context otherwise requires, have the meanings herein 
specified:
    (1) Commodity-Based Trust Shares. The term ``Commodity-Based Trust 
Shares'' means a security (a) that is issued by a trust (the ``Trust'') 
that holds a specified commodity deposited with the Trust; (b) that is 
issued by such Trust in a specified aggregate minimum number in return 
for a deposit of a quantity of the underlying commodity; and (c) that, 
when aggregated in the same specified minimum number, may

[[Page 71447]]

be redeemed at a holder's request by such Trust which will deliver to 
the redeeming holder the quantity of the underlying commodity.
    (2) Commodity. The term ``commodity'' is defined in Section 1(a)(4) 
of the Commodity Exchange Act.

Commentary

    .01 A Commodity-Based Trust Share is a Trust Issued Receipt that 
holds a specified commodity deposited with the Trust.
    .02 The Exchange requires that members and member organizations 
provide to all purchasers of newly issued Commodity-Based Trust Shares 
a prospectus for the series of Commodity-based Trust Shares.
    .03 Transactions in Commodity-Based Trust Shares will occur between 
9:30 a.m. and either 4 p.m. or 4:15 p.m. for each series, as specified 
by the Exchange.
    .04 (a) Limit Orders--Members and member organizations shall not 
enter orders into the Exchange's order routing system, as principal or 
agent, limit orders in the same Commodity-Based Trust, for the account 
or accounts of the same or related beneficial owner, in such a manner 
that the member or beneficial owner(s) effectively is operating as a 
market maker by holding itself out as willing to buy and sell such 
Commodity-Based Trust Shares on a regular or continuous basis. In 
determining whether a member or beneficial owner effectively is 
operating as a market maker, the Exchange will consider, among other 
things, the simultaneous or near-simultaneous entry of limit orders to 
buy and sell the same Commodity-Based Trust Shares; the multiple 
acquisition and liquidation of positions in the same Commodity-Based 
Trust Shares during the same day; and the entry of multiple limit 
orders at different prices in the same Commodity-Based Trust Shares.
    (b) Members and member organizations may not enter, nor permit the 
entry of, orders into the Exchange's order routing system if those 
orders are (i) created and communicated electronically without manual 
input (i.e., order entry by public customers or associated persons of 
members must involve manual input such as entering the terms of an 
order into an order-entry screen or manually selecting a displayed 
order against which an off-setting order should be sent) and (ii) 
eligible for execution through the Exchange's automatic execution 
system for Commodity-Based Trust Shares. Nothing in this paragraph, 
however, prohibits members from electronically communicating to the 
Exchange orders manually entered by customers into front-end 
communication systems (e.g., Internet gateways, on-line networks, 
etc.).

Designation of an Underlying Commodity

    Rule 1201A. The Exchange may list and trade Commodity-Based Trust 
Shares based on an underlying commodity. Each issue of a Commodity-
Based Trust Share shall be designated as a separate series and shall be 
identified by a unique symbol.

Initial and Continued Listing

    Rule 1202A. Commodity-Based Trust Shares will be listed and traded 
on the Exchange subject to application of the following criteria:
    (a) Initial Listing--The Exchange will establish a minimum number 
of Commodity-Based Trust Shares required to be outstanding at the time 
of commencement of trading on the Exchange.
    (b) Continued Listing--The Exchange will remove from listing 
Commodity-Based Trust Shares under any of the following circumstances:
    (i) if following the initial twelve month period following the 
commencement of trading of the shares, (A) the Trust has more than 60 
days remaining until termination and there are fewer than 50 record 
and/or beneficial holders of Commodity-Based Trust Shares for 30 or 
more consecutive trading days; (B) if the Trust has fewer than 50,000 
receipts issued and outstanding; or (C) if the market value of all 
receipts issued and outstanding is less than $1,000,000;
    (ii) if the value of the underlying commodity is no longer 
calculated or available on at least a 15-second delayed basis from a 
source unaffiliated with the sponsor, Trust, custodian or the Exchange 
or the Exchange stops providing a hyperlink on its Web site to any such 
unaffiliated commodity value;
    (iii) if the Indicative Trust Value is no longer made available on 
at least a 15-second delayed basis; or
    (iv) if such other event shall occur or condition exists which in 
the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.
    Upon termination of a Trust, the Exchange requires that Commodity-
Based Trust Shares issued in connection with such Trust be removed from 
Exchange listing. A Trust may terminate in accordance with the 
provisions of the Trust prospectus, which may provide for termination 
if the value of the Trust falls below a specified amount.
    (c) Term--The stated term of the Trust shall be as stated in the 
Trust prospectus. However, a trust may be terminated under such earlier 
circumstances as may be specified in the Trust prospectus.
    (d) Trustee--The following requirements apply:
    1. The trustee of a Trust must be a trust company or banking 
institution having substantial capital and surplus and the experience 
and facilities for handling corporate trust business. In cases where, 
for any reason, an individual has been appointed as trustee, a 
qualified trust company or banking institution must be appointed co-
trustee.
    2. No change is to be made in the trustee of a listed issue without 
prior notice to and approval of the Exchange.
    (e) Voting--Voting rights shall be as set forth in the applicable 
Trust prospectus.

Commentary

    .01 The Exchange will file separate proposals under Section 19(b) 
of the Securities Exchange Act of 1934 before listing and trading 
Commodity-Based Trust Shares designated on different underlying 
commodities.

Specialist Prohibitions

    Rule 1203A. Rule 175(c) shall be deemed to prohibit an equity 
specialist, his member organization, or any other member, limited 
partner, officer, or approved person thereof from acting as a market 
maker or functioning in any capacity involving market-making 
responsibilities in an underlying commodity, related commodity futures 
or options on commodity futures, or any other related commodity 
derivatives. However, an approved person of an equity specialist that 
has established and obtained Exchange approval of procedures 
restricting the flow of material, non-public market information between 
itself and the specialist member organization pursuant to Rule 193, and 
any member, officer, or employee associated therewith, may act in a 
market making capacity, other than as a specialist in the Commodity-
Based Trust Shares on another market center, in the underlying 
commodity, related commodity futures or options on commodity futures, 
or any other related commodity derivatives.

Commentary

    .01 In connection with Commodity-Based Trust Shares, Commentaries 
.01, .02 and .07 of Rule 170 shall not apply to the trading of Trust 
Shares for the purpose of bringing the price of the Trust Shares into 
parity with the value of the underlying commodity on which the Trust 
Shares are based, with the net asset value of the Trust comprising the

[[Page 71448]]

Shares or with a futures contract on the underlying commodity on which 
the Trust Shares are based. Such transactions must be effected in a 
manner that is consistent with the maintenance of a fair and orderly 
market and with the other requirements of this rule and the 
supplementary material herein.

Securities Accounts and Orders of Specialists

    Rule 1204A. (a) The member organization acting as specialist in 
Commodity-Based Trust Shares is obligated to conduct all trading in the 
Shares 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 (See Rule 170). In addition, the member organization acting as 
specialist in Commodity-Based Trust Shares must file, with the 
Exchange, in a manner prescribed by the Exchange, and keep current a 
list identifying all accounts for trading the underlying physical 
commodity, related commodity futures or options on commodity futures, 
or any other related commodity derivatives, which the member 
organization acting as specialist may have or over which it may 
exercise investment discretion. No member organization acting as 
specialist in Commodity-Based Trust Shares shall trade in the 
underlying physical commodity, related commodity futures or options on 
commodity futures, or any other related commodity derivatives, in an 
account in which a member organization acting as specialist, directly 
or indirectly, controls trading activities, or has a direct interest in 
the profits or losses thereof, which has not been reported to the 
Exchange as required by this Rule.
    (b) In addition to the existing obligations under Exchange rules 
regarding the production of books and records (See, e.g. Rule 31), the 
member organization acting as a specialist in Commodity-Based Trust 
Shares shall make available to the Exchange such books, records or 
other information pertaining to transactions by such entity or any 
member, member organization, limited partner, officer or approved 
person thereof, registered or non-registered employee affiliated with 
such entity for its or their own accounts in the underlying physical 
commodity, related commodity futures or options on commodity futures, 
or any other related commodity derivatives, as may be requested by the 
Exchange.
    (c) In connection with trading the underlying physical commodity, 
related commodity futures or options on commodity futures or any other 
related commodity derivative (including Commodity-Based Trust Shares), 
the specialist registered as such in Commodity-Based Trust Shares shall 
not use any material nonpublic information received from any person 
associated with a member, member organization or employee of such 
person regarding trading by such person or employee in the physical 
commodity, commodity futures or options on commodity futures, or any 
other related commodity derivatives.

Limitation of Exchange Liability

    Rule 1205A. Neither the Exchange nor any agent of the Exchange 
shall have any liability for damages, claims, losses or expenses caused 
by any errors, omissions, or delays in calculating or disseminating any 
underlying commodity value, the current value of the underlying 
commodity required to be deposited to the Trust in connection with 
issuance of Commodity-Based Trust Shares; net asset value; or other 
information relating to the purchase, redemption or trading of 
Commodity-Based Trust Shares, resulting from any negligent act or 
omission by the Exchange or any agent of the Exchange, or any act, 
condition or cause beyond the reasonable control of the Exchange or its 
agent, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission or delay in 
the reports of transactions in an underlying commodity.
* * * * *

Amex Company Guide

Section 140. Original Listing Fees

Stock Issues--No Change.
    Issues Listed Under Section 106 (Currency and Index Warrants) and 
Section 107 (other Securities)--No Change
    Warrants--No Change.
    Bonds--No Change.
    Index Fund Shares, Trust Issued Receipts, Commodity-Based Trust 
Shares and Closed-End Funds--The original listing fee for Index Fund 
Shares listed under Rule 1000A, Trust Issued Receipts listed under Rule 
1200, Commodity-Based Trust Shares listed under Rule 1200A and Closed-
End Funds listed under Section 101 of the Company Guide is $5,000 for 
each series or Fund, with no application processing fee.
    Special Shareholder Rights Plans--No Change.

Section 141. Annual Fees

Stock Issues; Issues Listed Under Sections 106 and 107; [and] Rules 
1200 (Trust Issued Receipts) and 1200A (Commodity-Based Trust Shares); 
and Closed-End Funds

------------------------------------------------------------------------
          Shares outstanding                          Fees
------------------------------------------------------------------------
5,000,000 shares or less.............  $15,000 (minimum)
5,000,001 to 10,000,000 shares.......  17,500
10,000,001 to 25,000,000 shares......  20,000
25,000,001 to 50,000,000 shares......  22,500
In excess of 50,000,000 shares.......  30,000 (maximum)
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    The Board of Governors or its designee may, in its discretion, 
defer, waive or rebate all or any part of the applicable annual listing 
fee specified above excluding the fees applicable to issues listed 
under Sections 106 and 107 and rule 1200 (Trust Issued Receipts); and 
Closed-End Funds.
Issues Listed Under Rule 1000A (Index Fund Shares)

------------------------------------------------------------------------
          Shares outstanding                          Fees
------------------------------------------------------------------------
1,000,000 shares or less.............  $6,500 (minimum)
1,000,001 to 2,000,000 shares........  7,000
2,000,001 to 3,000,000 shares........  7,500
3,000,001 to 4,000,000 shares........  8,000

[[Page 71449]]

 
4,000,001 to 5,000,000 shares........  8,500
5,000,001 to 6,000,000 shares........  9,000
6,000,001 to 7,000,000 shares........  9,500
7,000,001 to 8,000,000 shares........  10,000
8,000,001 to 9,000,000 shares........  10,500
9,000,001 to 10,000,000 shares.......  11,000
10,000,001 to 11,000,000 shares......  11,500
11,000,001 to 12,000,000 shares......  12,000
12,000,001 to 13,000,000 shares......  12,500
13,000,001 to 14,000,000 shares......  13,000
14,000,001 to 15,000,000 shares......  13,500
15,000,001 to 16,000,000 shares......  14,000
In excess of 16,000,000 shares.......  14,500 (maximum)
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    The annual fee is payable in January of each year and is based on 
the total number of all classes of shares (excluding treasury shares) 
and warrants according to information available on Exchange records as 
of December 31 of the preceding year. (The above fee schedule also 
applies to companies whose securities are admitted to unlisted trading 
privileges.)
    In the calendar year in which a company first lists, the annual fee 
will be prorated to reflect only that portion of the year during which 
the security has been admitted to dealings and will be payable within 
30 days of the date the company receives the invoice, based on the 
total number of outstanding shares of all classes of stock at the time 
of original listing.
    The annual fee for issues listed under Rule 1000A (Index Fund 
Shares), [and] Rule 1200 (Trust Issued Receipts) and Rule 1200A 
(Commodity-Based Trust Shares) is based upon the number of shares of a 
series of Index Fund Shares, [or] Trust Issued Receipts or Commodity-
Based Trust Shares outstanding at the end of each calendar year. For 
multiple series of Index Fund Shares issued by an open-end management 
investment company, or for multiple series of Trust Issued Receipts 
and/or Commodity-Based Trust Shares, the annual listing fee is based on 
the aggregate number of shares in all series outstanding at the end of 
each calendar year.
    The annual fee for a Closed-End Fund listed under Section 101 of 
the Company Guide is based upon the number of shares outstanding of 
such Fund at the end of each calendar year. For multiple Closed-End 
Funds of the same sponsor, the annual listing fee is based on the 
aggregate number of shares outstanding of all such Funds at the end of 
each calendar year.
    Bond Issues--No Change.
    Late Fee--No Change.
    Note: No Change.
* * * * *

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

    In its filing with the Commission, Amex 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add new Section 1200A et seq. for the 
purpose of permitting the listing and trading of Trust Issued Receipts 
(i.e., Trust Shares) \6\ based on commodity interests. In particular, 
the Amex initially proposes to list iShares COMEX \7\ Gold Trust (the 
``Gold Trust'' or ``Trust'') Shares that represent beneficial ownership 
interests in the net assets of the Trust consisting primarily of gold. 
The trustee of the Trust will not actively manage the gold held by the 
Trust, and therefore, a holder of Gold Shares will not be hedged to 
protect against the price volatility of the underlying gold.\8\
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    \6\ A Trust Issued Receipt or ``TIR'' is defined in Exchange 
Rule 1200(b) as a security (a) that is issued by a trust which holds 
specified securities deposited with the trust; (b) that, when 
aggregated in some specified minimum number, may be surrendered to 
the trust by the beneficial owner to receive the securities; and (c) 
that pays beneficial owners dividends and other distributions on the 
deposited securities, if any are declared and paid to the trustee by 
an issuer of the deposited securities.
    \7\ COMEX is a division of the New York Mercantile Exchange, 
Inc. (``NYMEX'') where gold futures contracts are traded.
    \8\ The Exchange submits that Gold Shares may be used as a price 
discovery mechanism for gold from 1:30 pm to 4:15 p.m. New York 
time. The open outcry trading hours of the COMEX gold futures 
contract is from 8:20 a.m. to 1:30 p.m. New York time Monday through 
Friday. NYMEX ACCESS[reg], an electronic trading system, is open for 
price discovery on COMEX gold futures contracts from 2 p.m. Monday 
afternoon until 8 a.m. Friday morning New York time; and from 7 p.m. 
Sunday night until Monday morning at 8 a.m. New York time.
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    Under Amex Rule 1201, the Exchange may approve for listing and 
trading TIRs based on one or more securities.\9\ The Amex proposes to 
list for trading Gold Shares under proposed Rule 1200A et seq.
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    \9\ The Exchange defines a ``security'' or ``securities'' to 
include stocks, bonds, options, and other interests or instruments 
commonly known as securities. See Article I, Section 3(j) of the 
Amex Constitution.
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Introduction
    In September 1999, the Exchange adopted rules for the listing and 
trading of TIRs.\10\ TIRs are negotiable receipts issued by trusts that 
represent investors' discrete identifiable and undivided beneficial 
ownership interest in the securities deposited into the trust. Since 
that time the Exchange has listed seventeen (17) TIRs under the trade 
name of HOLDRS, representing a wide variety of industry sectors and the 
market as a whole.
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    \10\ See Securities Exchange Act Release No. 41892 (September 
21, 1999), 64 FR 52559 (September 29, 1999) (``TIR Approval 
Order'').
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    To accommodate the listing of additional TIRs, the Exchange in 
September 2000 revised the existing listing criteria and trading rules 
to permit the listing and trading of TIRs pursuant to Rule 19b-4(e) 
under the Act (the ``Generic Listing Standards'').\11\ Because of the 
structure of the Gold Trust, representing an interest in underlying 
gold, the current Generic Listing Standards cannot be used by the

[[Page 71450]]

Exchange to list this product. However, the Exchange submits that the 
Gold Shares may be listed for trading pursuant to proposed Rule 1200A 
et seq., subject to Commission review and approval.
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    \11\ 17 CFR 240.19b-4(e). Rule 19b-4(e), adopted by the 
Commission on December 8, 1998, permits the Exchange to list and 
trade new derivative securities products without a rule change 
provided the Exchange has in place trading rules, procedures, a 
surveillance program and listing standards that pertain to the class 
of securities covering the new product. See Securities Exchange Act 
Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22, 
1998).
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    Under proposed Rule 1201A, the Exchange may list and trade trust 
shares based on an underlying commodity (the ``Commodity-Based Trust 
Shares''). For each separate and discrete commodity interest that may 
underlie a trust, the Exchange will submit a filing pursuant to Section 
19(b) of the Act \12\ subject to Commission review and approval.
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    \12\ 15 U.S.C. 78s(b).
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    The Gold Shares will conform to the initial and continued listing 
criteria under proposed Rule 1202A.\13\ The Gold Trust will be formed 
under a depositary trust agreement, among Bank of New York (``BNY''), 
the Trustee, Barclays Global Investors, N.A. (``Barclays''), the 
Sponsor, all depositors, if any, and the holders of Gold Shares.\14\
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    \13\ Proposed Rule 1202A for Commodity-Based Trust Shares tracks 
but is not identical to current Rule 1202 relating to TIRs. The 
initial listing standards set forth in Rule 1202(a) provide that the 
Exchange establish a minimum number of TIRs required to be 
outstanding at the time of the commencement of trading on the 
Exchange. As set forth in the section ``Criteria for Initial and 
Continued Listing,'' the Exchange expects the minimum number of Gold 
Shares required to be outstanding at the time of trading to be 
150,000. This section, infra, specifically details the initial and 
continued listing standards for Commodity-Based Trusts such as the 
Gold Trust.
    \14\ The trust is not an investment company as defined in 
Section 3(a) of the Investment Company Act of 1940 (the ``1940 
Act'').
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    The Exchange notes that the Commission has permitted the listing 
and trading of products linked to the performance of an underlying 
commodity or commodities.\15\
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    \15\ See Securities Exchange Act Release Nos. 39402 (December 4, 
1997), 62 FR 65459 (December 12, 1997) (approving the listing and 
trading of commodity index preferred or debt securities (ComPS) on 
various agricultural futures contracts and commodities indexes); 
36885 (February 26, 1996), 61 FR 8315 (March 4, 1996) (approving the 
listing and trading of ComPS linked to the value of single 
commodity); 35518 (March 21, 1995), 60 FR 15804 (March 27, 1995) 
(approving the listing and trading of commodity indexed notes or 
COINS); and 43427 (October 10, 2000), 65 FR 62783 (October 19, 2000) 
(approving the listing and trading of inflation indexed securities). 
See also Central Fund of Canada (Registration No. 033-15180) 
(closed-end fund listed and traded on the Amex that invests in gold) 
and Salmon Phibro Oil Trust (Registration No. 033-33823) (trust 
units listed and traded on the Amex that held the right to a forward 
contract for the delivery of crude oil).
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Description of the Gold Market
    In its filing with the Commission, the Exchange made the following 
representations regarding the worldwide gold market. The gold market is 
a global marketplace consisting of both over-the-counter (``OTC'') 
transactions and exchange-traded products. The OTC market generally 
consists of transactions in spot, forwards, options and other 
derivatives, while exchange-traded transactions consist of futures and 
options. A description of each of the OTC and exchange-traded markets 
for gold as well as the regulation is set forth below.
    (a) The OTC Market
    The OTC market trades on a 24-hour continuous basis and accounts 
for the substantial portion of global gold trading. Liquidity in the 
OTC market can vary from time to time during the course of the 24-hour 
trading day. Fluctuations in liquidity are reflected in adjustments to 
dealing spreads--the differential between a dealer's buy and sell 
prices. The period of greatest liquidity in the gold market is 
typically that time of day when trading in the European time zone 
overlaps with trading in the United States. This occurs when the OTC 
market trading in London, New York and other centers coincides with 
futures and options trading on the COMEX. This period lasts for 
approximately four (4) hours each New York business day morning.
    The OTC market has no formal structure and no open-outcry meeting 
place. The main centers of the OTC market are London, New York and 
Zurich. Bullion dealers have offices around the world, and most of the 
world's major bullion dealers are either members or associate members 
of the London Bullion Market Association (``LBMA''), a trade 
association of participants in the London Bullion market.
    There are no authoritative published figures for overall worldwide 
volume in gold trading. There are published sources that do suggest the 
significant size of the overall market. The LBMA publishes statistics 
compiled from the five (5) members offering clearing services.\16\ The 
monthly average daily volume figures published by the LBMA for 2003 
range from a high of 19 million to a low of 13.6 million troy ounces 
per day. Through September 2004, the monthly average daily volume has 
ranged from a high of 17 million to a low of 12.4 million. The COMEX 
also publishes price and volume statistics for transactions in 
contracts for the future delivery of gold. COMEX figures for 2003 
indicate that the average daily volume for gold futures and options 
contracts was 4.89 million (48,943 contracts) and 1.7 million (17,241 
contracts) troy ounces per day, respectively. Through October 2004, the 
average daily volume for gold futures and options was 6.08 million 
(60,817 contracts) and 2.01 million (20,173 contracts), 
respectively.\17\
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    \16\ Information regarding clearing volume estimates by the LBMA 
can be found at http://www.lbma.org.uk/clearing_table.htm. The 
three measures published by the LBMA are: volume, the amount of 
metal transferred on average each day measured in millions of troy 
ounces; value, measured in U.S. dollars, using the monthly average 
London PM fixing price; and the number of transfers, which is the 
average number recorded each day. The statistics exclude allocated 
and unallocated balance transfers where the sole purpose is for 
overnight credit and physical movements arranged by clearing members 
in locations other than London.
    \17\ Information regarding average daily volume estimates by the 
COMEX can be found at http://www.nymex.com/jsp/markets.md_annual_volume6.jsp#2. The statistics are based on gold futures contracts, 
each of which relates to 100 troy ounces of gold.
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    (b) Futures Exchanges
    The most significant gold futures exchanges are the COMEX division 
of the NYMEX and the Tokyo Commodity Exchange (``TOCOM'').\18\ Trading 
on these exchanges is based on fixed delivery dates and transaction 
sizes for the futures and options contracts traded. Trading costs are 
negotiable. As a matter of practice, only a small percentage of the 
future market turnover ever comes to physical delivery of the gold 
represented by the contracts traded. Both exchanges permit trading on 
margin. COMEX operates through a central clearance system. TOCOM has a 
similar clearance system. In each case, the exchange acts as 
counterparty for each member for clearing purposes.
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    \18\ There are other gold exchange markets, such as the 
Instanbul Gold Exchange, the Shanghai Gold Exchange and the Hong 
Kong Chinese Gold & Silver Exchange Society.
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    (c) Gold Market Regulation
    There is no direct regulation of the global OTC market in gold. 
However, indirect regulation of some of the overseas participants does 
occur. In the United Kingdom, responsibility for the regulation of 
financial market participants, including the major participating 
members of the LBMA, falls under the authority of the Financial 
Services Authority (``FSA'') as provided by the Financial Services and 
Market Act of 2000 (``FSM Act''). Under the FSM Act, all UK-based 
banks, together with other investment firms, are subject to a range of 
requirements, including fitness and properness, capital adequacy, 
liquidity, and systems and controls. The FSA is responsible for 
regulating investment products, including derivatives, and those who 
deal in investment products. Regulation of spot, commercial forwards 
and deposits of gold and silver not covered by the FSM Act is provided 
for by The London Code of Conduct for Non-

[[Page 71451]]

Investment Products, which was established by market participants in 
conjunction with the Bank of England, and is a voluntary code of 
conduct among market participants.
    Participants in the U.S. OTC market for gold are generally 
regulated by their institutional supervisors, which regulate their 
activities in the other markets in which they operate. For example, 
participating banks are regulated by the banking authorities. In the 
U.S., the CFTC, an independent governmental agency with the mandate to 
regulate commodity futures and options markets in the U.S., regulates 
market participants and has established rules designed to prevent 
market manipulation, abusive trade practices and fraud.
    TOCOM has authority to perform financial and operational 
surveillance on its members' trading activities, scrutinize positions 
held by members and large-scale customers, and monitor price movements 
of futures markets by comparing them with cash and other derivative 
markets' prices.
Product Description
    Issuances of Gold Shares will be made only in baskets of 50,000 
shares or multiples thereof (the ``Basket Aggregation'' or ``Basket''). 
The Trust will issue and redeem the Gold Shares on a continuous basis, 
by or through participants that have entered into participant 
agreements (each, an ``Authorized Participant'') \19\ with the Sponsor, 
Barclays and the Trustee, BNY, at the net asset value (``NAV'') per 
share next determined after an order to purchase Gold Shares in a 
Basket Aggregation is received in proper form. Following issuance, Gold 
Shares will be traded on the Exchange similar to other equity 
securities.
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    \19\ An ``Authorized Participant'' is a person, who at the time 
of submitting to the trustee an order to create or redeem one or 
more Baskets, (i) is a registered broker-dealer, (ii) is a 
Depository Trust Company (``DTC'') Participant or an Indirect 
Participant and (iii) has in effect a valid Authorized Participant 
Agreement.
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    Basket Aggregations will be issued in exchange for a corresponding 
amount of gold. The basket amount of gold, measured in fine ounces (the 
``Basket Gold Amount''), will be determined on each business day by the 
Trustee, BNY. Authorized Participants that wish to purchase a Basket 
must transfer the Basket Gold Amount to the Trust in exchange for a 
Basket. Authorized Participants that wish to redeem a Basket will 
receive the Basket Gold Amount in exchange for each Basket surrendered. 
The Bank of Nova Scotia (``BNS'') will be the custodian for the Trust 
and responsible for safekeeping the gold.\20\ Gold deposited with BNS 
must either (a) meet the requirements to be delivered in settlement of 
a COMEX gold futures contract pursuant to the rules adopted by the 
COMEX or (b) meet the specifications for weight, dimensions, fineness 
(or purity), identifying marks and appearance of gold bars as set forth 
in ``The Good Delivery Rules for Gold and Silver Bars'' published by 
the LBMA. Initially, creation of a Basket will require delivery of 
5,000 fine ounces of gold. This Basket Gold Amount will decrease over 
the life of the Trust due to the payment or accrual of fees and other 
expenses payable by the Trust.
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    \20\ If the total value of the Trust's gold held by the 
custodian exceeds $2 billion, then the custodian will be under no 
obligation to accept additional gold deliveries. In such a case, the 
trustee will retain an additional custodian.
---------------------------------------------------------------------------

    On each business day, BNY will make available immediately prior to 
the opening of trading on the Amex, the Basket Gold Amount for the 
creation of a Basket. BNY will adjust the quantity of gold included in 
the Basket Gold Amount to reflect sales of gold to cover expenses and 
any loss of deposited gold that may occur. The Amex will disseminate 
every 15 seconds throughout the trading day, via the facilities of the 
Consolidated Tape Association (``CTA''), an amount representing on a 
per share basis, the current value of the Basket Gold Amount. It is 
anticipated that the deposit of gold in exchange for Gold Shares will 
be made primarily by institutional investors, arbitrageurs, and the 
Exchange specialist. Baskets are then separable upon issuance into 
identical shares that will be listed and traded on the Amex.\21\ Gold 
Shares are expected to be traded on the Exchange by professionals as 
well as institutional and retail investors. Gold Shares may be acquired 
in two (2) ways: (1) Through a deposit of the Basket Gold Amount with 
the BNY during normal business hours by Authorized Participants, or (2) 
through a purchase on the Exchange by investors.
---------------------------------------------------------------------------

    \21\ Gold Shares are separate and distinct from the underlying 
gold comprising the portfolio of the Gold Trust. The Exchange 
expects that the number of outstanding Gold Shares will increase and 
decrease as a result of in-kind deposits and withdrawals of the 
underlying gold.
---------------------------------------------------------------------------

    Shortly after 4 p.m. each business day, the BNY will determine the 
NAV for the Trust, utilizing the 1:30 p.m. daily settlement value for 
the spot month COMEX gold futures contract. At or about 4 p.m. each 
business day, the BNY will determine the Basket Gold Amount for orders 
placed by Authorized Participants received before 4 p.m. that day. The 
BNY will also at the same time determine an ``Indicative Basket Gold 
Amount'' that Authorized Participants can use as an indicative amount 
of gold to be deposited for issuance of the Gold Shares on the next 
business day. Thus, although Authorized Participants place orders to 
purchase Gold Shares throughout the trading day, the actual Basket Gold 
Amount is determined at 4 p.m. or shortly thereafter.
    Shortly after 4 p.m. each business day, the BNY, Amex and
    Barclays (Sponsor) will disseminate the NAV for the Gold Shares, 
the Basket Gold Amount (for orders placed during the day), and the 
Indicative Basket Gold Amount (the indicative amount of gold for use by 
Authorized Participants on the next business day). The Basket Gold 
Amount, the Indicative Basket Gold Amount, and the NAV are communicated 
by the BNY to all Authorized Participants via facsimile or electronic 
mail message and will be available on the Trust's Web site at http://www.ishares.com. The Amex will also disclose the NAV and Basket Gold 
Amount on its Web site.
    The Basket Gold Amount necessary for the creation of a Basket will 
change from day to day. The initial Basket Gold Amount is 5,000 fine 
ounces of gold. On each day that the Amex is open for regular trading, 
the BNY will adjust the quantity of gold constituting the Basket Gold 
Amount as appropriate to reflect sales of gold, any loss of gold that 
may occur, and accrued expenses. The BNY will determine the Basket Gold 
Amount for a given business day by multiplying the NAV for each Gold 
Share by the number of Gold Shares in each Basket (50,000) and dividing 
the resulting product by that day's COMEX settlement price for the spot 
month gold futures contract. The NAV is calculated by multiplying the 
fine ounces of gold held by the Trust (after gold has been sold for 
that day to pay that day's fees and expenses) by the daily settlement 
value of the COMEX spot month gold futures contract.
    The Trust's expense ratio, in the absence of any extraordinary 
expenses and liabilities, is established at 0.40% of the net assets of 
the Trust. As a result, the amount of gold by which the Basket Gold 
Amount will decrease each day will be predictable (i.e. 1/365th of the 
net asset value of the Trust multiplied by 0.40%). As provided for 
above, the BNY will disclose and disseminate the Indicative Basket Gold 
Amount for the next business day. Authorized Participants may use the 
Indicative Basket Gold Amount as guidance regarding the amount of gold 
expected

[[Page 71452]]

to deposit with the custodian, BNS, in connection with the issuance of 
Gold Shares on such next business day.
    As a result, the amount of gold required for the Basket Gold Amount 
is not disseminated during the trading day to correspond to changes in 
the value of gold as identified by the COMEX gold futures contract.\22\ 
All purchase orders received by the BNY prior to 4 p.m. will be settled 
by depositing with the custodian, BNS, the Basket Gold Amount 
disseminated by the BNY shortly after 4 p.m. Given the predictability 
of the daily decline in the Basket Gold Amount, BNY and Barclays will 
announce the Indicative Basket Gold Amount for the next business day, 
shortly after 4 p.m.
---------------------------------------------------------------------------

    \22\ However, the Amex will disseminate an ``Indicative Trust 
Value'' at least every 15 seconds through the facilities of the CTA 
during the trading day that represents an indicative value for the 
Gold Shares based on the most last reported trade price in the most 
actively-traded COMEX gold futures contract.
---------------------------------------------------------------------------

    Thus, the BNY will disseminate shortly after 4 p.m. the amount of 
gold to be deposited for each Basket (50,000 shares) order properly 
submitted by Authorized Participants prior to 4 p.m. that business day. 
Before 4 p.m., the Authorized Participants may use the Indicative 
Basket Gold Amount published by Barclays and BNY the day before as 
guidance in respect of the amount of gold that they may expect to be 
required to deposit. But if the Indicative Basket Gold Amount published 
by Barclays and BNY turns out to be incorrect (for example, because the 
Trust incurred an extraordinary expense such as legal fees in excess of 
the amount assumed by Barclays), the amount actually determined by BNY 
will control.
    The creation/redemption process in connection with the Gold Shares 
does not contemplate the existence of cash. Because the process is 
based entirely on the physical delivery of gold, the actual number of 
fine ounces required for the Basket Gold Amount will not change even 
though the value of the Basket Gold Amount may change based on the 
market price of gold. Therefore, because Authorized Participants will 
only know the amount of gold to be deposited after the close of trading 
of the COMEX gold futures contract, the intra-day price fluctuations on 
the COMEX will not result in the making of gold deposits that are more 
or less than the amount required for the Basket Gold Amount.
    The Exchange believes that Gold Shares will not trade at a material 
discount or premium to the underlying gold held by the Trust based on 
potential arbitrage opportunities. Due to the fact that Gold Shares can 
be created and redeemed only in Basket Aggregations at NAV, the 
Exchange submits that arbitrage opportunities should provide a 
mechanism to mitigate the effect of any premiums or discounts that may 
exist from time to time.
    Gold Shares will not be individually redeemable but will only be 
redeemable in Basket Aggregations. To redeem, an Authorized Participant 
will be required to accumulate enough Gold Shares to constitute a 
Basket Aggregation (i.e., 50,000 shares). An Authorized Participant 
redeeming a Basket Aggregation will receive the physical gold amount of 
the Basket announced by the Trustee. Upon the surrender of the Gold 
Shares and payment of the applicable Trustee's fee and any expenses, 
taxes or charges, the BNY will deliver to the redeeming Authorized 
Participant the amount of gold corresponding to the redeemed Baskets. 
Unless otherwise requested by the Authorized Participants, gold will 
then be delivered to the redeeming Authorized Participants in the form 
of physical bars only.\23\
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    \23\ If the amount of gold corresponding to the Basket Gold 
Amount results in an amount that is less than a full gold bar 
denomination, the Authorized Participant has the ability to take 
and/or deliver fractional gold bar amounts. Telephone conversation 
between Jeffrey Burns, Associate General Counsel, Amex, and Florence 
Harmon, Senior Special Counsel, Division of Market Regulation, 
Commission, on December 3, 2004.
---------------------------------------------------------------------------

    When calculating NAV, the BNY will value the gold held by the Trust 
on the basis of the day's announced COMEX settlement price for the spot 
month gold futures contract.\24\ At any point in time, the spot month 
contract is the futures contract then closest to maturity. If a COMEX 
settlement price for a spot month gold futures contract is not 
announced, the Trustee will use the most recently announced spot month 
COMEX settlement price, unless the Trustee (BNY), in consultation with 
the Sponsor (Barclays), determines that such price is inappropriate. 
Once the value of the gold is determined, the BNY will then subtract 
all accrued fees (other than the fees to be computed by reference to 
the value of the Trust or its assets), expenses and other liabilities 
of the Trust from the total value of gold and all other assets of the 
Trust. This adjusted NAV is then used to compute all fees (including 
the Trustee and Sponsor fees) that are calculated from the value of 
Trust assets. To determine the NAV, the BNY will subtract from the 
adjusted NAV the amount of accrued fees from the value of Trust assets. 
The BNY will calculate the NAV per share by dividing the NAV by the 
number of Gold Shares outstanding.
---------------------------------------------------------------------------

    \24\ The COMEX daily settlement price for each gold futures 
contract is established by a subcommittee of COMEX members shortly 
after the close of trading in New York. The daily settlement price 
for each contract (delivery month) is derived from the daily 
settlement price for the most active futures contract month that is 
not necessarily the spot month. This settlement price is the average 
of the highest and lowest priced trades reported during the last one 
(1) minute of trading during regular trading hours. For all other 
gold futures contract months (which may include the spot month), the 
settlement prices are determined by COMEX based upon differentials 
reflected in spread trades between adjacent months, such 
differentials being directly or indirectly related to the most 
active month. These differentials are the average of the highest and 
lowest spread trades (trades based upon the differential between the 
prices for two contract months) reported during the last fifteen 
(15) minutes of trading during regular trading hours. In the case 
that there were no such spread trades, the average of the bids and 
offers for spread transactions during that last fifteen (15) minute 
period are used. In the case where there are no bids and offers 
during that time, the contracts are settled at prices consistent 
with the differentials for other contract months that were settled 
by the first or second method. If the third method is used, the 
subcommittee of the COMEX members establishing those settlement 
prices provides a record of the differentials from other contract 
months that formed the basis for those settlements.
---------------------------------------------------------------------------

    Gold Shares will be registered in book entry form through DTC. 
Trading in Gold Shares on the Exchange will be effected until 4:15 p.m. 
New York Time each business day. The minimum trading increment for such 
shares will be $.01.
COMEX Gold Futures Contracts
    The price of gold is volatile with fluctuations expected to affect 
the value of the Gold Shares. The price movement of gold may be 
influenced by a variety of factors, including announcements from 
Central Banks regarding reserve gold holdings, agreements among Central 
Banks, political uncertainties, and economic concerns. The price of 
gold during the period January 1994 through October 29, 2004 ranged 
from a high of $431.05 per ounce in April 2004 to a low of $251.95 in 
August 1999. As of October 29, 2004, the spot price per ounce for gold 
as provided by that day's spot COMEX gold futures contract was $428.50.
    The NYMEX is the world's largest physical commodity futures 
exchange and the dominant market for the trading of energy and precious 
metals. The COMEX Division of the NYMEX commenced the trading of gold 
futures contracts on December 31, 1974. The NYMEX and the COMEX 
Division are subject to the regulation and oversight of the Commodity 
Futures Trading Commission (``CFTC''). The Amex states that the CFTC 
administers the Commodity Exchange Act (``CEA''), which requires 
commodity futures exchanges, such as the NYMEX, to have rules and 
procedures to prevent market

[[Page 71453]]

manipulation, abusive trade practices and fraud. The CFTC conducts 
regular review and inspection of the NYMEX's enforcement programs.
    The trading unit of COMEX gold futures contracts is 100 troy 
ounces. Gold bars tendered for delivery can be cast in the form of 
either one bar or three one-kilogram bars. In either form, the gross 
weight of the bar or bars tendered for each contract must be within a 
five percent tolerance of the 100 ounce contract, and the bars must 
assay at not less than 995 fineness, i.e., 99.5% pure gold.
Dissemination of COMEX Gold Futures Information
    The daily settlement price for COMEX gold futures contracts is 
publicly available on the NYMEX Web site at http://nymex.com.\25\ The 
Exchange on its Web site at http://www.amex.com will include a 
hyperlink to the NYMEX Web site for the purpose of disclosing gold 
futures contract pricing. In addition, the Exchange represents that 
COMEX gold futures prices, options on futures quotes, and last sale 
information is widely disseminated through a variety of market data 
vendors worldwide, including Bloomberg and Reuters. In addition, the 
Exchange further represents that complete real-time data for COMEX gold 
futures and options is available by subscription from Reuters and 
Bloomberg. The NYMEX also provides delayed futures and options 
information on current and past trading sessions and market news free 
of charge on its Web site at http://www.nymex.com. The contract 
specifications for COMEX gold futures contracts are also available from 
the NYMEX at its Web site at http://nymex.com as well as other 
financial informational sources.
---------------------------------------------------------------------------

    \25\ As previously stated, the COMEX daily settlement price for 
each gold futures contract is established by a subcommittee of COMEX 
members shortly after the close of trading of regular trading on the 
COMEX. NYMEX Rule 3.43 sets forth the composition of the 
subcommittee requiring that it consist of three (3) members that 
represent the gold market. Specifically, the Rule calls for the 
subcommittee to include a floor broker, a floor trader and one who 
represents the trade. Rule 3.02 provides restrictions on Committee 
members and others who possess material, non-public information. A 
Committee Member is prohibited from disclosing for any purpose other 
than the performance of official duties relating to the Committee, 
material, non-public information obtained as a result of such 
person's participation on the Committee. In addition, no person may 
trade for his own account or for or on behalf of any other account, 
in any commodity interest on the basis of any material, non-public 
information that such person knows was obtained from such Committee 
member in violation of Rule 3.02. Telephone conversation between 
Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, 
Senior Special Counsel, Division of Market Regulation, Commission, 
on December 3, 2004.
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Availability of Information Regarding Gold Shares
    The Web site for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) The prior business 
day's NAV and the reported closing price; (b) the mid-point of the bid-
ask price \26\ in relation to the NAV as of the time the NAV is 
calculated (the ``Bid-Ask Price''); (c) calculation of the premium or 
discount of such price against such NAV; (e) data in chart form 
displaying the frequency distribution of discounts and premiums of the 
Bid-Ask Price against the NAV, within appropriate ranges for each of 
the four (4) previous calendar quarters; (f) the Prospectus; and (g) 
other applicable quantitative information.
---------------------------------------------------------------------------

    \26\ The bid-ask price of Shares is determined using the highest 
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------

    As described above, the NAV for the Trust will be calculated and 
disseminated daily. The Amex also intends to disseminate for the Trust 
on a daily basis by means of CTA/CQ High Speed Lines information with 
respect to the Indicative Trust Value (as discussed below), recent NAV 
and shares outstanding. The Exchange will also make available on its 
Web site daily trading volume, closing prices, and the NAV. The closing 
price and settlement prices of the COMEX gold futures contracts are 
also readily available from the NYMEX at http://www.nymex.com, 
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. In addition, 
the Exchange will provide a hyperlink on its Web site at http://www.amex.com to the Trust's Web site at http://www.ishares.com.
Dissemination of Indicative Trust Value
    As noted above, the BNY calculates the NAV of the Gold Trust once 
each trading day. In addition, the BNY causes to be made available on a 
daily basis the required amount of gold to be deposited in connection 
with the issuance of Gold Shares in Basket Aggregations. In addition, 
other investors can request such information directly from the BNY.
    In order to provide updated information relating to the Trust for 
use by investors, professionals and persons wishing to create or redeem 
Gold Shares, the Exchange will disseminate through the facilities of 
CTA an updated Indicative Trust Value (the ``Indicative Trust Value''). 
The Indicative Trust Value will be disseminated on a per Gold Share 
basis every 15 seconds during regular Amex trading hours of 9:30 a.m. 
to 4:15 p.m. New York time through the facilities of the CTA. The 
Indicative Trust Value will be calculated based on the amount of gold 
required for creations and redemptions and a price of gold derived from 
the most recently reported trade price in the active gold futures 
contract. The prices reported for the active contract month will be 
adjusted based on the prior day's spread differential between 
settlement values for that contract and the spot month contract. In the 
event that the spot month contract is also the active contract, the 
last sale price for the active contract will not be adjusted.
    The Indicative Trust Value will not reflect changes to the price of 
gold between the close of trading at the COMEX, typically 1:30 p.m. New 
York time, and the open of trading on the NYMEX ACCESS market at 2 p.m. 
New York time. While the market for the gold futures is open for 
trading, the Indicative Trust Value can be expected to closely 
approximate the value per share of the Basket Gold Amount. The 
Indicative Trust Value on a per Gold Share basis disseminated during 
Amex trading hours should not be viewed as a real time update of the 
NAV, which is calculated only once a day.
    The Exchange believes that dissemination of the Indicative Trust 
Value based on the amount of gold required for a Basket Aggregation 
provides additional information that is not otherwise available to the 
public and is useful to professionals and investors in connection with 
Gold Shares trading on the Exchange or the creation or redemption of 
Gold Shares. In addition, the Trust's Web site at http//www.ishares.com 
will also provide continuously updated bids and offers indicative of 
the spot price of gold in the OTC market for the purpose of disclosing 
to investors on a real-time basis the underlying or spot price of gold.
Termination Events
    The Trust will be terminated if any of the following circumstances 
occur: (1) The Gold Shares are delisted from the Amex and are not 
listed for trading on another national securities exchange within five 
business days from the date the Gold Shares are delisted; (2) holders 
of at least 75% of the outstanding Gold Shares notify the Trustee that 
they elect to terminate the Trust; (3) the Trustee resigns and no 
successor trustee is appointed within 60 days from the date the Trustee 
provides notice to Barclays of its intent to resign; (4) the SEC finds 
that the Trust should be registered as an investment company under the 
1940

[[Page 71454]]

Act, and the Trustee has actual knowledge of the SEC finding; (5) the 
aggregate market capitalization of the Trust, based upon the closing 
price for the Gold Trust, was less than $350 million on each of five 
(5) consecutive trading days and the Trustee receives, within six (6) 
months from the last of those trading days, notice that the Sponsor has 
decided to terminate the Trust; (6) the CFTC determines that the Trust 
is a commodity pool under the Commodity Exchange Act and the Trustee 
has actual knowledge of that determination: or (7) the Trust fails to 
qualify for treatment, or ceases to be treated, as a grantor trust for 
U.S. federal income tax purposes and the Trustee receives notice that 
the Sponsor has determined that the termination of the Trust is 
advisable.
    If not terminated earlier by the Trustee, the Trust will terminate 
in 2044 on a date to be determined once the Trust is established. Upon 
termination of the Trust, holders of the Gold Shares will surrender 
their shares and receive from the Trustee their portion of the 
underlying gold.
Criteria for Initial and Continued Listing
    The Trust will be subject to the criteria in proposed Rules 1201A 
and 1202A for initial and continued listing of Gold Shares. The 
proposed continued listing criteria provides for the delisting or 
removal from listing of the Gold Shares under any of the following 
circumstances:
    <bullet> Following the initial twelve month period from the date of 
commencement of trading of the Gold Shares: (i) If the Trust has more 
than 60 days remaining until termination and there are fewer than 50 
record and/or beneficial holders of the Gold Shares for 30 or more 
consecutive trading days; (ii) if the Trust has fewer than 50,000 Gold 
Shares issued and outstanding; or (iii) if the market value of all Gold 
Shares is less than $1,000,000.
    <bullet> If the value of the underlying gold is no longer 
calculated or available on at least a 15-second delayed basis from a 
source unaffiliated with the sponsor, Trust, custodian or the Exchange 
or the Exchange stops providing a hyperlink on its website to any such 
unaffiliated gold value.
    <bullet> The Indicative Trust Value is no longer made available on 
at least a 15-second delayed basis.
    <bullet> If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.
    It is anticipated that a minimum of 150,000 Gold Shares will be 
required to be outstanding at the start of trading. The minimum number 
of shares required to be outstanding at the start of trading is 
comparable to requirements that have been applied to previously listed 
series of trust issues receipts, Portfolio Depository Receipts and 
Index Fund Shares. It is anticipated that the initial price of a Gold 
Share will be approximately $40 per share. The Exchange believes that 
the anticipated minimum number of Gold Shares outstanding at the start 
of trading is sufficient to provide adequate market liquidity and to 
further the Trust's objective to seek to provide a simple and cost 
effective means of making an investment similar to an investment in 
gold. The Exchange represents that it prohibits the initial and/or 
continued listing of any security that is not in compliance with Rule 
10A-3 under the Act.\27\
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    \27\ See 17 CFR 240.10A-3(c)(7).
---------------------------------------------------------------------------

Original and Annual Listing Fees
    The Amex original listing fee applicable to the listing of the Gold 
Trust is $5,000. In addition, the annual listing fee applicable under 
Section 141 of the Amex Company Guide will be based upon the year-end 
aggregate number of shares in all series of Gold Trusts outstanding at 
the end of each calendar year.
Information Circular
    The Amex will distribute an information circular (``Information 
Circular'') to its members in connection with the trading of Gold 
Shares. The Information Circular will discuss the special 
characteristics and risks of trading this type of security. 
Specifically, the Information Circular, among other things, will 
discuss what the Gold Shares are, how a basket is created and redeemed, 
the requirement that members and member firms deliver a prospectus to 
investors purchasing the Gold Shares prior to or concurrently with the 
confirmation of a transaction, applicable Amex rules, dissemination 
information regarding the per share Indicative Trust Value, trading 
information and applicable suitability rules. The Information Circular 
will also explain that the Gold Trust is subject to various fees and 
expenses described in the Registration Statement, and that the number 
of ounces of gold required to create a basket or to be delivered upon a 
redemption of a basket will gradually decrease over time because the 
Gold Shares comprising a basket will represent a decreasing amount of 
gold due to the sale of the Gold Trust's gold to pay Trust expenses. 
The Information Circular will also reference the fact that there is no 
regulated source of last sale information regarding physical gold, that 
the Commission has no jurisdiction over the trading of gold as a 
physical commodity, and that the Commodity Futures Trading Commission 
(``CFTC'') has regulatory jurisdiction over the trading of gold futures 
contracts and options on gold futures contracts.
    The Information Circular will also notify members and member 
organizations about the procedures for purchases and redemptions of 
Gold Shares in baskets, and that Gold Shares are not individually 
redeemable but are redeemable only in basket-size aggregations or 
multiples thereof. The Information Circular will advise members of 
their suitability obligations with respect to recommended transactions 
to customers in the Gold Shares. The Information Circular will also 
discuss any relief, if granted, by the Commission or the staff from any 
rules under the Act.
    The Information Circular will disclose that the net asset value 
(''NAV'') for Gold Shares will be disseminated shortly after 4:00 p.m. 
each trading day based on the COMEX daily settlement value, which is 
disseminated shortly after 1:30 p.m. New York time each trading day.
Disclosure
    The Information Circular provided to Exchange members and member 
organizations will inform members and member organizations, prior to 
commencement of trading, of the prospectus delivery requirements 
applicable to the Trust. The Exchange notes that investors purchasing 
Gold Shares directly from the Trust (by delivery of the Basket Gold 
Amount) will receive a prospectus. Amex members purchasing Gold Shares 
from the Trust for resale to investors will deliver a prospectus to 
such investors.
Purchase and Redemptions in Basket Aggregations
    In the Information Circular referenced above, members and member 
organizations will be informed that procedures for purchases and 
redemptions of Gold Shares in Basket Aggregations are described in the 
Prospectus and that Gold Shares are not individually redeemable but are 
redeemable only in Basket Aggregations or multiples thereof.
Trading Rules
    Gold Shares are equity securities subject to Amex Rules governing 
the trading of equity securities, including, among others, rules 
governing priority, parity and precedence of orders,

[[Page 71455]]

specialist responsibilities and account opening and customer 
suitability (Amex Rule 411). Initial equity margin requirements of 50% 
will apply to transactions in Gold Shares. Gold Shares will trade on 
the Amex until 4:15 p.m. New York time each business day and will trade 
in a minimum price variation of $0.01 pursuant to Amex Rule 127. 
Trading rules pertaining to odd-lot trading in Amex equities (Amex Rule 
205) will also apply.
    Amex Rule 154, Commentary .04(c) provides that stop and stop limit 
orders to buy or sell a security (other than an option, which is 
covered by Rule 950(f) and Commentary thereto) the price of which is 
derivatively priced based upon another security or index of securities, 
may with the prior approval of a Floor Official, be elected by a 
quotation, as set forth in Commentary .04(c) (i-v). The Exchange has 
designated Gold Shares as eligible for this treatment.\28\
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 29063 (April 10, 
1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the 
Exchange's designation of equity derivative securities as eligible 
for such treatment under Amex Rule 154, Commentary .04(c).
---------------------------------------------------------------------------

    Gold Shares will be deemed ``Eligible Securities'', as defined in 
Amex Rule 230, for purposes of the Intermarket Trading System Plan and 
therefore will be subject to the trade through provisions of Amex Rule 
236 which require that Amex members avoid initiating trade-throughs for 
ITS securities.
    Specialist transactions of Gold Shares made in connection with the 
creation and redemption of Gold Shares will not be subject to the 
prohibitions of Amex Rule 190.\29\ Unless exemptive or no-action relief 
is available, Gold Shares will be subject to the short sale rule, Rule 
10a-1 under the Act.\30\ If exemptive or no-action relief is provided, 
the Exchange will issue a notice detailing the terms of the exemption 
or relief.
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    \29\ See Commentary .05 to Amex Rule 190.
    \30\ The Gold Trust has requested relief in connection with the 
trading of Gold Shares from the operation of the short sale rule, 
Rule 10a-1 under the Act. See 17 CFR 240.10a-1. The requested relief 
is currently pending with the Commission staff in the Division of 
Market Regulation. If granted, Gold Shares would be exempt from Rule 
10a-1 permitting sales without regard to the ``tick'' requirements 
of Rule 10a-1. Rule 10a-1(a)(1)(i) provides that a short sale of an 
exchange-traded security may not be effected (i) below the last 
regular-way sale price (an ``uptick'') or (ii) at such price unless 
such price is above the next preceding different price at which a 
sale was reported (a ``zero-plus tick'').
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    The Exchange represents that the Gold Shares will generally be 
subject to the Exchange's stabilization rule, Amex Rule 170, except 
that specialists may buy on ``plus ticks'' and sell on ``minus ticks,'' 
in order to bring the Gold Shares into parity with the underlying gold 
and/or futures price. Proposed Commentary .01 to proposed Rule 1203A 
sets forth this limited exception to Amex Rule 170.
    The Exchange's surveillance procedures for Gold Shares will be 
similar to those used for other trust issued receipts and exchange-
traded funds (``ETFs'') and will incorporate and rely upon existing 
Amex surveillance procedures governing options and equities.
    Amex states that the adoption of Rule 1203A relating to certain 
specialist prohibitions will address potential conflicts of interest in 
connection with acting as a specialist in the Gold Shares. 
Specifically, Rule 1203A provides that the prohibitions in Rule 175(c) 
apply to a specialist in the Gold Shares so that the specialist or 
affiliated person may not act or function as a market maker in the 
underlying gold, related gold futures contract or option or any other 
related gold derivative. An affiliated person of the specialist 
consistent with Amex Rule 193 (Affiliated Persons of Specialists) may 
be afforded an exemption to act in a market making capacity, other than 
as a specialist in the Gold Shares on another market center, in the 
underlying gold, related gold futures or options or any other related 
gold derivative. In particular, proposed Rule 1203A provides that an 
approved person of an equity specialist that has established and 
obtained Exchange approval for procedures restricting the flow of 
material, non-public market information between itself and the 
specialist member organization, and any member, officer, or employee 
associated therewith, may act in a market making capacity, other than 
as a specialist in the Gold Shares on another market center, in the 
underlying commodity, related commodity futures or options on commodity 
futures, or any other related commodity derivatives.
    Also, the Exchange states that adoption of Rule 1204A will ensure 
that specialists handling the Gold Shares provide the Exchange with all 
the necessary information relating to their trading in physical gold, 
related gold futures contracts and options thereon or any other gold 
derivative. As a general matter, the Exchange has regulatory 
jurisdiction over its members, member organizations, and approved 
persons of a member organization. The Exchange also has regulatory 
jurisdiction over any person or entity controlling a member 
organization as well as a subsidiary or affiliate of a member 
organization that is in the securities business. A subsidiary or 
affiliate of a member organization that does business only in 
commodities would not be subject to Exchange jurisdiction, but the 
Exchange 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.
Trading Halts
    The Information Circular issued to Amex members will inform them 
of, among other things, Exchange policies regarding trading halts in 
Gold Shares. First, the Information Circular will advise that trading 
will be halted in the event the market volatility trading halt 
parameters set forth in Amex Rule 117 have been reached. Second, the 
Information Circular will advise that, in addition to the parameters 
set forth in Rule 117, the Exchange will halt trading in Gold Shares if 
trading in the underlying COMEX gold futures contract is halted or 
suspended. Third, with respect to a halt in trading that is not 
specified above, the Exchange may also consider other relevant factors 
and the existence of unusual conditions or circumstances that may be 
detrimental to the maintenance of a fair and orderly market.
Suitability
    The Information Circular referenced above will inform members and 
member organizations of the characteristics of the Gold Trust and of 
applicable Exchange rules, as well as of the requirements of Amex Rule 
411 (Duty to Know and Approve Customers).
    The Exchange notes that pursuant to Rule 411, members and member 
organizations are required in connection with recommending transactions 
in the Gold Shares to have a reasonable basis to believe that a 
customer is suitable for the particular investment given reasonable 
inquiry concerning the customer's investment objectives, financial 
situation, needs, and any other information known by such member.
Surveillance
    Amex represents that its surveillance procedures applicable to 
trading in the proposed Gold Shares will be similar to those applicable 
to Trust Issued Receipts, Portfolio Depository Receipts and Index Fund 
Shares currently trading on the Exchange. The Exchange currently has in 
place an Information Sharing Agreement with the NYMEX for the purpose 
of providing information in connection with trading in or related to 
COMEX gold futures contracts. In addition, the Exchange is also in the 
process of negotiating an Information Sharing Agreement with the NYMEX 
for

[[Page 71456]]

the sharing of information related to any financial instrument based, 
in whole or in part, upon an interest in or performance of gold.
1. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act \31\ in general and furthers the objectives 
of Section 6(b)(5) \32\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, 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.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 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.

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

    The Exchange did not receive any 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 the self-regulatory organization 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#a1d3d4cdc48cc2ceccccc4cfd5d2e1d2c4c28fc6ced7"><span class="__cf_email__" data-cfemail="1e6c6b727b337d7173737b706a6d5e6d7b7d30797168">[email protected]</span></a>. Please include 
File Number SR-Amex-2004-38 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Amex-2004-38. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
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-
Amex-2004-38 and should be submitted on or before December 30, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-27018 Filed 12-8-04; 8:45 am]
BILLING CODE 8010-01-P


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