[Federal Register Volume 66, Number 28 (Friday, February 9, 2001)]
[Notices]
[Pages 9731-9734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3364]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43926; File No. SR-BSE-00-21]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Boston Stock Exchange, 
Inc. Relating to the Trading of S&P Global 100 Index Fund Shares

February 5, 2001.
    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 December 26, 2000, the Boston Stock Exchange, Inc. (``Exchange'' or 
``BSE'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II 
and III below, which items have been prepared by the BSE. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 BSE proposes to trade, pursuant to unlisted trading privileges 
(``UTP''), shares of an exchange traded fund (the ``Fund'') based on 
the S&P Global 100 Index. The text of the proposed rule change is 
available at the Office of the Secretary, the BSE or the Commission.

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 BSE 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 BSE 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
    On June 28, 2000, the Commission approved the proposed rule change 
of a new listing standard, Chapter XXIV-B, Index Fund Shares, which 
allowed the BSE to list and trade Index Fund Shares.\3\ Chapter XXIV-B 
also permits the BSE to list or trade Index Fund Shares under the 
expedited procedures described in Rule 19b-4(e) under the Act, so long 
as such securities meet specific structural standards. The BSE has used 
these procedures to trade, pursuant to UTP, several Index Fund Shares, 
including series of the iShares Trust based on domestic stock indices.
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    \3\ See Securities Exchange Act Release No. 42988 (June 28, 
2000), 65 FR 42041 (July 7, 2000) (SR-BSE-00-05).
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    The BSE now proposes to trade, via UTP, shares of the Fund based on 
the S&P Global 100 Index (the ``Index'' or ``Underlying Index'') 
pursuant to Chapter XXIV-B, Index Fund Shares.\4\ The Fund is included 
in the iShare Trust (the ``Trust''),\5\ and Barclays Global Fund 
Advisors (``BGFA''), a subsidiary of Barclays Global Investors, N.A. 
(``BGI''), acts as the advisor (the ``Advisor'') to the Fund. Standard 
& Poor's (``S&P''), a division of The McGraw-Hill Companies, Inc., is 
the Index provider. The Index is sponsored by S&P and the New York 
Stock Exchange, Inc. (``NYSE''), with the additional collaboration of 
several major exchanges from around the world.
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    \4\ The Exchange recognizes that the Fund will trade pursuant to 
its Index Fund Shares Rules and Rule 19b-4(f)(6), not Rule 19b-4(e). 
Telephone conversation between Ester Radovsky, Listings Analyst, 
BSE, and Heather Traeger, Attorney, Division of Market Regulation, 
Commission, January 30, 2001.
    \5\ The Trust is registered under the Investment Company Act of 
1940, as amended (``1940 Act''). The Trust has filed with the 
Commission a Registration Statement on the Form N-1/A under the 
Securities Act of 1933, as amended and under the 1940 Act relating 
to the Fund (File No. 333-92935 and 811-09729).
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    As described below, S&P Global 100 Index Fund Shares are 
structurally similar to the Index Fund Shares already approved for 
trading on the BSE. The information about the Fund is based on the 
recent rule filing by the NYSE.\6\
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    \6\ See Securities Exchange Act Release No. 43658 (December 2, 
2000) 65 FR 77408 (December 11, 2000) (SR-NYSE-00-53).
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    The Underlying Index. A detailed description of the Underlying 
Index for the Fund was prepared by S&P and filed by the NYSE as Exhibit 
2 in its submission.\7\ The description includes, but is not limited 
to, information regarding index description, component selection 
criteria, country representation, index maintenance, and industry group 
distribution by market capitalization. The Underlying Index 
description, including any changes thereto, may be found on the S&P 
Global

[[Page 9732]]

web site at http://www.spglobal.com/ssindexmainglobal100.html.
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    \7\ Id.
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    General description of the fund. The Fund offers and issues shares 
(``Fund Shares'') at their net asset value (``NAV'') only in 
aggregations of a specified number of Fund Shares (referred to as a 
``Creation Unit''), generally in exchange for a basket of equity 
securities included in the Underlying Index (the ``Deposit 
Securities''), together with the deposit of a specified cash payment 
(the ``Cash Component'').\8\ Fund Shares are redeemable only in 
Creation Unit aggregations, and, generally, in exchange for portfolio 
securities and a specified cash payment. Creation Units are 
aggregations of 50,000 Fund Shares. The Trust reserves the right to 
offer a ``cash'' option for creations and redemptions of Fund Shares.
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    \8\ The Cash Component is an amount equal to the Balancing 
Amount. The ``Balancing Amount'' is an amount equal to the 
difference between the NAV of the Fund Shares (per Creation Unit) 
and the ``Deposit Amount.'' The ``Deposit Amount'' is an amount 
equal to the market value of the Deposit Securities. If the 
Balancing Amount is a positive number (i.e., the NAV per Creation 
Unit exceeds the Deposit Amount), the Cash Component will be paid to 
the Trust by the creator. If the Balancing Amount is a negative 
number (i.e., the NAV per Creation Unit is less than the Deposit 
Amount), the creator will receive cash in an amount equal to the 
differential.
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    ``Passive'' or indexing investment approach. The Fund seeks 
investment results that, before expenses, correspond generally to the 
price and yield performance of companies in the Index. The Advisor uses 
a ``passive'' or indexing approach in seeking to achieve the Fund's 
investment objective.
    Representative sampling. The Fund uses representative sampling to 
track the Underlying Index. This means that the Fund is invested in a 
representative sample of stocks in the Underlying Index, which have a 
similar investment profile as the Underlying Index. Stocks selected 
have aggregate investment characteristics (based on market 
capitalization and industry weighings), fundamental characteristics 
(such as return variability, earnings valuation, and yield), and 
liquidity measures similar to those of the relevant Underlying Index. A 
fund that uses representatives sampling generally does not hold all of 
the stocks included in its underlying index.
    The Fund invests at least 90% of its total assets in the stocks of 
the Underlying Index. The Fund may hold up to 10% of its total assets 
in stocks not included in the Underlying Index. For example, the 
Advisory may invest in stocks not included in the Underlying Index in 
order to reflect various corporate actions (such as mergers) and other 
changes in the Underlying Index (such as reconstitutions, additions and 
deletions). The Fund may also invest in stocks outside the underlying 
Index to meet the diversification requirements of a regulated 
investment company under the Internal Revenue Code (the ``Code'').\9\ 
As long as the Fund invests at least 90% of its total assets in the 
stocks of the Underlying Index, it may also invest its other assets in 
futures contracts, options on futures contracts, options, and swaps 
related to the Underlying Index, as well as cash and cash equivalents.
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    \9\ In order for the Fund to qualify to tax treatment as a 
regulated investment company, it must meet several requirements 
under the Code. Among these is the requirement that, at the close of 
each quarter of the Fund's taxable year, (1) at least 50 percent of 
the market value of the Fund's total assets must be represented by 
cash items, U.S. government securities, securities for other 
regulated investment companies and other securities, with such other 
securities limited for the purpose of this calculation in respect to 
any one issuer to an amount not greater than 5 percent of the value 
of the Fund's assets and not greater than 10 percent of the 
outstanding voting securities of such issuer, and (2) not more than 
25 percent of the value of its total assets may be invested in 
securities of any one issuer, or two or more issuers that are 
controlled by the Fund (within the meaning of section 851(b)(4)(B) 
of the Code) and that are engaged in the same or similar trades or 
business (other than U.S. government securities of other regulated 
investment companies.)
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    Correlation. An index is a theoretical financial calculation while 
the Index Fund Share is an actual investment portfolio. The performance 
of the Fund and the Underlying Index will vary somewhat due to 
transaction costs, market impact, corporate actions (such as mergers 
and spin-offs) and timing variances. It is expected that over time, the 
correlation between the Fund's performance and that of the Underlying 
Index, before fees and expenses, will be 95% or better. A figure of 
100% would indicate perfect correlation. Any correlation of less than 
100% is called a ``tracking error.''
    Industry concentration policy. The Fund does not concentrate its 
investments (i.e., hold 25% or more of its total assets in the stocks 
of a particular industry or group of industries). However, the Fund 
does concentrate to approximately the same extent that the Underlying 
Index concentrates in the stocks of a particular industry or group of 
industries. For purposes of this limitation, securities of the U.S. 
Government (including its agencies and instrumentalities), repurchase 
agreements collateralized by U.S. Government securities, and securities 
of state or municipal governments and their political subdivisions are 
not considered to be issued by members of any industry.
    Creations and redemptions of fund shares. The Fund Shares are 
``created'' at their NAV by specialists, large investors, and 
institutions only in Creation Units of 50,000 Shares. A ``creator'' 
deposits into the Fund a specified portfolio of stocks closely 
approximating the holdings of the Fund (the ``Deposit Securities'') and 
specified amount of cash (the ``Cash Component'') in exchange for 
50,000 Fund Shares.
    Similarly, the Fund Shares can only be redeemed in Creation Units 
of 50,000 Fund Shares, principally in-kind for a specified portfolio of 
stocks held by the Fund then comprising the Deposit Securities and the 
then applicable Cash Component. Except when aggregated in Creation 
Units, Fund Shares are not redeemable. The prices at which creations 
and redemptions occur are based on the next calculation of NAV after an 
order is received in proper form. Creations and redemptions must be 
made through a firm that is either a member of the Continuous Net 
Settlement System of the National Securities Clearing Corporation 
(``NSCC'') or a Depository Trust Company (``DTC'') participant and, in 
each case, must have executed an agreement with the Distributor with 
respect to creations and redemptions of Creation Unit aggregations 
(``Participant Agreement''). The Trust imposes transaction fees in 
connection with creation and redemption transactions.
    Availability of information regarding fund shares and underlying 
indices. The list of names and amount of each security constituting the 
current Deposit Securities, and the Cash Component effective as of the 
previous business day, per outstanding share of the Fund, is made 
available each business day. In addition, an amount representing the 
sum of the estimated Cash Component effective through and including the 
previous business day, plus the current value of the Deposit Securities 
in U.S. dollars, on a per share basis is disseminated every 15 seconds 
during the Exchange's regular trading hours, through the facilities of 
the Consolidated Tape Association (``CTA''). The value of the 
Underlying Index is updated intra-day on a real-time basis as 
individual component securities of the Underlying Index change in 
price. These intra-day values of the Underlying Index are disseminated 
every 15 seconds throughout the trading day. In addition, a value for 
the Underlying Index is disseminated once each trading day, based on 
closing prices in the relevant exchange market.

[[Page 9733]]

    The Fund makes available on a daily basis the names and required 
number of shares of each of the Deposit Securities in a Creation Unit 
aggregation, as well as information regarding the cash-balancing 
amount. The NAV for the Fund is calculated and disseminated daily. In 
addition, the Adviser maintains a web site that provides information 
about the returns and methodology of various indices, which includes 
the Underlying Index for the Fund. The Trust also maintains a web site 
that includes the Fund prospectus and additional quantitative 
information that is updated on a daily basis, including daily trading 
volume and closing price for the Fund. There is also a variety of data 
disseminated with respect to the Index on a daily basis by means of CTA 
including shares outstanding and cash amount per Creation Unit 
aggregation, which is made available prior to the opening of the 
trading on the Exchange. The closing prices of the Fund's Deposit 
Securities are readily available from, as applicable, the relevant 
exchanges, automated quotation systems, or on-line information services 
such as Bloomberg or Reuters.
    Dissemination of indicative portfolio value. An updated indicative 
portfolio value (``Value'') for the Fund is disseminated through the 
CTA as calculated by a securities information provider (``Value 
Calculator''). The Value \10\ is disseminated on a per Fund Share basis 
every 15 seconds during regular Exchange trading hours for the Fund.
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    \10\ The equity securities values included in the Value are the 
values of the Deposit Securities, which are the same as the 
portfolio that is utilized generally in connection with creations 
and redemptions of the Fund Shares Creation Unit aggregations on 
that day. The equity securities included in the Value reflect the 
same market capitalization weighting as the Deposit Securities in 
the portfolio for the Fund. In addition to the value of the Deposit 
Securities for the Fund, the Value includes the Cash Component. The 
Value also reflects changes in currency exchange rates between the 
U.S. dollar and the applicable home foreign currency.
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    The Value may not reflect the value of all securities included in 
the applicable Underlying Index. In addition, the Value does not 
necessarily reflect the precise composition of the current portfolio of 
securities held by the Fund at a particular point in time. Therefore, 
the Value on a per Fund Shares basis disseminated during the NYSE's 
trading hours should not be viewed as a real-time update of the NAV of 
the Fund, which is calculated only once a day. While the Value that is 
disseminated at 9:30 a.m. is expected to be generally very close to the 
most recently calculated NAV on a per Fund Shares basis, it is possible 
that the value of the portfolio of securities held by the Fund may 
diverge from the Deposit Securities Values during any trading day. In 
such case, the Value will not precisely reflect the value of the Fund 
portfolio.
    However, during the trading day, the Value can be expected to 
closely approximate the value per Fund share of the portfolio of 
securities for the Fund except under unusual circumstances (e.g., in 
the case of extensive rebalancing of multiple securities in the Fund at 
the same time by the Advisor). The circumstances that might cause the 
Value to be based on calculations different from the valuation per Fund 
share of the actual portfolio of the Fund would not be different than 
circumstances causing any index fund or trust to diverge from an 
underlying benchmark index.
    For the Fund, the Value Calculator utilizes closing prices (in 
applicable foreign currency prices) in the principal foreign market(s) 
for securities in the Fund portfolio, and converts the price to U.S. 
dollars. This Value is updated every 15 second during the NYSE's 
trading hours to reflect change in currency exchange rates between the 
U.S. dollar and the applicable foreign currency. The Value also 
includes the applicable Cash Component for the Fund. For foreign 
stocks, the principal foreign markets that have trading hours 
overlapping regular trading hours on the NYSE, the Value Calculator 
will update the applicable Value every 15 seconds to reflect price 
changes in the applicable foreign market or markets, and convert such 
prices into U.S. dollars based on the current currency exchange rate. 
When the foreign market or markets are closed but the NYSE is open, the 
Value is updated every 15 seconds to reflect changes in currency 
exchange rates after the foreign markets close.
    Trading of Fund Shares on the Exchange. The Fund will be subject to 
the criteria for initial and continued listing of Index Fund Shares 
described in Chapter XXIV-B.
    The BSE will require that a minimum of 100,000 Shares be 
outstanding when trading begins at the BSE. This number of Shares is 
comparable to the number of shares outstanding when other Index Fund 
Shares began trading on the BSE. The BSE believes that the proposed 
minimum number of Shares required to be outstanding when trading begins 
on the BSE is sufficient to provide market liquidity and to further the 
Fund's objective to seek to provide investment results that correspond 
generally to the price and yield performance of the Index.
    Fund Shares are registered in book-entry form through the DTC. 
Trading in Fund Shares on the BSE will be effected until 4:00 p.m. each 
business day. The minimum trading variation for the Fund will be $.01 
of $1.00.
    Dividends from net investment income will be declared and paid at 
least annually by the Fund. Distributions of realized securities gains, 
if any, generally will be declared and paid at least once a year, but 
the Fund may make distributions on a more frequent basis to comply with 
distribution requirements of the Code. The Fund may make the DTC book-
entry Dividend Reinvestment Service available for use by beneficial 
owners of the Fund through DTC Participants for reinvestment of their 
cash proceeds.
    As an Index Fund Shares, the Fund is considered a ``security'' 
under the Rules of the Exchange and is subject to all applicable 
trading rules, including the provisions of Chapter II, Section (4) (ITS 
``Trade-Throughs and Locked Markets''), which prohibit BSE members from 
initiating trade-throughs for ITS securities, as well as rules 
governing priority, parity and precedence of orders, market volatility 
related trading halt provisions and responsibilities of the assigned 
specialist firm. Exchange equity margin rules will apply.
    The Fund is also subject to the Exchange's rule relating to trading 
halts due to extraordinary market volatility (Chapter II, Section 34A), 
and the Exchange's rule which allows Exchange officials to halt trading 
in specific securities, under certain circumstances (Chapter II, 
Section 34B). In exercising the discretion described in Chapter II, 
appropriate BSE officials may consider a variety of factors, including 
the extent to which trading is not occurring in a stock underlying the 
index and whether other unusual conditions or circumstances detrimental 
to the maintenance of a fair and orderly market are present.
    The BSE's surveillance procedures for the Fund will be similar to 
the procedures used for other Index Fund Shares and will incorporate 
and rely upon existing BSE surveillance systems.
    The Exchange will issue a circular to its members and member 
organizations, prior to the commencement of trading, alerting them to 
the characteristics of the Fund Shares, including the fact that Shares 
are not individually redeemable, but are redeemable only in Creation 
Units. The circular will also confirm that investors purchasing Fund 
Shares will be required to receive a prospectus prior to or 
concurrently with the

[[Page 9734]]

confirmation of a transaction in the Shares, will inform members that 
the procedures for purchases and redemptions of Shares in Creation Unit 
Size are described in the Trust Prospectus; and will confirm for 
members that the Fund Shares are subject to existing Exchange rules 
relating to trading halts. Finally, the circular will inform members 
that before a member, member organization, or person associated with a 
member organization should make a determination that the Fund is 
suitable for the customer and the person making the recommendation 
should have a reasonable basis for believing, at the time of making the 
recommendation, that the customer has such knowledge and experience in 
financial matters that he may reasonably be expected to be capable of 
evaluating the risks and the special characteristics of the recommended 
transaction and is financially able to bear the risks of the 
recommended transaction.
2. Statutory Basis.
    The BSE believes that the proposed rule change is consistent with 
section 6(b)(5)\11\ of the Act, which requires that an exchange have 
rules that are 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 regulating, 
clearing, settling, processing information with respect to; and 
facilitating transactions in securities; to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protest investors and the public interest.
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    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The BSE seeks to trade issues 
already trading on another exchange and believes that this increased 
competition among markets can benefit investors.

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

    The BSE has neither solicited nor received any written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest: (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
BSE has given notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing the rule change, 
or such shorter time as designated by the Commission, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) of the Act 
\12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) may not become 
operative prior to 30 days after the date of filing. However, Rule 19b-
4(f)(6)iii) permits the Commission to designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest. The BSE seeks to have the proposed rule change become 
operative on February 2, 2001, in order to allow the BSE to immediately 
trade, pursuant to unlisted trading privileges, shares of S&P Global 
100 Index. The Shares are already being traded on the NYSE.
    The Commission believes that it is consistent with the protection 
of investors and the public interest that the proposed rule change 
becomes operative immediately as of February 2, 2001.\14\ At any time 
within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \14\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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IV. 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-
0609. 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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
BSE.
    All submissions should refer to File No. SR-BSE-00-21 and should be 
submitted by March 2, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-3364 Filed 2-8-01; 8:45 am]
BILLING CODE 8010-01-M