[Federal Register Volume 72, Number 70 (Thursday, April 12, 2007)]
[Notices]
[Pages 18500-18504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-6897]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55585; File No. SR-NYSE-2006-75]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval to Proposed Rule Change as Modified by Amendment No. 
1 Thereto To List and Trade Four iShares[supreg] GS[supreg] Commodity 
Indexed Trusts

April 5, 2007.

I. Introduction

    On September 22, 2006, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade under NYSE Rules 1300B, et seq. 
four iShares[supreg] GS Commodity Indexed Trusts. The Exchange filed 
Amendment No. 1 to the proposed rule change on November 22, 2006.\3\ 
The proposed rule change, as amended, was published for comment in the 
Federal Register on December 29, 2006 for a 15-day comment period.\4\ 
The Commission received no comments on the proposed rule change. This 
order approves the proposed rule as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
    \4\ See Securities Exchange Act Release No. 54992 (December 21, 
2006), 71 FR 78482 (``Notice'').
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II. Description

    The Exchange proposes to list and trade under NYSE Rules 1300B et 
seq. (``Commodity Trust Shares'') shares of the following (``Shares''): 
iShares GS Commodity Light Energy Indexed Trust; iShares GS Commodity 
Industrial Metals Indexed Trust; iShares GS Commodity Livestock Indexed 
Trust; and iShares GS Commodity Non Energy Indexed Trust (collectively, 
the ``Trusts''). Each Trust is a Delaware statutory trust that will 
issue units of beneficial interest called Shares, representing 
fractional undivided beneficial interests in its net assets. 
Substantially all of the assets of each Trust consist of holdings of 
the limited liability company interests of a specified commodity pool 
(``Investing Pool Interests''), which are the only securities in which 
the Trust may invest. The Trusts and the Investing Pools are each 
commodity pools managed by a commodity pool operator registered as

[[Page 18501]]

such with the Commodity Futures Trading Commission (``CFTC''). 
According to the Registration Statements,\5\ neither the Trusts nor the 
Investing Pools are investment companies registered under the 
Investment Company Act of 1940.
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    \5\ Terms not otherwise defined herein have the same meaning as 
the meaning given in the Notice.
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    In its proposal, the Exchange provided detailed description 
regarding the structure of the Trusts and the listing and trading of 
the Shares. In particular, the Exchange addressed (i) The designation 
and calculation of each underlying index that each Trust tracks, (ii) 
the calculation and dissemination of net asset value (``NAV''), (iii) 
the application of continued listing criteria, (iv) the creation and 
redemption process, (v) dissemination of pricing and other information 
pertaining to the Shares, including the indicative value, Share price, 
and underlying index values, (vi) listing fees, (vii) applicable 
Exchange trading rules, (viii) events triggering trading halts and/or 
delisting, (ix) the distribution of an information memo regarding the 
Shares to Exchange members, and (x) surveillance procedures. Key 
features of the proposal are noted below.

Product Description

    Each Trust, through its respective Investing Pool, will be a 
passive investor in CERFs, which are cash-settled futures contracts 
listed on the Chicago Mercantile Exchange (``CME'') that have a term of 
approximately five years after listing and whose settlement at 
expiration is based on the value of the respective Index at that time, 
and the cash or Short-Term Securities \6\ posted as margin to 
collateralize the Investing Pool's CERF positions. The Investing Pools 
will hold long positions in CERFs and will also earn interest on the 
assets used to collateralize its holdings of CERFs.
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    \6\ ``Short-Term Securities'' means U.S. Treasury Securities or 
other short-term securities and similar securities, in each case 
that are eligible as margin deposits under the rules of the CME.
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    Neither such Trust nor the respective Investing Pool will engage in 
any activities designed to obtain a profit from, or to ameliorate 
losses caused by, changes in the value of CERFs or securities posted as 
margin. Each Investing Pool, and some other types of market 
participants, will be required to deposit margin with a value equal to 
100% of the value of each CERF position at the time it is established. 
Those market participants not subject to the 100% margin requirement 
are required to deposit margin generally with a value of 3% to 5% of 
the established position. Interest paid on the collateral deposited as 
margin, net of expenses, will be reinvested by the Investing Pool or, 
at the Trustee's discretion, may be distributed from time to time to 
the Shareholders. The Investing Pool's profit or loss on its CERF 
positions should correlate with increases and decreases in the value of 
the applicable Index, although this correlation will not be exact. The 
interest on the collateral deposited by the Investing Pool as margin, 
together with the returns corresponding to the performance of the 
applicable Index, is expected to result in a total return for the 
Investing Pool that corresponds generally, but is not identical, to the 
applicable Index.

Underlying Indexes

    The objective of each Trust is for the performance of the Shares to 
correspond generally to the performance of the following indexes, 
respectively, before payment of the Trust's and the Investing Pool's 
expenses and liabilities: Goldman Sachs Industrial Metals Total Return 
Index; Goldman Sachs Light Energy Total Return Index; Goldman Sachs 
Livestock Total Return Index, and Goldman Sachs Non Energy Total Return 
Index (the ``Total Return Indexes'').\7\
    Each of the Total Return Indexes is comprised of a group of 
commodities included in the Goldman Sachs Commodity Index 
(``GSCI''),\8\ which is a production-weighted index of the prices of a 
diversified group of futures contracts on physical commodities. Each 
Total Return Index reflects the return of the corresponding Goldman 
Sachs Excess Return Index together with the return on specified U.S. 
Treasury securities that are deemed to have been held to collateralize 
a hypothetical long position in the futures contracts comprising the 
corresponding index.
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    \7\ Barclays Global Investors International, Inc., (the 
``Sponsor for the Trusts'') filed Form S-1 on behalf of each Trust 
on August 31, 2006. See Registration Nos. 333-135823 through 333-
135826.
    \8\ The Commission has previously approved listing on the 
Exchange of the iShares GSCI Commodity Indexed Trust. See Securities 
Exchange Act Release No. 54013 (June 16, 2006), 71 FR 36372 (June 
26, 2006) (SR-NYSE-2006-17).
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    The Index Sponsor has established a Policy Committee to assist it 
with the operation of the GSCI. The principal purpose of the Policy 
Committee is to advise the Index Sponsor with respect to, among other 
things, the calculation of the GSCI, the effectiveness of the GSCI as a 
measure of commodity futures market performance and the need for 
changes in the composition or the methodology of the GSCI. All 
decisions with respect to the composition, calculation and operation of 
the GSCI are made by the Index Sponsor.\9\
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    \9\ The Index Sponsor, Goldman, Sachs & Co., is a broker dealer. 
Therefore, appropriate firewalls must exist around the personnel who 
have access to information concerning changes and adjustments to an 
index and the trading personnel of the broker-dealer. Prior to 
commencement of trading of the Shares on the Exchange, the Index 
Sponsor will represent to the Exchange that it (1) has implemented 
and maintained procedures reasonably designed to prevent the use and 
dissemination by personnel of the Index Sponsor, in violation of 
applicable laws, rules and regulations, of material non-public 
information relating to changes in the composition or method of 
computation or calculation of the Total Return Indexes; and (2) 
periodically checks the application of such procedures as they 
relate to such personnel of the Index Sponsor directly responsible 
for such changes. In addition, the Policy Committee members are 
subject to written policies with respect to material, non-public 
information.
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Creations and Redemptions of Baskets

Creations of Baskets
    Creation and redemption of interests in the Trusts, and the 
corresponding creation and redemption of interests in the respective 
Investing Pools, will generally be effected through transactions in 
``exchanges of futures for physicals,'' or ``EFPs.'' In the context of 
CERFs, CME rules permit the execution of EFPs consisting of 
simultaneous purchases (sales) of CERFs and sales (purchases) of 
Shares. This mechanism will generally be used by the Trusts in 
connection with the creation and redemption of Baskets. Specifically, 
it is anticipated that an Authorized Participant requesting the 
creation of additional Baskets typically will transfer CERFs and cash 
(or, in the discretion of the Trustee, Short-Term Securities in lieu of 
cash) to the Trusts in return for Shares.
    The Trusts will offer Shares on a continuous basis on each Business 
Day, but only in Baskets consisting of 50,000 Shares. Baskets will be 
typically issued only in exchange for an amount of CERFs and cash (or, 
in the discretion of the Trustee, Short-Term Securities in lieu of 
cash) equal to the Basket Amount for the Business Day on which the 
creation order was received by the Trustee. The Basket Amount for a 
Business Day will have a per Share value equal to the NAV as of such 
day. However, orders received by the Trustee after 2:40 p.m., New York 
time, will be treated as received on the next following Business Day. 
The Trustee will notify the Authorized Participants of the Basket 
Amount on each Business Day.
    It is expected that delivery of the Shares will be made against 
transfer of consideration on the next Business Day following the 
Business Day on which

[[Page 18502]]

the creation order is received by the Trustee. If the Trustee has not 
received the required consideration for the Shares to be delivered on 
the delivery date, by 11 a.m., New York time, the Trustee may cancel 
the creation order.\10\
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    \10\ The price at which the Shares trade should be disciplined 
by arbitrage opportunities created by the ability to purchase or 
redeem shares of the Trust in Basket size. This should help ensure 
that the Shares will not trade at a material discount or premium to 
their net asset value or redemption value.
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Redemptions of Baskets
    Authorized Participants may typically surrender Baskets in exchange 
only for an amount of CERFs and cash (or, in the discretion of the 
Trustee, Short-Term Securities in lieu of cash) equal to the Basket 
Amount on the Business Day the redemption request is received by the 
Trustee. However, redemption requests received by the Trustee after 
2:40 p.m., New York time (or, on any day on which the CME is scheduled 
to close early, after the close of trading of CERFs on the CME on such 
day), will be treated as received on the next following Business Day. 
Holders of Baskets who are not Authorized Participants will be able to 
redeem their Baskets only through an Authorized Participant. It is 
expected that Authorized Participants may redeem Baskets for their own 
accounts or on behalf of Shareholders who are not Authorized 
Participants, but they are under no obligation to do so.
    It is expected that delivery of the CERFs, cash or Short-Term 
Securities to the redeeming Shareholder will be made against transfer 
of the Baskets on the next Business Day following the Business Day on 
which the redemption request is received by the Trustee. If the 
Trustee's DTC account has not been credited with the total number of 
Shares to be redeemed pursuant to the redemption order by 11 a.m., New 
York time, on the delivery date, the Trustee may cancel the redemption 
order.

Dissemination of Information Relating to the Shares

Computation of Trust's Net Asset Value
    On each Business Day on which the NYSE is open for regular trading, 
as soon as practicable after the close of regular trading of the Shares 
on the NYSE (normally, 4:15 p.m., New York time), the Trustee will 
determine the net asset value of the Trusts and the NAV as of that 
time.
    The Trustee will value the Trusts' assets based upon the 
determination by the Manager, which may act through the Investing Pool 
Administrator, of the net asset value of the Investing Pool. The 
Manager will determine the net asset value of the Investing Pool as of 
the same time that the Trustee determines the net asset value of the 
Trusts.
    Once the value of the Trusts' Investing Pool Interests have been 
determined and provided to the Trustee, the Trustee will subtract all 
accrued expenses and other liabilities of each Trust from the total 
value of the assets of the Trust, in each case as of the calculation 
time. The resulting amount is the net asset value of the Trust. The 
Trustee will determine the NAV by dividing the net asset value of the 
Trust by the number of Shares outstanding at the time the calculation 
is made.
Indicative Value
    In order to provide updated information relating to the Trusts for 
use by investors, professionals, and other persons, the Exchange will 
disseminate through the facilities of CTA an updated Indicative Value 
on a per Share basis as calculated by Bloomberg. The Indicative Value 
will be disseminated at least every 15 seconds from 9:30 a.m. to 4:15 
p.m. New York time. The Indicative Value will be calculated based on 
the cash and collateral in a Basket Amount divided by 50,000, adjusted 
to reflect the market value of the investments held by the applicable 
Investing Pool, i.e. CERFs. The Indicative Value will not reflect price 
changes to the price of an underlying commodity between the close of 
trading of the futures contract at the relevant futures exchange and 
the close of trading on the NYSE at 4:15 p.m. New York time. The value 
of a Share may accordingly be influenced by non-concurrent trading 
hours between the NYSE and the various futures exchanges on which the 
futures contracts based on the Index commodities are traded.
Other Pricing Information
    The Web site for the Trusts (http://www.ishares.com), 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 \11\ 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; 
(d) 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 previous calendar quarters; (e) 
the prospectus; (f) the holdings of the Trusts, including CERFs, cash 
and Treasury securities; (g) the Basket Amount, and (h) other 
applicable quantitative information. The Exchange on its Web site at 
http://www.nyse.com will include a hyperlink to the Trusts' Web site at 
http://www.ishares.com. The Exchange will also make available on http://www.nyse.com daily trading volume, closing prices, and the NAV.
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    \11\ The bid-ask price of Shares is determined using the highest 
bid and lowest offer as of the time of calculation of the NAV.
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    At present, official calculation by the Index Sponsor of the value 
of each GS Index is performed continuously and is updated on Reuters at 
least every fifteen seconds during NYSE trading hours for the Shares 
and during business hours on each Business Day on which the offices of 
Goldman Sachs in New York City are open for business. In the event that 
the Exchange is open for business on a day that is not a GSCI Business 
Day, the Exchange will not permit trading of the Shares on that day.
    In addition, values updated at least every fifteen seconds are 
disseminated on Reuters for the Total Return Indexes during Exchange 
trading hours. Daily settlement values for the GS Indexes, Total Return 
Indexes and Excess Return Indexes are also widely disseminated.
    Various data vendors and news publications publish futures prices 
and data. Futures quotes and last sale information for the commodities 
underlying the Index are widely disseminated through a variety of 
market data vendors worldwide, including Bloomberg and Reuters. In 
addition, complete real-time data for such futures is available by 
subscription from Reuters and Bloomberg. The futures exchanges or which 
the underlying commodities and CERFs trade also provide delayed futures 
information on current and past trading sessions and market news 
generally free of charge on their respective Web sites. The specific 
contract specifications for the futures contracts are also available 
from the futures exchanges on their Web sites as well as other 
financial informational sources.

Exchange Trading Rules and Policies

    The Shares are considered ``securities'' pursuant to NYSE Rule 3 
and are subject to all applicable trading rules.
    The Trust is exempt from corporate governance requirements in 
Section 303A of the NYSE Listed Company Manual, including the 
Exchange's audit committee requirements in Section 303A.06.\12\
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    \12\ See Rule 10A-3(c)(7), 17 CFR 240.10A-3(c)(7) (stating that 
a listed issuer is not subject to the requirements of Rule 10A-3 if 
the issuer is organized as a trust or other unincorporated 
association that does not have a board of directors and the 
activities of the issuer are limited to passively owning or holding 
securities or other assets on behalf of or for the benefit of the 
holders of the listed securities).
    See also Securities Exchange Act Release Nos. 48745 (November 4, 
2003), 68 FR 64154 (November 12, 2003) (SR-NYSE-2002-33, SR-NASD-
2002-77, et al.) (specifically noting that the corporate governance 
standards will not apply to, among others, passive business 
organizations in the form of trusts); and 47654 (April 25, 2003), 68 
FR 18788 (April 16, 2003) (noting in Section II(F)(3)(c) that ``SROs 
may exclude from Exchange Act Rule 10A-3's requirements issuers that 
are organized as trusts or other unincorporated associations that do 
not have a board of directors or persons acting in a similar 
capacity and whose activities are limited to passively owning or 
holding (as well as administering and distributing amounts in 
respect of) securities, rights, collateral or other assets on behalf 
of or for the benefit of the holders of the listed securities'').

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[[Page 18503]]

    The Exchange has adopted NYSE Rules 1300B (``Commodity Trust 
Shares'') to deal with issues related to the trading of the Shares. 
Specifically, for purposes of NYSE Rules 13 (``Definitions of 
Orders''), 36.30 (``Communications Between Exchange and Members' 
Offices''), 98 (``Restrictions on Approved Person Associated with a 
Specialist's Member Organization), 104 (``Dealings by Specialists''), 
105(m) (``Guidelines for Specialists' Specialty Stock Option 
Transactions Pursuant to Rule 105''), 460.10 (``Specialists 
Participating in Contests''), 1002 (``Availability of Automatic 
Feature''), and 1005 (``Order May Not Be Broken Into Smaller 
Accounts''), the Shares will be treated similar to Investment Company 
Units.\13\
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    \13\ In particular, NYSE Rule 1300B provides that Rule 105(m) is 
deemed to prohibit an equity specialist, his member organization, 
other member, allied member or approved person in such member 
organization or officer or employee thereof from acting as a market 
maker or functioning in any capacity involving market-making 
responsibilities in the applicable futures contracts, except as 
otherwise provided therein.
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III. Discussion and Commission's Findings

    After careful consideration, 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.\14\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(5) of 
the Act \15\ which requires, among other things, that the Exchange's 
rules be designed 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 notes that the 
listing and trading of shares of the iShares GS Commodity Indexed 
Trusts pursuant to NYSE Rules 1300B et seq. has been previously 
approved by the Commission.\16\
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    \14\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Securities Exchange Act Release No. 54013, supra note 8.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Exchange Act,\17\ 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. Key information will be disseminated at 
least every 15 seconds throughout the trading day, including the 
Indicative Value on a per-Share basis, as well as the value of each GS 
Index. Official calculation of each GS Index is currently performed 
continuously by the Index Sponsor and is updated at least every fifteen 
seconds on Reuters. The Sponsor for the Trusts has represented to the 
Exchange that the Trustee for the Trusts will make the NAV for the 
Trusts available to all market participants at the same time. In 
addition, futures quotes and last sale information for the commodities 
underlying the Indexes are widely disseminated through a variety of 
major market data vendors, and complete real-time data for such futures 
are available by subscription from such vendors. Daily settlement 
values for the Indexes are also widely disseminated. The Exchange's Web 
site will also disclose information regarding the Shares, including, 
among other things, their daily trading volume, closing prices, and 
NAVs.
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    \17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, prior to commencement of trading of the 
Shares on the Exchange, the Index Sponsor, a broker-dealer, will 
represent to the Exchange that it (a) Has implemented and maintained 
procedures reasonably designed to prevent the use and dissemination by 
personnel of the Index Sponsor, in violation of applicable laws, rules 
and regulations, of material non-public information relating to changes 
in the composition or method of computation or calculation of the Total 
Return Indexes; and (b) periodically checks the application of such 
procedures as they relate to such personnel of the Index Sponsor 
directly responsible for such changes. In addition, Policy Committee 
members will be subject to written policies with respect to material, 
non-public information.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) NYSE would rely on its existing surveillance procedures, which 
are adequate to properly monitor the trading of the Shares, to detect 
violations of applicable rules and deter manipulation. Specifically, 
the Exchange will rely upon existing procedures governing equities with 
respect to surveillance of the Shares. In addition, pursuant to its 
comprehensive information sharing agreements with each exchange, the 
Exchange can obtain market surveillance information, including customer 
identity information, with respect to transactions occurring on the New 
York Mercantile Exchange, the Kansas City Board of Trade, ICE and the 
LME, in order to monitor for fraudulent and manipulative trading 
practices. All of the other trading venues on which current components 
of the Total Return Indexes and CERFs are traded are members of the 
Intermarket Surveillance Group and the Exchange therefore has access to 
all relevant trading information with respect to those contracts 
without any further action being required on the part of the Exchange.
    (2) The Exchange will halt trading of the Shares if the NAV of each 
Fund is not calculated or disseminated daily or not made available to 
all market participants at the same time, and the Exchange may consider 
all relevant factors in exercising its discretion to halt or suspend 
trading in the Shares, including the extent to which trading is not 
occurring in the underlying commodities. Likewise, if the value of the 
Total Return Index associated with a Trust's Shares or the applicable 
Indicative Value is not being disseminated on at least a 15 second 
basis during the hours the Shares trade on the Exchange, the Exchange 
may halt trading during the day in which the interruption to the 
dissemination of the Indicative Value or the Index value occurs. If the 
interruption to the dissemination of the Indicative Value or the Index 
value persists past the trading day in which it occurred, the Exchange 
will halt trading no later than the beginning of the trading day 
following the interruption.
    (3) NYSE will distribute an Information Memo to its members 
providing guidance with regard to the special characteristics and risks 
of trading this type of security, the creation

[[Page 18504]]

and redemption procedures, applicable Exchange rules, the various fees 
and expenses, and the prospectus delivery requirements applicable to 
the Shares.
    This Order is conditioned on NYSE's adherence to the foregoing 
representations.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSE-2006-75), as modified 
by Amendment No. 1, be, and it hereby is, approved.
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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. E7-6897 Filed 4-11-07; 8:45 am]
BILLING CODE 8010-01-P