Document ID: SEC-2007-0499-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-04-04T04:00Z

[Federal Register: April 4, 2007 (Volume 72, Number 64)]
[Notices]               
[Page 16392-16395]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ap07-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55548; File No. SR-NYSE-2006-71]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Accelerated Approval of Proposed Rule Change as Modified by 
Amendment No. 1 To List and Trade Nine Series of Exchange-Traded Notes 
of Barclays Bank PLC Linked to the Performance of Sub-Indices of the 
Dow Jones--AIG Commodity Index \SM\

March 28, 2007.
    On August 24, 2006, the New York Stock Exchange LLC (``Exchange'' 
or

[[Page 16393]]

``NYSE'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade notes linked to the performance 
of sub-indices of the Dow Jones--AIG Commodity IndexSM. On 
February 20, 2007, the Exchange submitted Amendment No. 1.\3\ The 
proposed rule change was published for comment in the Federal Register 
on March 2, 2007.\4\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as modified by 
Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the Exchange's 
original filing in its entirety.
    \4\ See Securities Exchange Act Release No. 55352 (February 26, 
2007), 72 FR 9599 (``Notice'').
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    Under Section 703.19 of NYSE's Listed Company Manual (the 
``Manual''),\5\ the Exchange proposes to list and trade nine series of 
notes (``Notes'') issued by Barclays Bank PLC (``Barclays'' or 
``Issuer''), which are linked to the performance of the following sub-
indices (each sub-index herein referred to as the ``Index'' with 
respect to the corresponding series of Notes) of the Dow Jones--AIG 
Commodity IndexSM: the Dow Jones--AIG Petroleum Total Return 
Sub-IndexSM; the Dow Jones--AIG Livestock Total Return Sub-
IndexSM; the Dow Jones--AIG Agriculture Total Return Sub-
IndexSM; the Dow Jones--AIG Grains Total Return Sub-
IndexSM; the Dow Jones--AIG Energy Total Return Sub-
IndexSM; the Dow Jones--AIG Precious Metals Total Return 
Sub-IndexSM; the Dow Jones--AIG ExEnergy Total Return Sub-
IndexSM; the Dow Jones--AIG Industrial Metals Total Return 
Sub-IndexSM; and the Dow Jones--AIG Softs Total Return Sub-
IndexSM. Barclays intends to issue the Notes under the name 
``iPathSM Exchange-Traded Notes.''
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    \5\ Section 703.19 of the Manual provides that 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.
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The Indexes

    Each Index is comprised of constituents making up the Dow Jones--
AIG Commodity IndexSM, which the Commission has previously 
reviewed in connection with the listing of exchange-traded notes.\6\ 
Each Index is comprised of commodity contracts relating to a specific 
industry or sector.\7\ For example, the Dow Jones--AIG Petroleum Total 
Return Sub-IndexSM includes those contracts in the Dow 
Jones--AIG Commodity IndexSM that relate to petroleum-
related commodities: crude oil, heating oil and unleaded gasoline. Each 
Index is determined annually by AIG-FP and calculated daily by Dow 
Jones. The weightings of each Index component are a function of their 
weighting in the Dow Jones--AIG Commodity IndexSM, which, in 
turn, derives from liquidity and world production data.
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    \6\ See Securities Exchange Act Release No. 53876 (May 25, 
2006), 71 FR 32158 (June 2, 2006) (SR-NYSE-2006-16). As set out in 
that filing, the Dow Jones--AIG Commodity IndexSM 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 Treasury Bills. The 
Dow Jones--AIG Commodity IndexSM was developed by AIGI 
International Inc., each year is determined by AIG Financial 
Products Corp. (``AIG-FP''), and is calculated by Dow Jones. The 
relative weightings of each component commodity is determined 
annually according to liquidity and dollar adjusted production data 
in \2/3\ and \1/3\ shares, respectively.
    \7\ See Notice, supra note 4, 72 FR at 9602-9604.
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    Dow Jones disseminates the Index value of each sub-index every 15 
seconds (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 day on which the Index is calculated. 
The sub-index values can still be retrieved after 3 p.m. until the end 
of the Exchange trading day but their values are generally static after 
3 p.m., although they may change if settlement values for Index 
components become available after that time.

The Notes

    The Notes will offer investors exposure to specific commodity 
sectors. The Notes are debt securities of Barclays with a term of 30 
years that provide for a cash payment at maturity or upon earlier 
exchange at the holder's option, based on the performance of the 
relevant Index according to a formula set forth in the notice of NYSE's 
proposal.\8\ Unlike traditional debt securities, the Notes would not 
have a minimum principal amount that would be repaid prior to or at 
maturity. Accordingly, the return could be less than the original issue 
price. Also, holders of the Notes will not receive any interest 
payments from the Notes. Prior to maturity, Notes may be redeemed in 
large aggregations as described further in the notice of NYSE's 
proposal.
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    \8\ See Notice, supra note 4, 72 FR at 9601.
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    Because the Notes will be debt securities of Barclays, the Notes 
are dependent upon its creditworthiness. This credit risk is addressed 
by the listing standards in Sec.  703.19(1) of NYSE's Manual, which 
provide that a security may not be listed on the Exchange unless its 
issuer satisfies certain financial requirements.
    Section 703.19(2) of NYSE's Manual requires a market value of $4 
million for initial listing of debt securities. In addition, the Notes 
would have to comply with continued listing standards in Section 
802.01D of NYSE's Manual. The Exchange would remove from listing any 
security where the public distribution or aggregate market value has 
fallen below the specified thresholds or become so reduced to make 
further dealings on the Exchange inadvisable, or where such other event 
shall occur or condition exists which in the opinion of the Exchange 
makes further dealings on the Exchange inadvisable.

Pricing Information

    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. The last sale price of the 

Notes will also be disseminated over the consolidated tape, subject to 
a 20-minute delay.\9\
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    \9\ As described in the notice of the NYSE's proposal, the 
Indicative Value will not reflect price changes to the price of an 
underlying commodity between the close of trading of the futures 
contract at the relevant futures exchange and the close of trading 
on the NYSE at 4 p.m. ET. 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 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.
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Trading Rules

    The Notes will trade as equity securities, subject to NYSE rules 
governing, among other things, priority, parity, and precedence of 
orders; specialist responsibilities; margin; \10\ and customer 
suitability requirements. The Notes will trade between the hours of 
9:30 a.m. and 4 p.m. ET. The Exchange would halt trading in the 
Securities if the circuit breaker parameters of Exchange Rule 80B have 
been reached and may halt trading pursuant to Exchange Rule 123D

[[Page 16394]]

pending the dissemination of material news with respect to the issuer. 
If the Index value or the Indicative Value is not being disseminated as 
required, the Exchange may halt trading during the day on which the 
interruption to the dissemination of the Index value or the Indicative 
Value first occurs. If the interruption to the dissemination of the 
Index value or the Indicative Value persists past the trading day in 
which it occurred, the Exchange will halt trading no later than the 
beginning of the trading day following the interruption.
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    \10\ See NYSE Rule 431.
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Surveillance

    The NYSE has represented that it would rely on its existing 
surveillance procedures governing equities, which it represented are 
adequate to monitor trading of the Notes. Through information sharing 
agreements and its membership in the Intermarket Surveillance Group, 
the Exchange stated that it has access to all relevant trading 
information in connection with commodity futures comprising each Index. 
Further, the Exchange stated that it currently has the authority under 
NYSE Rule 476 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 securities, 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.

Suitability

    Pursuant to Exchange 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.\11\ 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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    \11\ 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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Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\12\ In particular the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act,\13\ which requires among other things, that the Exchange's rules 
be designed to promote just and equitable principles of trade, to 
facilitate 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 protect investors and the public interest. 
The Commission notes that it has previously approved the listing and 
trading of other index-linked securities that have a structure similar 
to the Notes.\14\
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    \12\ In approving the rule, 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).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See, e.g., Securities Exchange Act Release Nos. 54177 (July 
19, 2006), 71 FR 54177 (July 27, 2006) (SR-NYSE-2006-19) (relating 
to the trading of the Index-Linked Securities of Barclays Bank PLC 
linked to the Performance of the Goldman Sachs Crude Oil Total 
Return IndexTM); 53876 (May 25, 2006), 71 FR 32158 (June 
2, 2006) (SR-NYSE-2006-16) (relating to the trading of the Index-
Linked Securities of Barclays Bank PLC linked to the performance of 
the Dow Jones--AIG Commodity Index Total Return); and 53849 (May 22, 
2006), 71 FR 30706 (May 30, 2006) (SR-NYSE-2006-20) (relating to the 
trading of the Index-Linked Securities of Barclays Bank PLC linked 
to the performance of the GSCI[supreg] Total Return Index).
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\15\ 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 
Notes will be disseminated through the facilities of the Consolidated 
Tape Association (``CTA''). The value of each Index is calculated and 
disseminated daily and, because the composition of each Index is public 
and pricing of the constituents is transparent, it may be verified by a 
number of independent sources. In addition, an intraday Indicative 
Value for each Note series will be available through the CTA. 
Furthermore, financial information regarding the Issuer is publicly 
available, allowing investors to evaluate the creditworthiness of the 
Issuer. The Commission also believes that sufficient venues exist for 
obtaining reliable information so that holders of the Notes can track 
the value of their investment. Accordingly, the Commission finds that 
NYSE's proposal is reasonably designed to promote transparency in the 
pricing of the Notes, and to prevent trading when a reasonable degree 
of transparency cannot be assured.
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    \15\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The proposal also appears reasonably designed to prevent conveyance 
of inside information from the Index Calculator to market participants 
who may trade the Notes.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) NYSE has received a representation from AIG-FP, the Index 
Sponsor, that it will
    (a) Implement and 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 (b) periodically check the 
application of such procedures as they relate to officers and directors 
of AIG-FP directly responsible for such changes.\16\
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    \16\ AIG-FP is a wholly-owned guaranteed subsidiary of American 
International Group, Inc. It is not a broker-dealer or futures 
commission merchant; however, AIG-FP may have such affiliates. The 
Exchange has stated that Dow Jones does not have any affiliates 
engaged in the securities or commodities trading businesses and, as 
such, Dow Jones does not believe that such firewall procedures are 
necessary in its case. Dow Jones and the Dow Jones--AIG Commodity 
IndexSM Oversight Committee will adopt and maintain 
policies that acknowledge their obligations with respect to material 
non-public information. See supra note 6, 71 FR at 32159-32160 
nn.10,15.
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    (2) NYSE will, prior to trading the Notes, distribute an 
information memorandum to the membership providing guidance with regard 
to member firm compliance responsibilities (including suitability 
recommendations) when handling transactions in the Notes and 
highlighting the special risks and characteristics of the Notes. In 
addition, during the initial distribution of the Notes and during any 
subsequent distribution of the Notes, NYSE member organizations will 
deliver a prospectus to investors purchasing Notes from distributors.
    (3) NYSE will rely on its existing surveillance procedures 
governing equities with regard to surveillance of the Notes, which are 
adequate to properly monitor trading of the Notes

[[Page 16395]]

and detect violations of Exchange rules, thereby deterring 
manipulation.
    (4) With regard to the Index components, the Exchange can obtain 
market all relevant trading information, including customer identity 
information, with respect to transactions through agreements with 
futures exchanges and participation in the Intermarket Surveillance 
Group.
    (5) NYSE prohibits the initial and/or continued listing of any 
security that is not in compliance with Rule 10A-3 under the Act.\17\
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    \17\ See 17 CFR 240.10A-3.
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    This order is conditioned on NYSE's adherence to these 
representations.
    Under the proposal, the Exchange will delist any series of the 
Notes under the following circumstances:
    (1) (a) If, following the initial twelve month period from the date 
of commencement of trading of the Notes, 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; (b) if 
fewer than 100,000 Notes remain issued and outstanding; or (c) if the 
market value of all outstanding Notes is less than $1,000,000.
    (2) 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 or the sponsors of the 
Index.
    (3) If, during the time the Notes trade on the Exchange, the 
Indicative Value ceases to be available on a 15 second delayed basis.
    In addition, NYSE has represented that it would delist the Notes 
(unless the Commission approved a proposed rule change submitted 
pursuant to Rule 19b-4 under the Act) if: (1) Dow Jones and AIG-FP 
substantially change either the Index component selection methodology 
or the weighting methodology; (2) 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; or (3) a successor or substitute index 
is used in connection with the Notes. The Commission believes that each 
of these circumstances represents material changes to the 
characteristics of the Index described herein and on which the 
Commission is basing its findings. Under these circumstances, the 
Exchange could not rely on this approval to list and trade the Notes.

Acceleration

    The Commission finds good cause to approve the proposal, as 
amended, prior to the thirtieth day after the amended proposal was 
published for comment in the Federal Register. Accelerating approval of 
the proposal should benefit investors who desire to participate in the 
designated Indexes by expediting the listing and trading of the Notes 
by the Exchange. The Commission also notes that the proposal is similar 
to others previously approved by the Commission, and does not appear to 
raise any new regulatory issues. Thus, the Commission finds good cause, 
consistent with Section 19(b)(2) of the Act,\18\ to grant accelerated 
approval of the proposed rule change, as amended.
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    \18\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSE-2006-71), as modified by 
Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E7-6189 Filed 4-3-07; 8:45 am]

BILLING CODE 8010-01-P