Document ID: SEC-2006-0716-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, LLC
Posted Date: 2006-06-02T04:00Z

[Federal Register: June 2, 2006 (Volume 71, Number 106)]
[Notices]               
[Page 32158-32164]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jn06-135]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53876; File No. SR-NYSE-2006-16]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc. (n/
k/a New York Stock Exchange LLC); Order Granting Approval of a Proposed 
Rule Change and Amendment No. 1 Relating to the Listing and Trading of 
Index-Linked Securities of Barclays Bank PLC Linked to the Performance 
of the Dow Jones--AIG Commodity Index Total Return

May 25, 2006.

I. Introduction

    On March 6, 2006, the New York Stock Exchange, Inc. (n/k/a New York 
Stock Exchange LLC) (``NYSE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, a proposed rule change to 
list and trade Index-Linked Securities of Barclays Bank PLC 
(``Barclays'') linked to the performance of the Dow Jones--AIG 
Commodity Index Total Return (the ``Index''). On March 27, 2006, NYSE 
filed Amendment No. 1 to the proposed rule change. The proposed rule 
change, as amended by Amendment No. 1, was published for comment in the 
Federal Register on April 21, 2006 for a 15-day comment period.\3\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 53639 (April 12, 
2006), 71 FR 20741 (the ``Notice'').
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II. Description of the Proposal

    The NYSE proposes to list and trade the Index-Linked Securities 
(``Notes'') that will track the performance of the Index pursuant to 
Section 703.19 (``Other Securities'') of the NYSE Listed Company Manual 
(the ``Manual''). Barclays intends to issue the Notes under the name 
``iPathSM Exchange-Traded Notes.'' The Exchange believes 
that the Notes will conform to the initial listing standards for equity 
securities under Section 703.19 of the Manual because Barclays is an 
affiliate of Barclays PLC,\4\ an Exchange-listed company in good 
standing. Under Section 703.19 of the Manual, the Exchange may approve 
for listing and trading securities not otherwise covered by the 
criteria of Sections 1 and 7 of the Manual, provided the issue is 
suited for auction market trading.\5\ The Notes will have a minimum 
life of one year, the minimum public market value of the Notes at the 
time of issuance will exceed $4 million, there will be at least one 
million Notes outstanding, and there will be at least 400 holders at 
the time of issuance.
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    \4\ The issuer of the Notes, Barclays, is an affiliate of an 
Exchange-listed company (Barclays PLC) and not an Exchange-listed 
company itself. However, Barclays, though an affiliate of Barclays 
PLC, would exceed the Exchange's earnings and minimum tangible net 
worth requirements in Section 102 of the Manual. Additionally, the 
Exchange states that the Notes, when combined with the original 
issue price of all other Note offerings of the issuer that are 
listed on a national securities exchange (or association), does not 
exceed 25% of the issuer's net worth. Telephone conference between 
Florence E. Harmon, Senior Special Counsel, Division of Market 
Regulation (``Division''), Commission, and John Carey, Assistant 
General Counsel, Exchange, on April 11, 2006 (``April 11 Telephone 
Conference'').
    \5\ See Securities Exchange Act Release No. 28217 (July 18, 
1990), 55 FR 30056 (July 24, 1990).
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    The Notes are a series of medium-term debt securities of Barclays 
that provide for a cash payment at maturity or upon earlier exchange at 
the holder's option, based on the performance of the Index. The 
principal amount of each Note is $50. The Notes will trade on the 
Exchange's equity trading floor, and the Exchange's existing equity 
trading rules will apply to trading the Notes. The Notes will not have 
a minimum principal amount that will be repaid and, accordingly, 
payment on the Notes prior to or at maturity may be less than the 
original issue price of the Notes. In fact, the value of the Index must 
increase for the investor to receive at least the $50 principal amount 
per Note at maturity or upon exchange or redemption. If the value of 
the Index decreases or does not increase sufficiently to offset the 
investor fee (described below), the investor will receive less, and 
possibly significantly less, than the $50 principal amount per Note. In 
addition, holders of the Notes will not receive any interest payments 
from the Notes. The Notes will have a term of 30 years. The Notes are 
not callable.\6\
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    \6\ April 11 Telephone Conference.
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    Holders who have not previously redeemed their Notes will receive a 
cash payment at maturity equal to the principal amount of their Notes 
times the index factor on the Final Valuation Date (as defined below) 
minus the investor fee on the Final Valuation Date. The ``index 
factor'' on any given day will be equal to the closing value of the 
Index on that day divided by the initial index level. The ``initial 
index level'' is the closing value of the Index on the date of issuance 
of the Notes (the ``Trade Date''), and the ``final index level'' is the 
closing value of the Index on the Final Valuation Date. The investor 
fee is equal to 0.75% per year times the principal amount of a holder's 
Notes times the index factor, calculated on a daily basis in the 
following manner: The investor fee on the Trade Date will equal zero. 
On each subsequent calendar day until maturity or early redemption, the 
investor fee will increase by an amount equal to 0.75% times the 
principal amount of a holder's Notes times the index factor on that day 
(or, if such day is not a trading day, the index factor on the 
immediately preceding trading day) divided by 365. The investor fee is 
the only fee holders will be charged in connection with their ownership 
of the Notes.
    Prior to maturity, holders may redeem their Notes on any Redemption 
Date (defined below) during the term of the Notes, provided that they 
present at least 50,000 Notes for redemption, or they act through a 
broker or other financial intermediaries (such as a bank or other 
financial institution not required to register as a broker-dealer to 
engage in securities transactions) that are willing to bundle their 
Notes for redemption with other investors' Notes. If a holder chooses 
to redeem his Notes, the holder will receive a cash payment on the 
applicable Redemption Date equal to the principal amount of his Notes 
times the index factor on the applicable Valuation Date (defined below) 
minus the investor fee on the applicable Valuation Date. A ``Redemption 
Date'' is the third business day following a Valuation Date (other than 
the Final Valuation Date (defined below)). A ``Valuation Date'' is each 
Thursday from the first Thursday after issuance of the Notes until the 
last Thursday before maturity of the Notes

[[Page 32159]]

(the ``Final Valuation Date'') inclusive (or, if such date is not a 
trading day, the next succeeding trading day), unless the calculation 
agent determines that a market disruption event, as described below, 
occurs or is continuing on that day.\7\ In that event, the Valuation 
Date for the maturity date or corresponding Redemption Date, as the 
case may be, will be the first following trading day on which the 
calculation agent determines that a market disruption event does not 
occur and is not continuing. In no event, however, will a Valuation 
Date be postponed by more than five trading days.\8\
    To redeem their Notes, holders must instruct their broker or other 
person through whom they hold their Notes to take the following steps:
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    \7\ Barclays will serve as the initial calculation agent for the 
Notes.
    \8\ If a ``market disruption event'' is of more than a temporary 
nature, the Exchange will file a proposed rule change pursuant to 
Rule 19b-4 seeking Commission approval to continue to trade the 
Notes. (17 CFR 240.19b-4.) Unless approved for continued trading, 
the Exchange would commence delisting proceedings. See ``Continued 
Listing Criteria,'' infra. Telephone conference between Florence E. 
Harmon, Senior Special Counsel, Division, Commission; John Carey, 
Assistant General Counsel, Exchange; and Mike Cavalier, Assistant 
General Counsel, Exchange, on April 10, 2006 (``April 10 Telephone 
Conference'').
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     Deliver a notice of redemption to Barclays via e-mail by 
no later than 11 a.m. Eastern time (``ET'') on the business day prior 
to the applicable Valuation Date. If Barclays receives such notice by 
the time specified in the preceding sentence, it will respond by 
sending the holder a confirmation of redemption;
     Deliver the signed confirmation of redemption to Barclays 
via facsimile in the specified form by 4 p.m. ET on the same day; 
Barclays must acknowledge receipt in order for the confirmation to be 
effective; and
     Transfer such holder's book-entry interest in its Notes to 
the trustee, The Bank of New York, on Barclays' behalf at or prior to 
10 a.m. ET \9\ on the applicable Redemption Date (the third business 
day following the Valuation Date).
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    \9\ The Exchange authorized the Commission staff to clarify time 
zone references here and elsewhere in the proposal. Telephone 
conference between Florence E. Harmon, Senior Special Counsel, 
Division, Commission; John Carey, Assistant General Counsel, 
Exchange; and Mike Cavalier, Assistant General Counsel, Exchange, on 
March 29, 2006 (``March 29 Telephone Conference'').
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    If holders elect to redeem their Notes, Barclays may request that 
Barclays Capital Inc. (a broker-dealer) purchase the Notes for the cash 
amount that would otherwise have been payable by Barclays upon 
redemption. In this case, Barclays will remain obligated to redeem the 
Notes if Barclays Capital Inc. fails to purchase the Notes. Any Notes 
purchased by Barclays Capital Inc. may remain outstanding for trading 
on the Exchange.
    If an event of default occurs and the maturity of the Notes is 
accelerated, Barclays will pay the default amount in respect of the 
principal of the Notes at maturity.

III. Indicative Value

    An intraday ``Indicative Value'' meant to approximate the intrinsic 
economic value of the Notes will be calculated and published via the 
facilities of the Consolidated Tape Association (``CTA'') every 15 
seconds throughout the NYSE trading day on each day on which the Notes 
are traded on the Exchange. Additionally, Barclays or an affiliate will 
calculate and publish the closing Indicative Value of the Notes on each 
trading day at http://www.ipathetn.com. In connection with the Notes, 

the term ``Indicative Value'' refers to the value at a given time based 
on the following equation:

Indicative Value = Principal Amount per Unit x (Current Index Level/
Initial Index Level) - Current Investor Fee

Where:

 Principal Amount per Unit = $50
 Current Index Level = The most recent published level of the 
Index as reported by Dow Jones and AIG-Financial Products Corp. (``AIG-
FP'').\10\

    \10\ AIG-FP is a wholly-owned and guaranteed subsidiary of 
American International Group, Inc.
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 Initial Index Level = The Index level on the trade date for 
the Notes.
 Current Investor Fee = The most recent daily calculation of 
the investor fee with respect to the Notes, determined as described 
above (which, during any trading day, will be the investor fee 
determined on the preceding calendar day).
    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 of 
the Notes on the NYSE at 4 p.m. ET.\11\ The value of the Notes 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.
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    \11\ April 11 Telephone Conference (confirming Notes will trade 
until 4:00 p.m. ET). The Notice includes a chart of the trading 
hours for each of the futures contract components in the Index. See 
Notice, supra, note 3.
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    While the market for futures trading for each of the Index 
commodities is open, the Indicative Value can be expected to closely 
approximate the redemption value of the Notes. However, during the NYSE 
trading hours when the futures contracts have ceased trading, spreads 
and resulting premiums or discounts may widen, and therefore, increase 
the difference between the price of the Notes and their redemption 
value. The Exchange states that the Indicative Value disseminated 
during the NYSE trading hours should not be viewed as a real time 
update of the redemption value.

IV. Description of the Index

    The investment objective of the Notes is to track the Index, which 
is described below and in more detail in the Notice.\12\ The Index is 
designed to be a diversified benchmark for commodities as an asset 
class and reflects the returns that are potentially available through 
an unleveraged investment in the futures contracts on physical 
commodities comprising the Index plus the rate of interest that could 
be earned on cash collateral invested in specified Treasury Bills.\13\ 
The Index currently is composed of the prices of 19 exchange-traded 
futures contracts on physical commodities.\14\ Futures contracts on the 
Index are currently listed for trading on the Chicago Board of Trade 
(``CBOT''). The Index is a proprietary index that AIGI International 
Inc. (``AIGI'') developed, that each year is determined by AIG-FP, 
subject to the oversight and approval of the Oversight Committee 
(defined below), and that Dow Jones calculates.\15\ The methodology for

[[Page 32160]]

determining the composition and weighting of the Index and for 
calculating its value is subject to modification by Dow Jones and AIG-
FP (``Index Sponsors'') at any time.\16\ Dow Jones disseminates the 
Index value at least every 15 seconds \17\ (assuming the Index value 
has changed within such 15 second interval) from 8 a.m. to 3 p.m. ET 
and publishes a daily Index value at approximately 4 p.m. ET on each 
DJ-AIG Business Day (as defined below) on Reuters page AIGCII.\18\ The 
Index value can still be retrieved after 3 p.m. ET until the end of the 
Exchange trading day, but its value is generally static after 3 p.m. 
ET, although it may change if settlement values for Index components 
become available after that time. A DJ-AIG Business Day (``DJ-AIG 
Business Day'') is a day on which the sum of the Commodity Index 
Percentages (as defined below) for the Index commodities that are 
available to trade is greater than 50%. For example, based on the 
weighting of the Index commodities for 2006, if the CBOT and the NYMEX 
are closed for trading on the same day, a DJ-AIG Business Day will not 
exist.\19\
    Dow Jones and AIGI have established the Dow Jones--AIG Commodity 
Index Oversight Committee (the ``Oversight Committee'') to assist them 
in connection with the operation of the Index. The Oversight Committee 
may also meet at such other times as may be necessary.
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    \12\ The methodology for determining the composition and 
weighting of the Index and calculating its value is described in 
more detail in the Notice. See supra, note 3.
    \13\ These returns are calculated by using the 91-day U.S. 
Treasury Bill auction rate, designated as ``High Rate'' as published 
in the ``Treasury Security Auction Results'' report, published by 
the Bureau of the Public Debt currently available on its Web site 
(http://wwws.publicdebt.treas.gov/AI/AIGateway), which is generally 

published once per week on Monday.
    \14\ On March 3, 2006, the Oversight Committee of the Dow 
Jones--AIG Commodity Index announced that the Reformulated Gasoline 
Blendstock for Oxygen Blending (``RB'') futures contract traded on 
the New York Mercantile Exchange (``NYMEX'') will replace the New 
York Harbor Unleaded Gasoline (``HU'') futures contract also traded 
on NYMEX. Telephone conference between Brian Trackman, Special 
Counsel, Division, Commission, and John Carey, Assistant General 
Counsel, Exchange, on March 30, 2006.
    \15\ AIG-FP is not a broker-dealer or futures commission 
merchant; however, AIG-FP may have such affiliates. Therefore, AIG-
FP (i) implemented and agrees to maintain procedures reasonably 
designed to prevent the use and dissemination by relevant employees 
of AIG-FP, 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 Index and 
(ii) agrees to periodically check the application of such procedures 
as they relate to personnel of AIG-FP responsible for such changes. 
Barclays has informed the Exchange that Dow Jones does not have any 
affiliates engaged in the securities or commodities trading 
businesses and, as such, does not believe that such firewall 
procedures are necessary in its case. In addition, the Oversight 
Committee is subject to written policies that acknowledge their 
obligations with respect to material non-public information. 
Telephone conference between Florence E. Harmon, Senior Special 
Counsel, Division, Commission and John Carey, Assistant General 
Counsel, Exchange, on May 11, 2006.
    \16\ In such case, the Commission would expect the Exchange to 
file a proposed rule change pursuant to Rule 19b-4 (17 CFR 240.19b-
4), seeking Commission approval to continue trading the Notes. 
Unless approved for continued trading, the Exchange would commence 
delisting proceedings. See ``Continued Listing Critera,'' infra. 
April 10 Telephone Conference.
    \17\ April 11 Telephone Conference.
    \18\ The Oversight Committee (defined below) may exclude any 
otherwise eligible contract from the Index if it determines that it 
has an inadequate trading window. The Index currently includes 
contracts traded on the London Metal Exchange (``LME''), which is 
located in London. During the hours where the LME is closed, Dow 
Jones uses the last price and uses the settlement price once it is 
available in order to publish the Index value through the end of the 
trading day. The Index value does not reflect any after-hours or 
overnight trading in contracts traded on the LME.
    \19\ The Index value will be disseminated at least every 15 
seconds and the daily Index value to be calculated and disseminated 
during the time the Notes trade on the Exchange; otherwise, the 
Exchange will halt trading in the Notes. April 11 Telephone 
Conference.
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    As described in more detail in the Notice, the Index is re-weighted 
and rebalanced each year in January on a price-percentage basis. The 
annual weightings for the Index are determined each year in June or 
July by AIG-FP under the supervision of the Oversight Committee, 
announced after approval by the Oversight Committee, and implemented 
the following January. The composition of the Index for 2006 was 
approved following a meeting in July 2005. The Index reweighting and 
rebalancing took place in January 2006.\20\
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    \20\ See Notice, supra note 3, for a chart of the composition 
percentages for the Index for 2006.
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    The Exchange states that a number of commodities have been selected 
that are believed to be sufficiently significant to the world economy 
to merit consideration for inclusion in the Index and which are the 
subject of a qualifying related futures contract. With the exception of 
several metals contracts (aluminum, lead, tin, nickel and zinc) that 
trade on the LME, each of the potential commodities is the subject of a 
futures contract that trades on a U.S. exchange. The 23 potential 
commodities currently considered for inclusion in the Index and the 19 
Index commodities selected for 2006 are set out in the Notice.\21\
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    \21\ See Notice, supra note 3.
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    A futures contract known as a Designated Contract is selected for 
each commodity. With the exception of several LME contracts, where the 
Oversight Committee believes that there exists more than one futures 
contract with sufficient liquidity to be chosen as a Designated 
Contract for a commodity, the Oversight Committee selects the futures 
contract that is traded in North America and denominated in dollars. If 
more than one such contract exists, the Oversight Committee selects the 
most actively traded contract.\22\ For the purposes of applying the 
diversification rules, the commodities considered for inclusion in the 
Index are assigned to ``Commodity Groups.'' \23\
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    \22\ The Designated Contracts for the commodities included in 
the Index for 2005 are set out in the Notice. See supra note 3.
    \23\ The Commodity Groups and their effective target rounded 
weightings for 2006 are set out in the Notice. See supra note 3.
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    The relative weightings of the component commodities included in 
the Index are determined annually according to both liquidity and 
dollar adjusted production data in 2/3 and 1/3 shares, respectively. 
Each June, for each commodity designated for potential inclusion in the 
Index, liquidity is measured by the Commodity Liquidity Percentage 
(``CLP'') and production by the Commodity Production Percentage 
(``CPP''). The CLP for each commodity is determined by taking a five-
year average of the product of trading volume and the historical dollar 
value of the Designated Contract for that commodity, and dividing the 
result by the sum of such products for all commodities which were 
designated for potential inclusion in the Index. The CPP is determined 
for each commodity by taking a five-year average of annual world 
production figures, adjusted by the historical dollar value of the 
Designated Contract, and dividing the result by the sum of such 
production figures for all the commodities, which were designated for 
potential inclusion in the Index. The CLP and the CPP are then combined 
(using a ratio of 2:1) to establish the Commodity Index Percentage 
(``CIP'') for each commodity. This CIP is then adjusted in accordance 
with certain diversification rules in order to determine the 
commodities, which will be included in the Index and their respective 
percentage weights.
    The Index is designed to provide diversified exposure to 
commodities as an asset class. To ensure that no single commodity or 
commodity sector dominates the Index, the following diversification 
rules are applied to the annual re-weighting and rebalancing of the 
Index as of January of the applicable year:
     No related group of commodities designated as a 
``Commodity Group'' (e.g., energy, precious metals, livestock, or 
grains) may constitute more than 33% of the Index.
     No single commodity may constitute more than 15% of the 
Index.
     No single commodity, together with its derivatives (e.g., 
crude oil, together with heating oil and unleaded gasoline), may 
constitute more than 25% of the Index.
     No single commodity that is in the Index may constitute 
less than 2% of the Index.
    Following the annual re-weighting and rebalancing of the Index in 
January, the percentage of any single commodity or group of commodities 
at any time prior to the next re-weighting or rebalancing will 
fluctuate and may exceed or be less than the percentages set forth 
above.

[[Page 32161]]

    Following application of the diversification rules discussed above, 
CIPs are incorporated into the Index by calculating the new unit 
weights for each Index commodity. Near the beginning of each new 
calendar year (the ``CIM Determination Date''), the CIPs, along with 
the settlement prices on that date for Designated Contracts included in 
the Index, are used to determine a Commodity Index Multiplier (``CIM'') 
for each Index commodity. This CIM is used to achieve the percentage 
weightings of the Index commodities, in dollar terms, indicated by 
their respective CIPs. After the CIMs are calculated, they remain fixed 
throughout the year. As a result, the observed price percentage of each 
Index commodity will float throughout the year, until the CIMs are 
reset the following year based on new CIPs.
    In order to avoid delivering the underlying physical commodities 
and to maintain exposure to the underlying physical commodities, 
periodically futures contracts on physical commodities specifying 
delivery on a nearby date must be sold and futures contracts on 
physical commodities that have not yet reached the delivery period must 
be purchased. The rollover for each contract occurs over a period of 
five DJ-AIG Business Days each month according to a pre-determined 
schedule. This process is known as ``rolling'' a futures position. The 
Index is a ``rolling index.''
    The Index is calculated by Dow Jones by applying the impact of the 
changes to the futures prices of commodities included in the Index 
(based on the commodities' relative weightings). Once the CIMs are 
determined as discussed above, the calculation of the Index is a 
mathematical process whereby the CIMs for the Index commodities are 
multiplied by the daily settlement prices in U.S. dollars for the 
applicable Designated Contracts. These products are then summed. During 
the rollover period, the sum includes both nearby and deferred 
contracts weighted according to the specified roll percentage. The 
percentage change in this sum from the prior day is then applied to the 
prior Index value. Finally, the value of one day's interest is added, 
calculated using the most recent (lagged by one day) 91-Day U.S. 
Treasury Bill Auction High Rate to arrive at the current Index value.
    Dow Jones disseminates the Index value at least every 15 seconds 
(assuming the Index value has changed within such fifteen-second 
interval) from 8 a.m. to 3 p.m. ET and publishes a daily Index value at 
approximately 4 p.m. ET on each DJ-AIG Business Day on its Web site at 
http://www.djindexes.com.\24\ This information is also transmitted via 

one or more major market data vendors. Real time information about the 
trading of the component futures contracts and their daily settlement 
prices is available from one or more major market data vendors, and in 
some cases, the underlying futures exchanges.\25\
    Additionally, in the event of a disruption, adjustment, 
discontinuance, or substitution of the Index, the calculation agent has 
discretion as to the computation methodology and adjustments. However, 
in such case, the Exchange will file a proposed rule change pursuant to 
Rule 19b-4 under the Act. Unless approved for continued trading, the 
Exchange would commence delisting proceedings.\26\
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    \24\ The Index value is static from 3 p.m. to 4 p.m. ET other 
than modifications to reflect settlement prices becoming available. 
April 11 Telephone Conference.
    \25\ Telephone conference between Florence E. Harmon, Senior 
Special Counsel, Division, Commission, and John Carey, Assistant 
General Counsel, Exchange, on May 23, 2006.
    \26\ See ``Continued Listing Criteria,'' infra. April 10 
Telephone Conference.
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V. Continued Listing Criteria

    The Exchange has represented that it prohibits the initial and/or 
continued listing of any security that is not in compliance with Rule 
10A-3 under the Act.\27\
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    \27\ 17 CFR 240.10A-3.
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    The Exchange will delist the Notes:
     If, following the initial twelve month period from the 
date of commencement of trading of the Notes: (i) The Notes have more 
than 60 days remaining until maturity and there are fewer than 50 
beneficial holders of the Notes for 30 or more consecutive trading 
days; (ii) if fewer than 50,000 Notes remain issued and outstanding; or 
(iii) if the market value of all outstanding Notes is less than 
$1,000,000;
     If the Index value ceases to be calculated or available 
during the time the Notes trade on the Exchange on at least a 15 second 
basis through one or more major market data vendors; \28\
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    \28\ The Exchange confirmed that the Index value will be 
disseminated at least every 15 seconds by one or more major market 
data vendors during the time the Notes trade on the Exchange. The 
Exchange also confirmed that the index and its components have daily 
settlement values that are widely disclosed. Telephone conference 
between Florence E. Harmon, Senior Special Counsel, Division, 
Commission, and John Carey, Assistant General Counsel, Exchange, on 
May 23, 2006.
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     If, during the time the Notes trade on the Exchange, the 
Indicative Value ceases to be available on a 15 second delayed basis; 
or
     If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.
    Additionally, the Exchange has represented it will file a proposed 
rule change pursuant to Rule 19b-4 under the Act,\29\ seeking approval 
to continue trading the Notes and unless approved, the Exchange will 
commence delisting the Notes if:
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    \29\ 17 CFR 240.19b-4.
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     Dow Jones and AIG-FP substantially change either the Index 
component selection methodology or the weighting methodology;
     If a new component is added to the Index (or pricing 
information is used for a new or existing component) that constitutes 
more than 10% of the weight of the Index with whose principal trading 
market the Exchange does not have a comprehensive surveillance sharing 
agreement;\30\ or
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    \30\ Therefore, only 10% of the weight of all of the Index (and 
thus the Index components) could not be subject to comprehensive 
surveillance sharing arrangements with the Exchange. April 10 
Telephone Conference.
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     If a successor or substitute index is used in connection 
with the Notes. The filing will address, among other things the listing 
and trading characteristics of the successor or substitute index and 
the Exchange's surveillance procedures applicable thereto.

VI. Trading Rules

    The Exchange's existing equity trading rules will apply to trading 
of the Notes. The Notes will trade between the hours of 9:30 a.m. and 4 
p.m. ET \31\ and will be subject to the equity margin rules of the 
Exchange.\32\
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    \31\ March 29 Telephone Conference.
    \32\ See NYSE Rule 431.
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A. Trading Halts

    The Exchange has agreed it will cease trading the Notes if there is 
a halt or disruption in the dissemination of the Index value or the 
Indicative Value.\33\ The Exchange has also represented it will cease 
trading the Notes if a ``market disruption event'' occurs that is of 
more than a temporary nature.\34\ In the event that the Exchange is 
open for business on a day that is not a DJ-AIG Business Day, the 
Exchange will not permit trading of the Notes on that day.
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    \33\ In the event the Index value or Indicative Value is no 
longer calculated or disseminated, the Exchange would immediately 
contact the Commission to discuss measures that may be appropriate 
under the circumstances.
    \34\ In the event a ``market disruption event'' occurs that is 
of more than a temporary nature, the Exchange would immediately 
contact the Commission to discuss measures that may be appropriate 
under the circumstances.

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[[Page 32162]]

B. Specialist Trading Obligations

    The Exchange has proposed Supplementary Material .10 to proposed 
NYSE Rule 1301B \35\ in order to apply the provisions of NYSE Rule 
1300B(b) and NYSE Rule 1301B to certain Notes listed on the Exchange 
pursuant to Section 703.19 (``Other Notes'') of the Manual. 
Specifically, NYSE Rules 1300B(b) and 1301B will apply to Notes listed 
under Section 703.19 where the price of such Notes is based in whole or 
part on the price of (a) a commodity or commodities, (b) any futures 
contracts or other derivatives based on a commodity or commodities; or 
(c) any index based on either (a) or (b) above.
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    \35\ See Amendment No. 1 to SR-NYSE-2006-17, filed with the 
Commission on March 24, 2006.
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    As a result of application of NYSE Rule 1300B(b), the specialist in 
the Notes, the specialist's member organization and other specified 
persons will be prohibited under paragraph (m) of NYSE Rule 105 
Guidelines from acting as market maker or functioning in any capacity 
involving market-making responsibilities in the Index components, the 
commodities underlying the Index components, or options, futures or 
options on futures on the Index, or any other derivatives 
(collectively, ``derivative instruments'') based on the Index or based 
on any Index component or any physical commodity underlying an Index 
component. If the member organization acting as specialist in the Notes 
is entitled to an exemption under NYSE Rule 98 from paragraph (m) of 
NYSE Rule 105 Guidelines, then that member organization could act in a 
market making capacity in the Index components, the commodities 
underlying the Index components, or derivative instruments based on the 
Index or based on any Index component or commodity underlying an Index 
component, other than as a specialist in the Notes themselves, in 
another market center.
    Under NYSE Rule 1301B(a), the member organization acting as 
specialist in the Notes (1) will be obligated to conduct all trading in 
the Notes in its specialist account, (subject only to the ability to 
have one or more investment accounts, all of which must be reported to 
the Exchange), (2) will be required to file with the Exchange and keep 
current a list identifying all accounts for trading in the Index 
components or the physical commodities underlying the Index components, 
or derivative instruments based on the Index or based on the Index 
components or the physical commodities underlying the Index components, 
which the member organization acting as specialist may have or over 
which it may exercise investment discretion, and (3) will be prohibited 
from trading in the Index components or the physical commodities 
underlying the Index components, or derivative instruments based on the 
Index or based on the Index components or the physical commodities 
underlying the Index components, in an account in which a member 
organization acting as specialist, controls trading activities which 
have not been reported to the Exchange as required by NYSE Rule 1301B.
    Under NYSE Rule 1301B(b), the member organization acting as 
specialist in the Notes will be required to make available to the 
Exchange such books, records or other information pertaining to 
transactions by the member organization and other specified persons for 
its or their own accounts in the Index components or the physical 
commodities underlying the Index components, or derivative instruments 
based on the Index or based on the Index components or the physical 
commodities underlying the Index components, as may be requested by the 
Exchange. This requirement is in addition to existing obligations under 
Exchange rules regarding the production of books and records.
    Under NYSE Rule 1301B(c), in connection with trading the Index 
components or the physical commodities underlying the Index components, 
or derivative instruments based on the Index or based on the Index 
components or the physical commodities underlying the Index components, 
the specialist could not use any material nonpublic information 
received from any person associated with a member or employee of such 
person regarding trading by such person or employee in the Index 
components or the physical commodities underlying the Index components, 
or derivative instruments based on the Index or based on the Index 
components or the physical commodities underlying the Index components.

C. Surveillance

    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Notes and the Index 
components. The Exchange will rely upon existing NYSE surveillance 
procedures governing equities with respect to surveillance of the 
Notes. The Exchange believes that these procedures are adequate to 
monitor Exchange trading of the Notes and to detect violations of 
Exchange rules, consequently deterring manipulation. In this regard, 
the Exchange has the authority under NYSE Rules 476 and 1301B to 
request the Exchange specialist in the Notes to provide NYSE Regulation 
with information that the specialist uses in connection with pricing 
the Notes on the Exchange, including specialist, proprietary or other 
information regarding Notes, commodities, futures, options on futures 
or other derivative instruments. The Exchange believes it also has 
authority to request any other information from its members--including 
floor brokers, specialists and ``upstairs'' firms--to fulfill its 
regulatory obligations.
    With regard to the Index components, the Exchange can obtain market 
surveillance information with respect to transactions occurring on the 
LME and NYMEX (and COMEX), including customer identity information, 
pursuant to comprehensive surveillance sharing arrangements with each 
of these exchanges. All of the other trading venues on which current 
Index components are traded, namely CBOT, the Coffee, Sugar and Cocoa 
Exchange of the New York Board of Trade, and the Chicago Mercantile 
Exchange Inc., are members of the Intermarket Surveillance Group 
(``ISG''), 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. All these 
surveillance arrangements constitute comprehensive surveillance sharing 
arrangements.

VII. Suitability

    Pursuant to NYSE Rule 405, the Exchange will impose a duty of due 
diligence on its members and member firms to learn the essential facts 
relating to every customer prior to trading the Notes.\36\ With respect 
to suitability recommendations and risks, the Exchange will require 
members, member organizations and employees thereof recommending a 
transaction in the Notes: (1) To determine that such transaction is 
suitable for the customer; and (2) to have a reasonable basis for 
believing that the customer can evaluate the special characteristics 
of, and is able to bear the financial risks of, such transaction.
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    \36\ NYSE Rule 405 requires that every member, member firm or 
member corporation use due diligence to learn the essential facts 
relative to every customer and to every order or account accepted.

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[[Page 32163]]

VIII. Information Memorandum \37\
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    \37\ The Exchange initially referred to the distributed document 
in its filing as an ``Information Circular.'' The Exchange requested 
that the Commission change the reference to an ``Information 
Memorandum'' in the Commission's Notice. See supra, note 3. 
Telephone conference between Kristie Diemer, Attorney, Division, 
Commission, and John Carey, Assistant General Counsel, Exchange, on 
April 10, 2006.
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    The Exchange will, prior to trading the Notes, distribute a 
memorandum to the membership providing guidance with regard to member 
firm compliance responsibilities (including suitability 
recommendations) when handling transactions in the Notes. The 
memorandum will note to members language in the prospectus used by 
Barclays in connection with the sale of the Notes regarding prospectus 
delivery requirements for the Notes. Specifically, in the initial 
distribution of the Notes,\38 \ and during any subsequent distribution 
of the Notes, NYSE members will deliver a prospectus to investors 
purchasing from such distributors.\39\
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    \38\ The Registration Statement reserves the right to do 
subsequent distributions of these Notes.
    \39\ April 10 Telephone Conference.
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    The memorandum will discuss the special characteristics and risks 
of trading this type of security. Specifically, the memorandum, among 
other things, will discuss what the Notes are, how the Notes are 
redeemed, applicable Exchange rules, dissemination of information 
regarding the Index value and the Indicative Value, trading 
information, and applicable suitability rules.
    The memorandum will also notify members and member organizations 
about the procedures for redemptions of Notes and that Notes are not 
individually redeemable but are redeemable only in aggregations of at 
least 50,000 Notes.
    The memorandum will also reference the fact that there is no 
regulated source of last sale information regarding physical 
commodities and that the SEC has no jurisdiction over the trading of 
physical commodities or the futures contracts on which the value of the 
Notes is based, and that the Commodity Futures Trading Commission has 
no regulatory jurisdiction over the trading of certain foreign based 
futures contracts. The memorandum will also discuss other exemptive or 
no-action relief under the Act provided by the Commission staff.\40\
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    \40\ March 29 Telephone Conference.
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IX. Discussion and Commission's Findings

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\41\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with the requirements 
of Section 6(b)(5) of the Act,\42\ 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.
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    \41\ In approving this proposed 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).
    \42\ 15 U.S.C. 78f(b)(5).
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A. Surveillance

    Information sharing agreements with primary markets trading index 
components underlying a derivative product are an important part of a 
self-regulatory organization's ability to monitor for trading abuses in 
derivative products. The Commission believes that the Exchange's 
comprehensive surveillance sharing arrangements with LME, NYMEX (and 
COMEX), pursuant to which the Exchange can obtain market surveillance 
information, including customer identity information, along with the 
Exchange's participation in the ISG, create the basis for the Exchange 
to monitor for fraudulent and manipulative practices in the trading of 
the Notes. In addition, the Exchange represents that it will delist the 
Notes if a new component is added to the Index (or pricing information 
is used for a new or existing component) that constitutes more than 10% 
of the weight of the Index with whose principal trading market the 
Exchange does not have a comprehensive surveillance sharing agreement.
    Moreover, NYSE Rules 476 and 1301B give NYSE the authority to 
request the Exchange specialist in the Notes to provide NYSE Regulation 
with pricing information, among other things. Furthermore, the Exchange 
believes that it also has the authority to request any other 
information from its members--including floor brokers, specialists and 
``upstairs'' firms--to fulfill its regulatory obligations. The 
Commission believes that these rules provide the NYSE with the tools 
necessary to adequately surveil trading in the Notes.

B. Dissemination of Information

    The Commission believes that sufficient venues for obtaining 
reliable price information exist so that investors in the Notes can 
monitor the underlying Index relative to the Indicative Value of the 
Notes. There is a considerable amount of information about the Index 
and its components available through public Web sites and professional 
subscription services, including Reuters and Bloomberg. During the time 
that the Notes will trade on the Exchange, Dow Jones disseminates via 
one or more major market data vendors the Index value at least every 15 
seconds \43\ from 8 a.m. to 3 p.m. ET and publishes a daily Index value 
at approximately 4 p.m. ET on Reuters. Real time information about the 
trading of the component futures contracts and their daily settlement 
prices is available from one or more major market data vendors, and in 
some cases, the underlying futures exchanges.
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    \43\ April 11 Telephone Conference.
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    While the Indicative Value will not reflect price changes 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 p.m. New York time, the Exchange will disseminate the 
Indicative Value of the Notes via the facilities of the CTA every 15 
seconds throughout the NYSE trading day on each day on which the Notes 
are traded on the Exchange. Additionally, Barclays or an affiliate will 
calculate and publish the closing Indicative Value of the Notes on each 
trading day at http://www.ipathetn.com.

C. Listing and Trading

    The Commission finds that the Exchange's proposed rules and 
procedures for the listing and trading of the proposed Notes are 
consistent with the Act. Notes will trade as equity securities under 
Section 703.19 and will be subject to NYSE rules applicable to equity 
trading including, among others, rules governing priority, parity and 
precedence of orders, specialist responsibilities, account opening and 
customer suitability requirements. The Commission believes that the 
listing and delisting criteria for the Notes should help to maintain a 
minimum level of liquidity and therefore minimize the potential for 
manipulation of the Notes. The Exchange represents that it would file a 
proposed rule change, pursuant to Rule 19b-4,\44\ if the Index Sponsors 
materially change the composition of the Index, the methodology of 
calculating the value of the Index, or any other policies relevant to 
the Index. Finally, the Commission notes that the Information 
Memorandum the Exchange

[[Page 32164]]

will distribute will inform members and member organizations about the 
terms, characteristics and risks in trading the Notes, including their 
prospectus delivery obligations.
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    \44\ 17 CFR 240.19b-4.
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X. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
that the proposed rule change (SR-NYSE-2006-16), as amended by 
Amendment No. 1, is approved.
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    \45\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\45\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-8549 Filed 6-1-06; 8:45 am]

BILLING CODE 8010-01-P