

[Federal Register: November 30, 2005 (Volume 70, Number 229)]
[Notices]               
[Page 71874-71882]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30no05-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52826; File No. SR-NYSE-2005-67]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating to iShares[reg] Dow Jones U.S. Energy Sector Index 
Fund and iShares Dow Jones U.S. Telecommunications Sector Index Fund

November 22, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on September 30, 2005 the New York Stock Exchange, 
Inc. (``NYSE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and is 
approving 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 NYSE proposes to list and trade the iShares[reg] Dow Jones U.S. 
Energy Sector Index Fund and iShares Dow Jones U.S. Telecommunications 
Sector Index Fund, both exchange-traded

[[Page 71875]]

funds, which the Exchange denominates as Investment Company Units 
(``ICUs'').

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 NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III, below, and is set forth in sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange has adopted listing standards applicable to ICUs that 
are consistent with the listing criteria currently used by other 
national securities exchanges, and trading standards pursuant to which 
the Exchange may either list and trade ICUs, or trade such ICUs on the 
Exchange on an unlisted trading privileges (``UTP'') basis.\3\
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    \3\ In 1996, the Commission approved section 703.16 of the NYSE 
Listed Company Manual (``Manual''), which sets forth the rules 
related to the listing of ICUs. See Securities Exchange Act Release 
No. 36923 (March 5, 1996), 61 FR 10410 (March 13, 1996) (SR-NYSE-95-
23). In 2000, the Commission also approved the Exchange's generic 
listing standards for listing and trading, or the trading pursuant 
to UTP, of ICUs under section 703.16 of the Manual and NYSE Rule 
1100. See Securities Exchange Act Release No. 43679 (December 5, 
2000), 65 FR 77949 (December 13, 2000) (SR-NYSE-00-46).
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    The Exchange now proposes to list and trade under Section 703.16 of 
the NYSE Listed Company Manual (``Manual'') and NYSE Rule 1100 et seq. 
shares of the iShares[reg] \4\ Dow Jones U.S. Energy Sector Index Fund 
based on the Dow Jones U.S. Oil and Gas Index and iShares Dow Jones 
U.S. Telecommunications Sector Index Fund based on the Dow Jones 
Telecommunications Index (collectively, the ``Funds''). The Funds are a 
series of the iShares Trust (the ``Trust'').\5\ The Funds are currently 
listed and traded on the American Stock Exchange LLC, and the issuer 
intends to move the listing of the Funds to the NYSE. As described 
below, the Funds do not meet the ``generic'' listing requirements of 
Section 703.16 of the Manual applicable to listing of ICUs (permitting 
listing in reliance upon Rule 19b-4(e) under the Act) and cannot be 
listed without a filing pursuant to Rule 19b-4 \6\ under the Act. 
Section 703.16(B)(2)(c) provides that the most heavily weighted 
component stock may not exceed 25% of the weight of the index or 
portfolio, and the five most heavily weighted component stocks may not 
exceed 65% of the weight of the index or portfolio. As of September 23, 
2005, one stock in the Dow Jones U.S. Oil and Gas Index-- Exxon Mobil 
Corp.--accounted for 31.91% of the index weight and thus exceeded the 
25% criterion. In addition, as of September 23, 2005, the five most 
heavily weighted stocks in the Dow Jones U.S. Telecommunications Sector 
Index exceeded the 65% weighting criterion. The following five stocks 
accounted for 83.24% of the index weight: Verizon Communications Inc. 
(24.17%), SBC Communications Inc. (21.32%), Sprint Nextel Corp. 
(18.60%), BellSouth Corp. (12.91%), and Alltel Corp. (6.24%).
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    \4\ iShares is a registered trademark of Barclays Global 
Investors, N.A.
    \5\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a), (the ``Investment Company Act''). On April 15, 
2005, the Trust filed with the Commission a Registration Statement 
for the Funds on Form N-1A under the Securities Act of 1933 (15 
U.S.C. 77a), and under the Investment Company Act relating to the 
Funds (File Nos. 333-92935 and 811-09729) (as amended, the 
``Registration Statement'').
    On March 3, 2004, the Trust filed with the Commission an Amended 
and Restated Application for an Amended Order under sections 6(c) 
and 17(b) of the Investment Company Act and on September 8, 2004, 
the Trust filed with the Commission a Second Amended and Restated 
Application to Amend Orders under sections 6(c) and 17(b) of the 
Investment Company Act for the purpose of exempting the Fund from 
various provisions of the Investment Company Act and the rules 
thereunder (the ``Application''). The Application requested that the 
Commission amend a prior Order received by the Advisor, the Trust 
and the Distributor on August 15, 2001, as amended (the ``Prior 
Order''). On October 5, 2004, the SEC acted on the Application by 
approving an order amending certain prior orders under section 6(c) 
of the Investment Company Act for an exemption from sections 
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Investment Company Act and 
Rule 22c-1 under the Investment Company Act, and under sections 6(c) 
and 17(b) of the Investment Company Act for an exemption from 
sections 17(a)(1) and (a)(2) thereof. Investment Company Act Release 
No. 26626 (October 5, 2004) (``Amended Order''). See also In the 
Matter of iShares Trust, et al., Investment Company Act Release No. 
25111 (August 15, 2001) as amended by In the Matter of iShares, 
Inc., et al., Investment Company Act Release No. 25623 (June 25, 
2002) and In the Matter of iShares Trust, et al., Investment Company 
Act Release No. 26006 (April 15, 2003). The Amended Order permits 
the Trust to offer the Funds and permits the Funds to invest in 
certain depository receipts.
    \6\ 17 CFR 240.19b-4.
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    As set forth in detail below, the Funds will hold certain 
securities (``Component Securities'') selected to correspond generally 
to the performance of the Dow Jones U.S. Oil and Gas Index and the Dow 
Jones U.S. Telecommunications Sector Index (the ``Underlying 
Indexes''), respectively. Each Fund intends to qualify as a ``regulated 
investment company'' (a ``RIC'') under the Internal Revenue Code (the 
``Code''). Barclays Global Fund Advisors (the ``Advisor'' or ``BGFA'') 
is the investment advisor to the Funds. The Advisor is registered under 
the Investment Advisers Act of 1940.\7\ The Advisor is the wholly owned 
subsidiary of Barclays Global Investors, N.A. (``BGI''), a national 
banking association. BGI is an indirect subsidiary of Barclays Bank PLC 
of the United Kingdom. SEI Investments Distribution Co. (``SEI `` or 
the ``Distributor''), a Pennsylvania corporation and broker-dealer 
registered under the Act, is the principal underwriter and distributor 
of Creation Unit Aggregations of iShares (see ``Issuance of Creation 
Units Aggregations,'' below). The Distributor is not affiliated with 
the Exchange or the Advisor. The Trust has appointed Investors Bank & 
Trust Co. (``IBT'') to act as administrator (the ``Administrator''), 
custodian, fund accountant, transfer agent, and dividend disbursing 
agent for the Funds. The Exchange expects that performance of the 
Administrator's duties and obligations will be conducted within the 
provisions of the Investment Company Act \8\ and the rules thereunder. 
There is no affiliation between the Administrator and the Trust, the 
Advisor, or the Distributor.
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    \7\ 15 U.S.C. 80b.
    \8\ 15 U.S.C. 80a-1.
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(a) Operation of the Funds \9\
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    \9\ The Exchange states that the information provided herein is 
based on information included in the application, Prior Order and 
the Prior Application as well as on the prospectus and Statement of 
Additional Information for the Funds. (See note 5, supra.) While the 
Advisor would manage the Funds, the Funds' Board of Directors would 
have overall responsiblity for the Funds' operations. The 
composition of the Board is, and would be, in compliance with the 
requirements of section 10 of the Investment Company Act. The Funds 
are subject to and must comply with Section 303A.06 of the Manual, 
which requires that the Funds have an audit committee that complies 
with SEC Rule 10A-3, 17 CFR 240.10A-3.
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    The investment objective of the Funds will be to provide investment 
results that correspond generally to the price and yield performance of 
the Underlying Indexes.\10\ In seeking to achieve their investment 
objective, the Funds will utilize ``passive'' indexing investment 
strategies. The Funds utilize a ``representative sampling'' strategy to 
track the applicable Underlying Index. A Fund utilizing a 
representative sampling strategy generally will hold a basket of the 
Component Securities of

[[Page 71876]]

its Underlying Index, but it may not hold all of the Component 
Securities of its Underlying Index. The Application states that the 
representative sampling techniques that will be used by the Advisor to 
manage the Funds do not differ from the representative sampling 
techniques it uses to manage the funds that were the subject of the 
Prior Order.
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    \10\ The Funds' investment objectives, policiies and investment 
stategies will be fully disclosed in their prospectus 
(``Prospectus'') and statement of additional information (``SAI'').
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    From time to time, adjustments may be made in the portfolio of the 
Funds in accordance with changes in the composition of the Underlying 
Indexes or to maintain compliance with requirements applicable to a 
``registered investment company'' (``RIC'') under the Internal Revenue 
Code.\11\ For example, if at the end of a calendar quarter a Fund would 
not comply with the RIC diversification tests, the Advisor would make 
adjustments to the portfolio to ensure continued RIC status. In order 
to maintain RIC status, the Funds may not hold Underlying Index stocks 
in the same percentage weightings as in the Underlying Index, and the 
individual stock weightings in such indexes could be more concentrated 
than the index securities held by the Funds.
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    \11\ In order for the Funds to qualify for tax treatment as a 
RIC, they must meet several requirements under the Code. Among these 
is a requirement that, at the close of each quarter of the Funds' 
taxable year, (1) at least 50% of the market value of the Funds' 
total assets must be represented by cash items, U.S. government 
securities, securities of other RICs and other securities, with such 
other securities limited for the purpose of this calculation with 
respect to any one issuer to an amount not greater than 5% of the 
value of the Funds' assets and not greater than 10% of the 
outstanding voting securities of such issuer; and (2) not more than 
25% of the value of their total assets may be invested in securities 
of any one issuer, or two or more issuers that are controlled by the 
Funds (within the meaning of section 851(b)(4)(B) of the Code) and 
that are engaged in the same or similar trades or business (other 
than U.S. government securities of other RICs).
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    The Exchange states that an index is a theoretical financial 
calculation, while each Fund is an actual investment portfolio. The 
performance of the Funds and the Underlying Indexes will vary somewhat 
due to transaction costs, market impact, corporate actions (such as 
mergers and spin-offs) and timing variances. It is expected that, over 
time, the correlation between each Funds' performance and that of its 
respective Underlying Index, before fees and expenses, will be 95% or 
better. A figure of 100% would indicate perfect correlation. Any 
correlation of less than 100% is called ``tracking error.'' \12\ As 
stated in the Application under the Investment Company Act applicable 
to the Funds, the Funds are expected to have a tracking error relative 
to the performance of the applicable Underlying Index of no more than 
5%. The Funds' board of directors reviews the tracking error of the 
Funds on a quarterly basis and, based upon its review, will consider if 
any action might be appropriate.\13\
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    \12\ The Web site for the Funds, http://www.iShares.com, 

contains detailed information on the performance and the tracking 
error for each Fund. Telephone conversation between Florence Harmon, 
Senior Special Counsel, Division of Market Regulation, Commission, 
and Michael Cavalier, Assistant General Counsel, NYSE, on November 
15, 2005.
    \13\ The price at which the Funds' shares trade should be 
disciplined by arbitrage opportunities created by the ability to 
purchase or redeem shares of the Funds in Creation Unit Aggregations 
throughout the trading day. This should help ensure that the Funds' 
shares will not trade at a material discount or premium to their net 
asset value or redemption value.
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    The Funds will not concentrate their investments (i.e., hold 25% or 
more of their assets) in a particular industry or group of industries, 
except that the Funds will concentrate their investments to 
approximately the same extent that the respective Underlying Index is 
so concentrated. For purposes of this limitation, securities of the 
U.S. Government (including its agencies and instrumentalities), 
repurchase agreements collateralized by U.S. Government securities, and 
securities of state or municipal governments and their political 
subdivisions are not considered to be issued by members of any 
industry.
    Each Fund will invest at least 90% of its assets in the securities 
of its Underlying Index or in American Depositary Receipts (``ADRs'') 
based on securities in the Underlying Index. A fund may invest the 
remainder of its assets in securities not included in its Underlying 
Index, which BGFA believes will help the Fund track its Underlying 
Index. For example, a Fund may invest in securities not included in its 
Underlying Index in order to reflect various corporate actions (such as 
mergers) and other changes in its Underlying Index (such as 
reconstitutions, additions and deletions). A Fund also may invest its 
other assets in futures contracts, options on futures contracts, 
options, and swaps related to its Underlying Index, as well as cash and 
cash equivalents, including shares of money market funds affiliated 
with BGFA.
    The Exchange believes that these requirements and policies prevent 
the Funds from being excessively weighted in any single security or 
small group of securities.\14\
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    \14\ Both of the Funds hold securities and ADRs (for at least 
90% of their assets) that are registered under Section 12 of the 
Exchange Act and listed on a national securities exchange or traded 
through the facilities of Nasdaq and that are ``NMS stocks'' as 
defined in Rule 600 of Regulation NMS of the Exchange Act. Telephone 
conversation between Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, and Michael Cavalier, 
Assistant General Counsel, NYSE, on November 22, 2005.
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(b) Description of the Funds and the Underlying Indexes

Index Description

    The Dow Jones U.S. Oil and Gas Index measures the performance of 
the oil and gas sector of the U.S. equity market. The Index includes 
companies in the following sectors: oil and gas producers and oil 
equipment, services and distribution. The Fund will concentrate its 
investments in a particular industry or group of industries to 
approximately the same extent as the Index is so concentrated. As of 
the close of business on December 17, 2004, the Index was concentrated 
in the integrated oil and gas industry group which comprised 56% of the 
market capitalization of the Index.
    As of September 23, 2005, the Dow Jones U.S. Oil and Gas Index's 
top three holdings were Exxon Mobil Corp., Chevron Corp., and 
ConocoPhillips. The Index's top industries were Energy Equipment and 
Services, and Oil, Gas & Consumable Fuels.
    As of September 23, 2005, the Dow Jones U.S. Oil and Gas Index 
components had a total market capitalization of approximately $1.27 
trillion. The average total market capitalization was approximately 
$15.3 billion; the lowest market capitalization figure was $529.6 
million. The ten largest constituents represented approximately 68.2% 
of the Index weight while the five highest weighted stocks represented 
56.4% of the Index weight. During the past two months (from September 
23, 2005), the five highest weighted stocks had an average daily 
trading volume in excess of 8.1 million shares. From March 23, 2005 
through September 23, 2005, 91.8% of the component stocks traded at 
least 1.8 million shares. During August 23, 2005 through September 23, 
2005, the minimum monthly trading volume for the lowest performing 
Index component was at least 1.9 million shares.
    The Dow Jones U.S. Telecommunications Sector Index measures the 
performance of the telecommunications sector of the U.S. equity market. 
The Index includes companies in the following sectors: fixed-line 
telecommunications and mobile telecommunications.
    The Fund will concentrate its investments in a particular industry 
or group of industries to approximately the same extent as the Index is 
so concentrated. As of the close of business

[[Page 71877]]

on December 12, 2004, the Index was concentrated in the fixed line 
telecommunications industry group, which comprised 84% of the market 
capitalization of the Index.
    As of September 23, 2005, the Dow Jones U.S. Telecommunications 
Sector Index's top three holdings were Verizon Communications Inc., SBC 
Communications Inc., and Sprint Nextel Corp. The Index's top industry 
was Telecommunication Services.
    As of September 23, 2005, the Dow Jones U.S. Telecommunications 
Sector Index components had a total market capitalization of 
approximately $368.2 billion. The average total market capitalization 
was approximately $16.7 billion; the lowest market capitalization 
figure was $209.3 million. The ten largest constituents represented 
approximately 93.5% of the Index weight while the five highest weighted 
stocks represented approximately 83.3% of the Index weight. For July 
23, 2005 through September 23, 2005, the five highest weighted stocks 
had an average daily trading volume in excess of 7.1 million shares. 
From March 23, 2005 through September 23, 2005, 99.9% of the component 
stocks traded at least 850,000 shares. During August 23, 2005 through 
September 23, 2005, the minimum monthly trading volume for the lowest 
performing Index component was at least 1.2 million shares.

The Dow Jones Indexes

    Component Selection Criteria. Securities of companies listed on a 
U.S. exchange (such as the NYSE, the Amex or the Nasdaq) are considered 
for inclusion in the indexes, with the following general rules and 
exceptions. Stocks must have a minimum trade history of six months on 
the rebalancing date to be eligible for inclusion. Foreign issues, 
including ADRs and GDRs, non-common equity issues such as preferred 
stocks, convertible notes, warrants, rights, closed-end funds, trust 
receipts, limited liabilities companies, royalty trusts, units, limited 
partnerships, over-the-counter bulletin boards and pink sheet stocks 
generally are not eligible for inclusion in the indexes.
    Issue Changes. Each index is reviewed and rebalanced quarterly to 
maintain accurate representation of the market segment represented by 
the Index. Securities that leave an index between reconstitution dates 
are not replaced. Thus, the number of securities in an index between 
rebalancing dates fluctuates according to corporate activity. When a 
stock is acquired, delisted, or moves to the pink sheets or OTC 
bulletin board, the stock is deleted from the index. The only additions 
between rebalancing dates are as a result of spin-offs.
    Index Maintenance. Maintaining the Dow Jones Indexes includes 
monitoring and completing the adjustments for additions and deletions 
to each Index, share changes, stock splits, stock dividends, and stock 
price adjustments due to restructuring and spin-offs. Generally, each 
component security in an Index is limited to a maximum market 
capitalization of 25% of the Index weight, and sum of the weights of 
all component securities greater than 5% of the index is limited to 50% 
of the Index total. If components fail either rule, their market 
capitalization will be reduced to meet the set guidelines. However, as 
noted, the Indexes (upon which the Funds are based) are subsets of the 
Dow Jones Total Market Index and contain components whose weighting 
exceeds these general parameters.\15\
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    \15\ Telephone conversation between Florence Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, and 
Michael Cavalier, Assistant General Counsel, NYSE, on November 22, 
2005.
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    The Dow Jones U.S. Oil & Gas Index is a subset of the Dow Jones 
U.S. Total Market Index. The Index is capitalization weighted and 
includes companies in the oil and gas industries of the Dow Jones U.S. 
Total Market Index.\16\ The component stocks are weighted according to 
the total market value of their outstanding shares. The impact of a 
component's price change is proportional to the issue's total market 
value, which is the share price multiplied by the number of shares 
outstanding. The Index is adjusted to reflect changes in capitalization 
resulting from mergers, acquisitions, stock rights, substitutions and 
other capital events.
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    \16\ Id.
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    The Dow Jones U.S. Telecommunications Index is also a subset of the 
Dow Jones U.S. Total Market Index. The Index is capitalization-weighted 
and includes only companies in the telecommunications industry of the 
Dow Jones U.S. Total Market Index. The component stocks are weighted 
according to the total market value of their outstanding shares. The 
impact of a component's price change is proportional to the issue's 
total market value, which is the share price multiplied by the number 
of shares outstanding. The Index is adjusted to reflect changes in 
capitalization resulting from mergers, acquisitions, stock rights, 
substitutions and other capital events.
    The Dow Jones Indexes are calculated continuously, and real-time 
index values are available from major data vendors at least every 15 
seconds during the hours that the Shares trade on the Exchange.\17\
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    \17\ See infra note 24 and accompanying text.
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(c) Issuance of Creation Unit Aggregations
    (i) In General. Shares of the Funds (the ``iShares'') will be 
issued on a continuous offering basis in groups of 50,000 iShares, or 
multiples thereof. These ``groups'' of shares are called ``Creation 
Unit Aggregations.'' The Funds will issue and redeem iShares only in 
Creation Unit Aggregations.\18\
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    \18\ As of September 20, 2005, a Creation Unit Aggregation for 
the iShares Dow Jones Energy Sector Index Fund and the iShares Dow 
Jones Telecommunications Sector Index Fund had a value of 
approximately $4,536,000 and $1,179,500, respectively.
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    As with other open-end investment companies, iShares will be issued 
at the net asset value (``NAV'') per share next determined after an 
order in proper form is received.
    The NAV per share of the Funds is determined as of the close of the 
regular trading session on the Exchange on each day that the Exchange 
is open. The Trust sells Creation Unit Aggregations of the Funds only 
on business days at the next determined NAV of the Fund. Creation Unit 
Aggregations generally will be issued by the Funds in exchange for the 
in-kind deposit of equity securities designated by the Advisor to 
correspond generally to the price and yield performance of the Fund's 
Underlying Index (the ``Deposit Securities'') and a specified cash 
payment. Creation Unit Aggregations generally will be redeemed by the 
Fund in exchange for portfolio securities of the Fund (``Fund 
Securities'') and a specified cash payment. Fund Securities received on 
redemption may not be identical to Deposit Securities deposited in 
connection with creations of Creation Unit Aggregations for the same 
day.
    All orders to purchase iShares in Creation Unit Aggregations must 
be placed through an Authorized Participant. An Authorized Participant 
must be either a ``Participating Party,'' i.e., a broker-dealer or 
other participant in the clearing process through the National 
Securities Clearing Corporation (``NSCC'') Continuous Net Settlement 
System (the ``Clearing Process''), a clearing agency that is registered 
with the SEC, or a Depository Trust Company (``DTC'') participant, and 
in each case, must enter into a Participant Agreement.
    The Funds impose a transaction fee in connection with the issuance 
and

[[Page 71878]]

redemption of iShares to offset transfer and other transaction costs. 
The transaction fee in connection with the issuance and redemption of 
Creation Unit Aggregations of the Funds are estimated to be 
approximately $500-$2000 for the iShares Dow Jones Energy Sector Index 
Fund and between $250-$1000 for the iShares Dow Jones 
Telecommunications Sector Index Fund.
    (ii) In-Kind Deposit of Portfolio Securities. Payment for Creation 
Unit Aggregations will be made by the purchasers generally by an in-
kind deposit with the applicable Fund of the Deposit Securities 
together with an amount of cash (the ``Balancing Amount'') specified by 
the Advisor in the manner described below. The Balancing Amount is an 
amount equal to the difference between (1) the NAV (per Creation Unit 
Aggregation) of the Fund and (2) the total aggregate market value (per 
Creation Unit Aggregation) of the Deposit Securities (such value 
referred to herein as the ``Deposit Amount''). The Balancing Amount 
serves the function of compensating for differences, if any, between 
the NAV per Creation Unit Aggregation and that of the Deposit Amount. 
The deposit of the requisite Deposit Securities and the Balancing 
Amount are collectively referred to herein as a ``Fund Deposit.'' The 
Advisor will make available to the market through the NSCC on each 
business day, prior to the opening of trading on the Exchange 
(currently 9:30 a.m. Eastern Time), the list of the names and the 
required number of shares of each Deposit Security included in the 
current Fund Deposit (based on information at the end of the previous 
business day) for each Fund. The Fund Deposit will be applicable to the 
relevant Fund (subject to any adjustments to the Balancing Amount, as 
described below) in order to effect purchases of Creation Unit 
Aggregations of such Fund until such time as the next-announced Fund 
Deposit composition is made available.
    The identity and number of shares of the Deposit Securities 
required for the Fund Deposit for each Fund will change from time to 
time. The composition of the Deposit Securities may change in response 
to adjustments to the weighting or composition of the Component 
Securities in the Underlying Index. In addition, the Trust reserves the 
right to permit or require the substitution of an amount of cash--i.e., 
a ``cash in lieu'' amount--to be added to the Balancing Amount to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not otherwise be eligible for 
transfer. The Trust also reserves the right to permit or require a 
``cash in lieu'' amount where the delivery of the Deposit Security by 
the Authorized Participant would be restricted under the securities 
laws or where the delivery of the Deposit Security to the Authorized 
Participant would result in the disposition of the Deposit Security by 
the Authorized Participant becoming restricted under the securities 
laws, or in certain other situations. The adjustments described above 
will reflect changes known to the Advisor on the date of announcement 
to be in effect by the time of delivery of the Fund Deposit, in the 
composition of the applicable Underlying Index or resulting from 
certain corporate actions.
(d) Redemption of iShares
    Creation Unit Aggregations of the Funds will be redeemable at the 
NAV next determined after receipt of a request for redemption. Creation 
Unit Aggregations of the Funds generally will be redeemed in-kind, 
together with a balancing cash payment (although, as described below, 
Creation Unit Aggregations may sometimes be redeemed for cash). The 
value of the Funds' redemption payments on a Creation Unit Aggregation 
basis will equal the NAV per the appropriate number of iShares of the 
Funds. Owners of iShares may sell their iShares in the secondary 
market, but must accumulate enough iShares to constitute a Creation 
Unit Aggregation in order to redeem through the Funds. Redemption 
orders must be placed by or through an Authorized Participant.
    Shares may be redeemed only in Creation Unit Aggregations at their 
NAV next determined after receipt of a redemption request in proper 
form by the Fund through IBT and only on a business day. A Fund will 
not redeem shares in amounts less than Creation Unit Aggregations.
    With respect to each Fund, BGFA, through the NSCC and through the 
Distributor, makes available prior to the opening of business on the 
Exchange (currently 9:30 a.m., Eastern time) on each business day, the 
identity of the Fund securities that will be applicable (subject to 
possible amendment or correction) to redemption requests received in 
proper form (as described below) on that day (``Fund Securities''). 
Fund Securities received on redemption may not be identical to Deposit 
Securities that are applicable to creations of Creation Unit 
Aggregations.
    Unless cash redemptions are available or specified for a Fund, the 
redemption proceeds for a Creation Unit Aggregation generally consist 
of Fund Securities--as announced on the business day of the request for 
redemption received in proper form--plus cash in an amount equal to the 
difference between the NAV of the shares being redeemed, as next 
determined after a receipt of a request in proper form, and the value 
of the Fund Securities (the ``Cash Redemption Amount''), less a 
redemption transaction fee as noted above. In the event that the Fund 
Securities have a value greater than the NAV of the shares, a 
compensating cash payment equal to the difference is required to be 
made by or through an Authorized Participant by the redeeming 
shareholder.
(e) Availability of Information Regarding iShares and the Underlying 
Index
    Prior to the opening of business on the Exchange (currently 9:30 
a.m. Eastern time) on each business day, BGFA, through NSCC, will make 
available the list of names and amount of each security constituting 
the current Deposit Securities of the Fund Deposit (subject to possible 
amendment or correction) and the Balancing Amount effective as of the 
previous business day, per outstanding share of each Fund.\19\
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    \19\ BGFA will similarly make available the identity of the Fund 
securities for redemption requests. See ``Redemption of iShares,'' 
supra.
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    The NAV for the Fund will be calculated and disseminated daily. The 
Funds' NAV will be published in a number of places, including http://www.iShares.com
 and on the Consolidated Tape.\20\

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    \20\ Telephone conversation between Florence Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, and 
Michael Cavalier, Assistant General Counsel, NYSE, on November 15, 
2005.
---------------------------------------------------------------------------

    An amount per iShare representing the sum of the estimated 
Balancing Amount effective through and including the previous business 
day, plus the current value of the Deposit Securities in U.S. dollars, 
on a per iShare basis (the ``Intra-day Optimized Portfolio Value'' or 
``IOPV'') will be calculated by a third party independent of the issuer 
(the ``Value Calculator''), at least every 15 seconds during the 
Exchange's regular trading hours and disseminated at least every 15 
seconds on the Consolidated Tape. In addition, the values of the 
Underlying Indexes will be disseminated by one or more major market 
vendors at least every 15 seconds during the Exchange's regular trading 
hours.\21\ The last sale prices of

[[Page 71879]]

Fund shares traded in the secondary market will be disseminated on the 
Consolidated Tape on a real-time basis.
---------------------------------------------------------------------------

    \21\ The Exchange will commence delisting proceedings of a 
series of ICUs if the value of the index or portfolio of securities 
on which the series is based is no longer calculated or available. 
See section 703.16 of the Manual. Section 703.16 requires that, for 
ICUs listed in reliance upon Rule 19b-4(e) under the Act, the 
underlying index value and the IOPV be disseminated by one or more 
major market data vendors or over the consolidated tape at least 
every 15 seconds. See Release No. 34-52081 (July 20, 2005), 70 FR 
43488 (July 27, 2005) (SR-NYSE-2005-44).
---------------------------------------------------------------------------

    The IOPV reflects the current value of the Deposit Securities and 
the Balancing Amount. Since the Funds will utilize a representative 
sampling strategy, the IOPV may not reflect the value of all securities 
included in the Underlying Indexes. In addition, the IOPV does not 
necessarily reflect the precise composition of the current portfolio of 
securities held by the Funds at a particular point in time. Therefore, 
the IOPV on a per Fund share basis disseminated during the Exchange's 
trading hours should not be viewed as a real time update of the NAV of 
the Funds, which is calculated only once a day. While the IOPV 
disseminated by the Exchange at 9:30 a.m. is expected to be generally 
very close to the most recently calculated Fund NAV on a per Fund share 
basis, it is possible that the value of the portfolio of securities 
held by each Fund may diverge from the Deposit Securities values during 
any trading day. In such case, the IOPV will not precisely reflect the 
value of each Fund's portfolio.
    However, during the trading day, the IOPV can be expected to 
closely approximate the value per Fund share of the portfolio of 
securities for each Fund except under unusual circumstances (e.g., in 
the case of extensive rebalancing of multiple securities in a Fund at 
the same time by the Advisor).
    The Exchange believes that dissemination of the IOPV based on the 
Deposit Securities provides additional information regarding the Funds 
that is not otherwise available to the public and is useful to 
professionals and investors in connection with Fund shares trading on 
the Exchange or the creation or redemption of Fund shares.
    As noted, the Dow Jones Indexes are calculated continuously, and 
real-time index values are available from major data vendors at least 
every 15 seconds during the hours that the Shares trade on the 
Exchange.\22\
---------------------------------------------------------------------------

    \22\ See infra note 24 and accompanying text.
---------------------------------------------------------------------------

    Other information on the Funds, regarding NAV, premium or discount 
to NAV, distributions, shares outstanding total returns, tracking 
error, holdings and other information is available on http://www.iShares.com
.

(f) Dividends and Distributions
    General Policies. Accrued dividends from net investment income, if 
any, are declared and paid at least annually by each Fund. 
Distributions of net realized securities gains, if any, generally are 
declared and paid once a year, but the Trust may make distributions on 
a more frequent basis for certain Funds. The Trust reserves the right 
to declare special distributions if, in its reasonable discretion, such 
action is necessary or advisable to preserve the status of each Fund as 
a RIC or to avoid imposition of income or excise taxes on undistributed 
income.
    Dividends and other distribution in shares are distributed on a pro 
rata basis to Beneficial Owners of such shares. Dividend payments are 
made through DTC Participants and Indirect Participants to Beneficial 
Owners then of record with proceeds received from the Funds.
    Dividend Reinvestment Service. No dividend reinvestment service is 
provided by the Trust. Broker-dealers may make available the DTC book-
entry Dividend Reinvestment Service for use by Beneficial Owners of 
Funds for reinvestment of their dividend distributions. Beneficial 
Owners should contact their broker to determine the availability and 
costs of the service and the details of participation therein. Brokers 
may require Beneficial Owners to adhere to specific procedures and 
timetables. If this service is available and used, dividend 
distributions of both income and realized gains will be automatically 
reinvested in additional whole shares of the same Fund purchased in the 
secondary market.
    Beneficial owners of the Funds will receive all of the statements, 
notices, and reports required under the Investment Company Act and 
other applicable laws. They will receive, for example, annual and semi-
annual reports, written statements accompanying dividend payments, 
proxy statements, annual notifications detailing the tax status of 
distributions, IRS Form 1099-DIVs, etc. Because the Trust's records 
reflect ownership of iShares by DTC only, the Trust will make available 
applicable statements, notices, and reports to the DTC Participants 
who, in turn, will be responsible for distributing them to the 
beneficial owners.
(g) Other Issues
    (i) Criteria for Initial and Continued Listing. The Funds are 
subject to the criteria for initial and continued listing of ICUs in 
section 703.16 of the Manual. A minimum of two Creation Units (100,000 
iShares) was required to be outstanding at the start of trading. This 
minimum number of shares of each Fund required to be outstanding at the 
start of trading will be comparable to requirements that have been 
applied to previously traded series of ICUs. The Exchange notes that 
the number of shares outstanding as of September 20, 2005 for the 
iShares Dow Jones U.S. Energy Sector Index Fund and the Dow Jones U.S. 
Telecommunications Sector Index Fund were 9,800,000 and 22,150,000 
shares, respectively.
    (ii) Original and Annual Listing Fees. The original listing fees 
applicable to the Funds for listing on the Exchange is $5,000 for each 
Fund, and the continuing fees will be $2,000 for each Fund.
    (iii) Stop and Stop Limit Orders. Commentary .30 to NYSE Rule 13 
provides that stop and stop limit orders in an ICU shall be elected by 
a quotation, but specifies that if the electing bid on an offer is more 
than 0.10 points away from the last sale and is for the specialist's 
dealer account, prior Floor Official approval is required for the 
election to be effective. This rule applies to ICUs generally.
    (iv) Rule 460.10. NYSE Rule 460.10 generally precludes certain 
business relationships between an issuer and the specialist or its 
affiliates in the issuer's securities. Exceptions in the Rule permit 
specialists in Fund shares to enter into Creation Unit transactions 
through the Distributor to facilitate the maintenance of a fair and 
orderly market. A specialist or affiliate Creation Unit transaction may 
only be effected on the same terms and conditions as any other 
investor, and only at the net asset value of the Fund shares. A 
specialist or affiliate may acquire a position in excess of 10% of the 
outstanding issue of the Funds' shares, provided, however, that a 
specialist registered in a security issued by an investment company may 
purchase and redeem the investment company unit or securities that can 
be subdivided or converted into such unit from the investment company 
as appropriate to facilitate the maintenance of a fair and orderly 
market in the subject security.
    (v) Prospectus or Product Description Delivery. The Commission has 
granted the Trust an exemption from certain prospectus delivery 
requirements under section 24(d) of the Investment Company Act.\23\ Any 
product description used in reliance on the section 24(d) exemptive 
order will

[[Page 71880]]

comply with all representations made therein and all conditions 
thereto. The Exchange, in an Information Memo to Exchange members and 
member organizations, will inform members and member organizations, 
prior to commencement of trading, of the prospectus or product 
description delivery requirements applicable to the Funds and will 
refer members and member organizations to NYSE Rule 1100(b). The 
Information Memo will also advise members and member organizations that 
delivery of a prospectus to customers in lieu of a product description 
would satisfy the requirements of NYSE Rule 1100(b).
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 80a-24. See In the Matter of iShares, Inc., et 
al., Investment Company Act Release No. 25623 (June 25, 2002).
---------------------------------------------------------------------------

    (vi) Information Memo. The Exchange will distribute an Information 
Memo to its members in connection with the trading of the Funds. The 
Memo will discuss the special characteristics and risks of trading this 
type of security. Specifically, the Memo, among other things, will 
discuss what the Funds are, how the Funds' shares are created and 
redeemed, the requirement that members and member firms deliver a 
prospectus or product description to investors purchasing shares of the 
Funds prior to or concurrently with the confirmation of a transaction, 
applicable Exchange rules, dissemination information, trading 
information and the applicability of suitability rules (including NYSE 
Rule 405). The circular will also discuss exemptive, no-action and 
interpretive relief granted by the Commission certain rules under the 
Act.
    (vii) Trading Halts. In order to halt the trading of the Funds, the 
Exchange may consider, among other things, factors such as the extent 
to which trading is not occurring in underlying security(s) and whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in the Funds' shares is subject to trading halts caused by 
extraordinary market volatility pursuant to NYSE Rule 80B. The Exchange 
will halt trading in a Fund if the Index value or IOPV applicable to 
such Fund is no longer calculated or disseminated.\24\
---------------------------------------------------------------------------

    \24\ In the even an Index value of IOPV is no longer calculated 
or disseminated, the Exchange would immediately contact the 
Commission to discuss measures that may be appropriate under the 
circumstances. Telephone conversation between Florence Harmon, 
Senior Special Counsel, Division of Market Regulation, Commission, 
and Michael Cavalier, Assistant General Counsel, NYSE, on November 
22, 2005.
---------------------------------------------------------------------------

    (viii) Due Diligence/Suitability. The Exchange represents that the 
Information Memo to members will note, for example, Exchange 
responsibilities, including that before an Exchange member, member 
organization, or employee thereof recommends a transaction in the 
Funds, a determination must be made that the recommendation is in 
compliance with all applicable Exchange and Federal rules and 
regulations, including due diligence obligations under NYSE Rule 405 
(Diligence as to Accounts).
    (ix) Purchases and Redemptions in Creation Unit Size. In the Memo 
referenced above, members and member organizations will be informed 
that procedures for purchases and redemptions of shares of the Funds in 
Creation Unit Size are described in the Funds' Prospectus and SAI, and 
that shares of the Funds are not individually redeemable but are 
redeemable only in Creation Unit Size aggregations or multiples 
thereof.
    (x) Surveillance. Exchange surveillance procedures applicable to 
trading in the proposed iShares are comparable to those applicable to 
other ICUs currently trading on the Exchange. The Exchange represents 
that its surveillance procedures are adequate to properly monitor the 
trading of the Funds.
    (xi) Hours of Trading/Minimum Price Variation. The Funds will trade 
on the Exchange until 4:15 p.m. (Eastern time). The minimum price 
variation for quoting will be $.01.
2. Statutory Basis
    NYSE believes that the proposed rule change is consistent with 
section 6(b)(5) of the Act \25\ requiring that an exchange have rules 
that are designed, among other things, 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, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

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

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-NYSE-2005-67 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File Number SR-NYSE-2005-67. This file 
number should be included on the 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 NYSE. 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-NYSE-2005-67 and should be submitted on or before 
December 21, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder,

[[Page 71881]]

applicable to a national securities exchange.\26\ In particular, the 
Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act \27\ and will promote just and equitable 
principles of trade, and facilitate transactions in securities, and, in 
general, protect investors and the public interest.
---------------------------------------------------------------------------

    \26\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change raises no 
issues that have not been previously considered by the Commission.\28\ 
The Fund is similar in structure and operation to exchange-traded index 
funds that the Commission has previously approved for listing and 
trading on national securities exchanges under section 19(b)(2) of the 
Act.\29\ Further, with respect to each of the following key issues, the 
Commission believes that the Fund satisfies established standards.
---------------------------------------------------------------------------

    \28\ The Commission notes that, as is the case with similar 
previously approved exchange traded funds, investors in the Fund can 
redeem shares in Creation-Unit-size aggregations only. See, e.g., 
Securities Exchange Act Release Nos. 43679 (December 5, 2000), 65 FR 
77949 (December 13, 2000) (File No. SR-NYSE-00-46); 50505 (October 
8, 2004), 69 FR 61280 (October 15, 2004) (File No. SR-NYSE-2004-55); 
50189 (August 12, 2004), 69 FR 51723 (August 20, 2004) (File No. SR-
Amex-2004-05); 52178 (July 29, 2005), 70 FR 46244 (August 9, 2005) 
(File No. SR-NYSE-2005-41).
    \29\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

A. Surveillance

    Given the market capitalization and liquidity of the Underlying 
Indexes and Funds' component securities, the Commission does not 
believe that the Funds' shares will be susceptible to manipulation, 
despite the concentration of individual components. Nevertheless, the 
Exchange represents that its surveillance procedures are adequate to 
properly monitor the trading of the Funds, taking into account the 
concentration of the individual components. The Commission expects the 
Exchange to employ adequate surveillance for detecting manipulations of 
both the Shares and the underlying components, especially given the 
concentration of individual components.

B. Dissemination of Fund Information

    With respect to pricing, once each day, the NAV for the Fund will 
be calculated and disseminated by IBT, to various sources, including 
the NYSE, and made available on http://www.iShares.com and the 

Consolidated Tape. Also, during the Exchange's regular trading hours, 
the IOPV Calculator will determine and disseminate at least every 15 
seconds the IOPV for each Fund, and the Index values will be calculated 
and disseminated at least every 15 seconds.
    The Commission notes that a variety of additional information about 
each Fund will be readily available. Information with respect to recent 
NAV, shares outstanding, estimated cash amount and total cash amount 
per Creation Unit Aggregation will be made available prior to the 
opening of the Exchange. Information on the Funds, regarding NAV, 
premium or discount to NAV, distributions, shares outstanding total 
returns, tracking error, holdings and other information is available on 
http://www.iShares.com. Also, the closing prices of the Fund's Deposit 

Securities are available from, as applicable, the relevant exchanges, 
automated quotation systems, published or other public sources in the 
relevant country, or on-line information services.
    Based on the representations made in the NYSE proposal, the 
Commission believes that pricing and other important information about 
the Fund is adequate and consistent with the Act.

C. Information Memorandum

    The Exchange represents that it will circulate an Information 
Memorandum detailing applicable prospectus and product description 
delivery requirements. The memo will also discuss exemptive, no-action 
and interpretive relief granted by the Commission from certain rules 
under the Act. The memo also will address NYSE members' responsibility 
to deliver a prospectus or product description to all investors (in 
accordance with NYSE Rule 1100(b)) and highlight the characteristics of 
the Funds. The memo will also remind members of their suitability 
obligations, including NYSE Rule 405 (Diligence as to Accounts).\30\ 
For example, the Information Memo will also inform members and member 
organizations that Fund shares are not individually redeemable, but are 
redeemable only in Creation-Unit-size aggregations or multiples thereof 
as set forth in the Fund Prospectus and SAI.\31\ The Commission 
believes that the disclosure included in the information memo is 
appropriate and consistent with the Act.
---------------------------------------------------------------------------

    \30\ NYSE Rule 405 generally requires that members use due 
diligence to learn the essential facts relative to every customer, 
order or account accepted.
    \31\ See discussion under section II.A.1(g)(vi) ``Operation of 
the Funds,'' above. The Exchange has represented that the 
information memo will also discuss exemptive, no-action, and 
interpretive relief granted by the Commission from certain rules 
under the Act.
---------------------------------------------------------------------------

D. Listing and Trading

    The Commission finds that adequate rules and procedures exist to 
govern the listing and trading of the Fund's shares. Fund shares will 
be deemed equity securities subject to NYSE rules governing the trading 
of equity securities, including, among others, rules governing trading 
halts, responsibilities of the specialist, account opening and customer 
suitability requirements,\32\ and the election of stop and stop limit 
orders.
---------------------------------------------------------------------------

    \32\ Prior to commencement of trading, the Exchange states that 
it will issue an Information Memo informing members and member 
organizations of the characteristics of the Fund and of applicable 
Exchange rules, as well as of the requirements of NYSE Rule 405 
(Diligence as to Accounts).
---------------------------------------------------------------------------

    In addition, the Exchange states that iShares are subject to the 
criteria for initial and continued listing of ICUs in section 703.16 of 
the NYSE Manual. The Commission believes that the listing and delisting 
criteria for Fund shares should help to ensure that a minimum level of 
liquidity will exist in the Fund to allow for the maintenance of fair 
and orderly markets.

E. Accelerated Approval

    The Commission finds good cause, pursuant to section 19(b)(2) of 
the Act,\33\ for approving the proposed rule change prior to the 
thirtieth day after the date of publication of notice in the Federal 
Register. The Commission notes that the proposal is consistent with the 
listing and trading standards in NYSE Rule 703.16 (ICUs). The Funds are 
substantially identical in structure to other iShares Funds, which have 
an established and active trading history on the NYSE and other 
exchanges. The Commission does not believe that the proposed rule 
change raises novel regulatory issues.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    Accordingly, the Commission finds that there is good cause, 
consistent with section 6(b)(5) of the Act,\34\ to approve the proposal 
on an accelerated basis.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(5).
---------------------------------------------------------------------------

V. Conclusion

    It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSE-2005-67), is hereby approved on 
an accelerated basis.\35\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(2).
    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\36\


[[Page 71882]]


Jonathan G. Katz,
Secretary.
[FR Doc. 05-23496 Filed 11-29-05; 8:45 am]

BILLING CODE 8010-01-P
