Document ID: SEC-2014-0160-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-01-29T05:00Z

[Federal Register Volume 79, Number 19 (Wednesday, January 29, 2014)]
[Notices]
[Pages 4786-4788]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01662]

[[Page 4786]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71378; File No. SR-NYSEArca-2013-137]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List 
and Trade Shares of the Merk Gold Trust Pursuant to NYSE Arca Equities 
Rule 8.201

January 23, 2014.

I. Introduction

    On November 27, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of Merk Gold Trust (``Trust'') pursuant to NYSE Arca 
Equities Rule 8.201. On December 11, 2013, the Exchange filed Amendment 
No. 1 to the proposed rule change.\3\ The proposed rule change, as 
modified by Amendment No. 1 thereto, was published for comment in the 
Federal Register on December 17, 2013.\4\ The Commission received no 
comment letters regarding the proposal. This order approves the 
proposed rule change, as modified by Amendment No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange clarified certain 
statements in the filing with respect to: (1) The Custodian's (as 
defined below) information barriers between itself and its broker-
dealer affiliate; (2) the use of unallocated gold accounts by other 
gold trusts; and (3) the Trustee's role in valuing the Trust's 
physical gold holdings.
    \4\ See Securities Exchange Act Release No. 71038 (December 11, 
2013), 78 FR 76367 (December 17, 2013) (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.201, which governs the listing and trading of 
Commodity-Based Trust Shares.\5\ Each Share will represent a fractional 
undivided beneficial interest in the Trust's net assets.\6\ The 
Exchange represents that the Shares satisfy the requirements of NYSE 
Arca Equities Rule 8.201 and thereby qualify for listing on the 
Exchange.\7\ The Exchange deems the Shares to be equity securities and 
therefore subject to the Exchange's rules governing the trading of 
equity securities.\8\
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    \5\ Commodity-Based Trust Shares are securities issued by a 
trust that represent investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
trust.
    \6\ See Notice, supra note 4, at 76368.
    \7\ See Notice, supra note 4, at 76368.
    \8\ See Notice, supra note 4, at 76373.
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    The sponsor of the Trust is Merk Investments LLC (``Sponsor'').\9\ 
The trustee for the Trust is The Bank of New York Mellon 
(``Trustee'').\10\ The custodian is JPMorgan Chase Bank, N.A. (the 
``Custodian'').\11\
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    \9\ The Sponsor is a Delaware limited liability company. The 
Sponsor generally oversees the performance of the Trustee and the 
Trust's principal service providers, but does not exercise day-to-
day oversight of the Trustee or such service providers. See Notice, 
supra note 4, at 76367. Additional details regarding the Trust are 
set forth in the Registration Statement for the Trust on Form S-1, 
filed with the Commission on April 8, 2013 (No. 333-180868) (as 
amended, the ``Registration Statement'').
    \10\ The Trustee will be responsible for the day-to-day 
administration of the Trust and is responsible, among other things, 
for valuing the Trust's holdings and calculating net asset value 
(``NAV'') per Share of the Trust. See Notice, supra note 4, at 
76367.
    \11\ The Custodian is affiliated with a broker-dealer. The 
Custodian has represented that it has policies and procedures in 
place to enable it to comply with its regulatory obligations in 
relation to appropriate information barriers and controls to 
safeguard client confidentiality, including, but not limited to, 
information barriers and controls between itself and its broker-
dealer affiliate so that its broker-dealer affiliate will not have 
access to information concerning the composition of and/or changes 
to the Trust's holdings that are not available on the Trust's Web 
site. See Notice, supra note 4, at 76367-68.
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    The Exchange states that the objective of the Trust is to provide 
investors with an opportunity to invest in gold and be able to take 
delivery of physical gold in exchange for their Shares; the Trust's 
secondary objective is for the Shares to reflect the performance of the 
price of gold less the expenses of the Trust's operations.\12\ 
According to the Exchange, the Trust is not actively managed and does 
not engage in any activities designed to obtain a profit from, or to 
compensate investors for losses caused by, changes in the price of 
gold.
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    \12\ See Notice, supra note 4, 78 FR at 76368. The Trust is 
neither an investment company registered under the Investment 
Company Act of 1940 nor a commodity pool for purposes of the 
Commodity Exchange Act. See Notice, supra note 4, at 76368.
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    Shareholders may redeem their Shares by submitting to the Sponsor a 
delivery application and payment for the applicable: (1) Processing 
fees; and (2) delivery fees to cover the cost of preparing and 
transporting physical gold to the shareholder.\13\ The number of shares 
to be redeemed must: (1) Correspond to at least one Fine Ounce \14\ of 
physical gold; and (2) have a minimum dollar value in an amount that is 
specified by the Sponsor from time to time on the Trust's Web site.\15\ 
If the Sponsor approves the delivery application,\16\ the shareholder 
would submit his/her Shares to the Trustee and receive physical gold 
and, if applicable, cash in return.\17\
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    \13\ See Notice, supra note 4, at 76370.
    \14\ Fine Ounce is defined in the Registration Statement as an 
ounce of 100% pure gold.
    \15\ See Notice, supra note 4, at 76371.
    \16\ See Notice, supra note 4, at 76370-71 (explaining the 
process the Sponsor will follow to review and approve delivery 
applications).
    \17\ See Notice, supra note 4, at 76371.
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    Additional information regarding the Trust, including NAV 
calculation, operation of the Trust, restrictions, risks, expenses, and 
creation and redemption of Shares can be found in the Notice and/or 
Registration Statement.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\18\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\19\ which requires, among other things, that the Exchange's rules 
be designed to prevent fraudulent and manipulative acts and practices, 
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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    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange states it is able, pursuant NYSE Arca Equities Rule 
8.201(g), to obtain information regarding trading in the Shares and the 
underlying gold, gold futures contracts, options on gold futures, or 
any other gold derivative through Equity Trading Permit Holders (``ETP 
Holders'') acting as registered Market Makers, in connection with their 
proprietary or customer trades. More generally, the Exchange states 
that it has regulatory jurisdiction over its ETP Holders and their 
associated persons, which include any person or entity controlling an 
ETP Holder. With respect to a subsidiary or affiliate of an ETP Holder 
that does business only in commodities or futures contracts, the 
Exchange states that it could obtain information regarding the 
activities of such subsidiary or affiliate through surveillance sharing 
agreements with regulatory organizations of which such subsidiary or 
affiliate is a member. The Exchange also states that it may obtain 
trading information via the

[[Page 4787]]

Intermarket Surveillance Group (``ISG'') from other exchanges that are 
members of the ISG, including the COMEX.\20\ Commentary .04 of NYSE 
Arca Equities Rule 6.3 requires an ETP Holder acting as a registered 
Market Maker in the Shares, and its affiliates, to establish, maintain, 
and enforce written policies and procedures reasonably designed to 
prevent the misuse of any material nonpublic information with respect 
to such products, any components of the related products, any physical 
asset or commodity underlying the product, applicable currencies, 
underlying indexes, related futures or options on futures, and any 
related derivative instruments (including the Shares).\21\ NYSE Arca 
Equities Rule 8.201(g) and Commentary .04 of NYSE Arca Equities Rule 
6.3 may help to prevent fraudulent and manipulative acts and practices 
by facilitating the Exchange's surveillance of trading in the Shares.
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    \20\ See Notice, supra note 4, at 76374.
    \21\ See Notice, supra note 4, at 76373-74.
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    The Commission also finds that the proposal to list and trade the 
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of 
the Exchange Act,\22\ which sets forth Congress's 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. Last sale, quotation 
information, trading volume, closing prices and NAV for the Shares from 
the previous day will be available via the Consolidated Tape.\23\ The 
Trust's Web site will include, on a per Share basis, for the Trust: (1) 
The midpoint of the bid-ask price at the close of trading in relation 
to NAV as of the time the NAV is calculated (``Bid/Ask Price''), and a 
calculation of the premium or discount of such price against such NAV; 
(2) data displaying the frequency of distribution of discounts and 
premiums of the Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters; and (3) the 
Trust's prospectus, as well as the two most recent reports to 
stockholders.\24\ The Trust's Web site also will provide the last sale 
price of the Shares as traded in the U.S. market.\25\
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    \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \23\ See Notice, supra note 4, at 76373, 76374.
    \24\ See Notice, supra note 4, at 76372.
    \25\ See Notice, supra note 4, at 76372.
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    The Commission believes that the proposal to list and trade the 
Shares is reasonably designed to promote disclosure of information that 
may be necessary to price Shares appropriately and to help prevent 
trading when a reasonable degree of transparency cannot be assured. The 
Trust's Web site will provide daily a breakdown of the holdings of the 
Trust by the form in which gold is held.\26\ The value of the Trust's 
holdings also will be reported on the Trust's Web site daily.\27\ Prior 
to the commencement of trading in the Shares on the Exchange, the 
Exchange will obtain a representation from the Sponsor that the NAV 
will be calculated daily and will be made available to all market 
participants at the same time.\28\ Moreover, there is a considerable 
amount of gold price and gold market information available on public 
Web sites and through professional and subscription services.\29\ For 
example, Reuters and Bloomberg provide at no charge on their Web sites 
delayed information regarding the spot price of gold and last sale 
prices of gold futures, as well as information about news and 
developments in the gold market.\30\ Reuters and Bloomberg also offer a 
professional service to subscribers for a fee that provides information 
on gold prices directly from market participants.\31\
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    \26\ See Notice, supra note 4, at 76372.
    \27\ See Notice, supra note 4, at 76372.
    \28\ See Notice, supra note 4, at 76372. Under NYSE Arca 
Equities Rule 7.34(a)(5), if the Exchange becomes aware that the NAV 
is not being disseminated to all market participants at the same 
time, it must halt trading on the NYSE Marketplace until such time 
as the NAV is available to all market participants.
    \29\ See Notice, supra note 4, at 76373.
    \30\ See Notice, supra note 4, at 76373.
    \31\ See Notice, supra note 4, at 76373.
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    The Exchange will consider suspending trading in the Shares 
pursuant to NYSE Arca Rule 8.201(e)(2) if, after the initial 12-month 
period following commencement of trading: (1) The value of gold is no 
longer calculated or available on at least a 15-second delayed basis 
from a source unaffiliated with the Sponsor, Trust, Custodian, or the 
Exchange, or the Exchange stops providing a hyperlink on its Web site 
to the value of gold; or (2) if the intraday trust value (``IIV'') is 
no longer made available on at least a 15-second delayed basis.\32\ If 
the IIV is not being disseminated as required, the Exchange may halt 
trading during the day in which the disruption occurs; if the 
interruption persists past the day in which it occurred, the Exchange 
will halt trading no later than the beginning of the trading day 
following the interruption.\33\ The Exchange will halt trading in the 
Shares if the NAV of the Trust is not calculated or disseminated 
daily.\34\
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    \32\ See NYSE Arca Equities Rules 8.201(e)(2)(iv) and (v). More 
generally, NYSE Arca may halt trading in the Shares on the Exchange 
because of market conditions or for reasons that, in the Exchange's 
view, make trading in the Shares inadvisable, including: (1) The 
extent to which conditions in the underlying gold market have caused 
disruptions and/or lack of trading; and (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. See Notice, supra note 4, at 76373. 
Additionally, trading in the Shares will be subject to trading halts 
caused by extraordinary market volatility pursuant to NYSE Arca's 
``circuit breaker'' rule. See Notice, supra note 4, at 76373; NYSE 
Arca Equities Rule 7.12.
    \33\ See Notice, supra note 4, at 76373.
    \34\ See Notice, supra note 4, at 76373.
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    In support of its proposal, the Exchange has made representations, 
including:
    (1) The Shares will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Equities 
Rule 8.201.\35\
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    \35\ See Notice, supra note 4, at 76374.
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    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.\36\
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    \36\ See Notice, supra note 4, at 76373.
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    (3) The Exchange's existing surveillance procedures applicable to 
derivative products (including Commodity-Based Trust Shares) are 
adequate to properly monitor Exchange trading of the Shares in all 
trading sessions and to deter and detect violations of Exchange rules 
and applicable federal securities laws.\37\
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    \37\ See Notice, supra note 4, at 76373.
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    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (1) 
The procedures for purchases and redemptions of Shares; (2) NYSE Arca 
Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP 
Holders to learn the essential facts relating to every customer prior 
to trading the Shares; (3) the requirement that ETP Holders deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; (4) the 
possibility that trading spreads and the resulting premium or discount 
on the Shares may widen as a result of reduced liquidity of gold 
trading during the Core and Late Trading Sessions after the close of 
the major world gold markets; and (5) trading information.\38\
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    \38\ See Notice, supra note 4, at 76374.
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    (5) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.\39\
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    \39\ See Notice, supra note 4, at 76373.
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    This approval order is based on all of the Exchange's 
representations and

[[Page 4788]]

description of the Trust, including those set forth above and in the 
Notice, as modified by Amendment No. 1.
    For the foregoing reasons, the Commission believes the proposal to 
list and trade the Shares is consistent with the Exchange Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\40\ that the proposed rule change (SR-NYSEArca-2013-137), 
as modified by Amendment No. 1, be, and it hereby is, approved.
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    \40\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-01662 Filed 1-28-14; 8:45 am]
BILLING CODE 8011-01-P