[Federal Register Volume 72, Number 11 (Thursday, January 18, 2007)]
[Notices]
[Pages 2322-2324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-614]



[[Page 2322]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55083; File No. SR-NYSEArca-2006-39]


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

January 10, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 18, 2006, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by the Exchange. The Commission is 
publishing this notice and order to solicit comments on the proposal 
from interested persons and to approve the proposal on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange through its wholly owned subsidiary NYSE Arca 
Equities, Inc. (``NYSE Arca Equities'') proposes to trade shares 
(``Shares'') of the following index funds (``Funds'') pursuant to 
unlisted trading privileges (``UTP'') based on NYSE Arca Equities Rule 
5.2(j)(3):
    <bullet> iShares MSCI Emerging Markets Index Fund (Symbol: EEM); 
and
    <bullet> iShares MSCI Pacific Free Ex Japan Index Fund (EPP).
    The text of the proposed rule change is available from the 
Exchange's Web site (http://www.nysearca.com), at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange is proposing to trade the Shares pursuant to UTP. The 
objective of each Fund is to seek to provide investment results that 
correspond generally to the price and yield performance of public 
securities traded in the aggregate in particular markets, as 
represented by specific MSCI benchmark indices (each, an ``Index''). 
Each Fund utilizes a passive or indexing investment approach which 
attempts to approximate the investment performance of its benchmark 
index through quantitative analytical procedures. Each Fund normally 
invests at least 95% of its total assets in component securities that 
are represented in the underlying Index and at all times invests at 
least 90% of its total assets in such stocks, except that the MSCI 
Emerging Markets Index is subject to the 80%/20% investment 
flexibility.
    The Commission previously approved the original listing and trading 
of the Shares on the American Stock Exchange, LLC (``Amex'').\3\ The 
Exchange deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities. The trading hours for the 
Shares on the Exchange are the same as those set forth in NYSE Arca 
Equities Rule 7.34, except that the iShares MSCI Emerging Markets Index 
Fund will not trade during the Opening Session (4 a.m. to 9:30 a.m. 
Eastern Time) unless the Indicative Optimized Portfolio Value 
(``IOPV'', as described below) is calculated and disseminated during 
that time. The iShares MSCI Pacific Free Ex Japan Index Fund will trade 
during the Opening Session since there is no overlap in trading hours 
of the Opening Session and the foreign markets trading the securities 
in that Index. In addition, the last calculated IOPV is available to 
investors during the Opening Session by means of the consolidated tape 
or major market data vendors and remains unchanged during the Opening 
Session.
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    \3\ See Securities Exchange Act Release No. 44990 (October 25, 
2001), 66 FR 55712 (November 2, 2001) (SR-Amex-2001-45).
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    Quotations for and last sale information regarding the Shares are 
disseminated through the Consolidated Quotation System. The Index on 
which each Fund is based is calculated by MSCI for each trading day in 
the applicable foreign market based on official closing prices in such 
market. The value of each underlying Index is updated intra-day on a 
real-time basis as individual component securities of the underlying 
Index change in price. The intra-day value of each Index is 
disseminated every 15 seconds throughout the trading day by 
organizations authorized by MSCI. The net asset value (``NAV'') of each 
Fund is calculated by each Fund's administrator and disseminated daily 
by Amex. The Funds' administrator calculates the NAV for each Fund 
generally once daily Monday through Friday generally as of the 
regularly scheduled close of business of the New York Stock Exchange 
(``NYSE'') (normally 4 p.m. Eastern Time) on each day the NYSE is open 
for trading, based on prices at the time of closing.\4\
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    \4\ See e-mail dated January 9, 2007 from Michael Cavalier, 
Assistant General Counsel, NYSE Group, Inc. to Mitra Mehr, Special 
Counsel, Division of Market Regulation, Commission.
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    To provide updated information relating to the Shares for use by 
investors, professionals, and persons wishing to create or redeem them, 
Amex disseminates through the facilities of the Consolidated Tape 
Association (``CTA'') the IOPV for each Fund as calculated by 
Bloomberg, L.P. The IOPV is disseminated on a per-share basis every 15 
seconds during regular Amex trading hours of 9:30 a.m. to 4 p.m. or 
4:15 p.m. Eastern Time, depending on the time Amex specifies for the 
trading of the Shares.
    The IOPV may not reflect the value of all securities included in 
the applicable underlying Index and does not necessarily reflect the 
precise composition of the current portfolio of securities held by each 
Fund at a particular point in time. Therefore, the IOPV on a per-share 
basis disseminated during Amex's regular trading hours should not be 
viewed as a real-time update of the NAV of a particular Fund, which is 
calculated only once a day. The IOPV is intended to closely approximate 
the value per-share of the portfolio of securities for a Fund and 
provide for a close proxy of the NAV at a greater frequency for 
investors.
    For the iShares MSCI Pacific Free Ex Japan Index, there is no 
overlap in trading hours between the foreign markets trading the 
Index's component stocks and Amex. Therefore, for the iShares MSCI 
Pacific Free Ex Japan Index Fund, the IOPV is calculated based on 
closing prices in the principal foreign market for securities in the 
Fund

[[Page 2323]]

portfolio, which are then converted from the applicable foreign 
currency to U.S. dollars. The IOPV for this Fund is updated every 15 
seconds during Amex's regular trading hours of 9:30 a.m. to 4 p.m. 
Eastern Time to reflect changes in currency exchange rates between the 
U.S. dollar and the applicable foreign currency.
    The MSCI Emerging Markets Index includes companies trading in 
markets with trading hours overlapping regular Amex trading hours. For 
the iShares MSCI Emerging Markets Index Fund, the IOPV calculator 
updates the IOPV during the overlap period every 15 seconds to reflect 
price changes in the principal foreign market, and converts such prices 
into U.S. dollars based on the currency exchange rates. When the 
foreign market or markets are closed but Amex is open for trading, the 
IOPV is updated every 15 seconds to reflect changes in currency 
exchange rates.
    The Commission has granted each Fund an exemption from certain 
prospectus delivery requirements under Section 24(d) of the Investment 
Company Act of 1940 (``1940 Act'').\5\ Any product description used in 
reliance on the Section 24(d) exemptive order will comply with all 
representations made and all conditions contained in each Fund's 
application for orders under the 1940 Act.\6\
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    \5\ 15 U.S.C. 80a-24(d).
    \6\ See In the Matter of iShares, Inc., et al., Investment 
Company Act Release No. 25623 (June 25, 2002).
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    In connection with the trading of the Shares, the Exchange would 
inform ETP Holders in an Information Circular of the special 
characteristics and risks associated with trading the Shares, including 
how they are created and redeemed, the prospectus or product 
description delivery requirements applicable to the Shares, applicable 
Exchange rules, how information about the value of each underlying 
Index is disseminated, and trading information.
    In addition, before an ETP Holder recommends a transaction in the 
Shares, the ETP Holder must determine that the Shares are suitable for 
the customer as required by NYSE Arca Equities Rule 9.2(a)-(b).
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products to monitor trading in the 
Shares. The Exchange represents that these procedures are adequate to 
monitor Exchange trading of the Shares.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \7\ in general and Section 6(b)(5) of the Act \8\ in 
particular in that it is designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments and perfect the mechanisms of a free and open market, and 
to protect investors and the public interest. In addition, the Exchange 
believes that the proposal is consistent with Rule 12f-5 under the Act 
\9\ because it deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 17 CFR 240.12f-5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the 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#ccbeb9a0a9e1afa3a1a1a9a2b8bf8cbfa9afe2aba3ba"><span class="__cf_email__" data-cfemail="483a3d242d652b2725252d263c3b083b2d2b662f273e">[email protected]</span></a>. Please include 
File Number SR-NYSEArca-2006-39 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2006-39. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEArca-2006-39 and should be submitted on or before 
February 8, 2007.

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

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and in general to protect investors and the public 
interest. The Commission believes that this proposal should benefit 
investors by increasing competition among markets that trade the 
Shares.
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    \10\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\12\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on

[[Page 2324]]

another exchange.\13\ The Commission notes that it previously approved 
the listing and trading of the Shares on Amex.\14\ The Commission also 
finds that the proposal is consistent with Rule 12f-5 under the 
Act,\15\ which provides that an exchange shall not extend UTP to a 
security unless the exchange has in effect a rule or rules providing 
for transactions in the class or type of security to which the exchange 
extends UTP. The Exchange has represented that it meets this 
requirement because it deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities.
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    \12\ 15 U.S.C. 78l(f).
    \13\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \14\  See supra note 3.
    \15\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\16\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last sale information regarding the 
Shares are disseminated through the Consolidated Quotation System. 
Furthermore, the IOPV calculator updates the applicable IOPV every 15 
seconds to reflect price changes in the principal foreign markets, and 
converts such prices into U.S. dollars based on the currency exchange 
rate. When the foreign market or markets are closed but Amex is open 
for trading, the IOPV is updated every 15 seconds to reflect changes in 
currency exchange rates. NYSE Arca Equities Rule 7.34 describes the 
situations when the Exchange would halt trading when the IOPV or the 
value of the Index underlying one of the Funds is not calculated or 
widely available.
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    \16\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, if the Shares should be delisted by 
Amex, the original listing exchange, the Exchange would no longer have 
authority to trade the Shares pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange's surveillance procedures are adequate to monitor 
the trading of the Shares.
    2. In connection with the trading of the Shares, the Exchange would 
inform ETP Holders in an Information Circular of the special 
characteristics and risks associated with trading the Shares.
    3. The Information Circular would inform participants of the 
prospectus or product delivery requirements applicable to the Shares.

This approval order is conditioned on the Exchange's adherence to these 
representations.

    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. As noted previously, the Commission previously found 
that the listing and trading of the Shares on Amex is consistent with 
the Act.\17\ The Commission presently is not aware of any regulatory 
issue that should cause it to revisit that earlier finding or preclude 
the trading of Shares on the Exchange pursuant to UTP. Therefore, 
accelerating approval of this proposal should benefit investors by 
creating, without undue delay, additional competition in the market for 
the Shares.
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    \17\ See supra note 3.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSEArca-2006-39) is 
approved on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-614 Filed 1-17-07; 8:45 am]
BILLING CODE 8011-01-P


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