Document ID: SEC-2007-0065-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-01-16T05:00Z

[Federal Register: January 16, 2007 (Volume 72, Number 9)]
[
Notices]               
[Page 1794-1796]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ja07-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55053; File No. SR-NYSEArca-2006-38]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change to 
Trade iShares[supreg] S&P Global Index Funds and iShares[supreg] MSCI 
EAFE Index Fund Pursuant to Unlisted Trading Privileges

January 5, 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'') \3\ pursuant to 
unlisted trading privileges (``UTP'') based on NYSE Arca Equities Rule 
5.2(j)(3):
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    \3\ See e-mail dated January 4, 2007 from Michael Cavalier, 
Assistant General Counsel, NYSE Group, Inc. to Mitra Mehr, Special 
Counsel, Division of Market Regulation, Commission, reflecting a 
technical correction to the names of the relevant funds.

 iShares S&P Global Energy Sector Index Fund (Symbol: IXC)
 iShares S&P Global Financials Sector Index Fund (IXG)
 iShares S&P Global Health Care Sector Index Fund (IXJ)
 iShares S&P Global Telecommunications Sector Index Fund (IXP)
 iShares S&P Global Information Technology Sector Index Fund 
(IXN)
 iShares S&P/TOPIX 150 Index Fund (ITF)
 iShares S&P Latin America 40 Index Fund (ILF); and
 iShares MSCI EAFE Index Fund (EFA)

    The text of the proposed rule change is available on 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 
index underlying each Fund (``each, an Index'') consists of both U.S. 
and/or foreign stocks. The investment objective of each Fund is to 
provide investment results that correspond generally to the price and 
yield performance of its underlying Index. In seeking to achieve its 
respective investment objective, each Fund utilizes a ``representative 
sampling'' strategy, which is a passive investment strategy, to track 
its applicable Index. Each Fund will attempt to hold a representative 
sample of the Index's component securities utilizing quantitative 
analytical models. At least 90% of each Fund's total assets will be 
invested in the Index's component securities. Each Fund also may invest 
up to 10% of its total assets in stocks that are not included in its 
Index.
    The Commission previously approved the original listing and trading 
of the Shares on the American Stock Exchange LLC (``Amex'').\4\ 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 Shares, with the exception of 
iShares S&P/TOPIX 150 Index Fund, will not trade during the Opening 
Session (4 a.m. to 9:30 a.m.

[[Page 1795]]

Eastern Time) unless the Indicative Optimized Portfolio Value 
(``IOPV'') is calculated and disseminated during that time. The iShares 
S&P/TOPIX 150 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 S&P/TOPIX 150 Index Fund securities. Also 
the last calculated IOPV for this Fund 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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    \4\ See Securities Exchange Act Release No. 44700 (August 14, 
2001), 66 FR 43927 (August 21, 2001) (SR-Amex-2001-34).
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    Quotations for and last sale information regarding the Shares for 
each Fund are disseminated through the Consolidated Quotation System. 
The provider of each underlying Index disseminates the value of such 
index intra-day on a real-time basis as individual component securities 
of the underlying Index change in price. The intra-day value of each 
underlying Index is disseminated every 15 seconds throughout Amex's 
trading day by organizations authorized by each respective underlying 
Index provider. Amex disseminates the net asset value (``NAV'') for 
each Fund on a daily basis and the final dividend amounts that each 
Fund pays.
    To provide updated information relating to the Shares for use by 
investors, professionals, and persons wishing to create or redeem them, 
Amex disseminates the IOPV for each Fund as calculated by a securities 
information provider. 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.
    For the iShares S&P/TOPIX 150 Index Fund, there is no overlap in 
trading hours between the foreign markets trading the underlying Index 
component securities and Amex. Therefore, for this Fund, the IOPV is 
calculated based on closing prices in the principal foreign market for 
securities in the Fund 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. or 4:15 p.m. Eastern Time, as applicable, to reflect 
changes in currency exchange rates between the U.S. dollar and the 
applicable foreign currency.
    Each of the other Funds includes companies trading in markets with 
trading hours overlapping Amex's regular trading hours. During the 
overlap period for these Funds, an IOPV calculator updates an IOPV 
every 15 seconds to reflect price changes in the principal foreign 
markets, and converts such prices into U.S. dollars based on the 
current 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 IOPV may not reflect the value of all securities included in 
the applicable underlying Index, and the IOPV 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.
    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 the 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

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml.
); or
     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSEArca-2006-38 on the subject line.

Paper Comments

     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-2006-38. This 
file number should be included on the

[[Page 1796]]

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-2006-38 and should 
be submitted on or before February 6, 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 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, an 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 current 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. The Commission presently is not aware of any regulatory issue 
that should cause it to revisit that earlier finding or preclude the 
trading of the 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.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-NYSEArca-2006-38) is 
approved on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-390 Filed 1-12-07; 8:45 am]

BILLING CODE 8011-01-P