

[Federal Register: December 5, 2005 (Volume 70, Number 232)]
[Notices]               
[Page 72486-72492]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05de05-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52843; File No. SR-NYSE-2005-65]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Accelerated Approval of a Proposed Rule Change Regarding 
the Euro Currency Trust

November 28, 2005.

I. Introduction

    On September 29, 2005, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade Euro Shares 
under new NYSE Rules 1300A et seq. The proposed rule change was 
published for comment in the Federal Register on November 10, 2005 for 
a 15-day comment period, which ended on November 25, 2005.\3\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 52715 (November 1, 
2005), 70 FR 68490 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade Euro Shares (``Shares''), 
which represent units of fractional undivided beneficial interest in 
and ownership of the Euro Currency Trust (``Trust''). As stated in the 
Trust's Registration Statement,\4\ the investment objective of the 
Trust, which will hold euro as its sole asset, is for the Shares to 
reflect the value of the euro. To facilitate trading of the new 
product, the NYSE has proposed new NYSE Rules 1300A and 1301A that will 
govern the trading of Shares on the Exchange. Information about the 
liquidity, depth, and pricing mechanisms of the euro market, management 
and structure of the Trust, and description of the Shares follows 
below.
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    \4\ The Sponsor, on behalf of the Trust, filed the Form S-1 (the 
``Registration Statement'') on June 7, 2005, Amendment No. 1 thereto 
on August 12, 2005, and Amendment No. 2 thereto on October 25, 2005. 
See Registration No. 33-125581.
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A. Description of the Foreign Exchange Industry and the Euro

    The Exchange represents that the foreign exchange market is the 
largest and most liquid financial market in the world. The Exchange 
states that, as of April 2004, the foreign exchange market experienced 
average daily turnover of approximately $1.88 trillion, which was a 57% 
increase (at current exchange rates) from 2001 daily averages. The 
foreign exchange market is predominantly an over-the-counter market 
with no fixed location, and it operates 24 hours a day, seven days a 
week. London, New York, and Tokyo are the principal geographic centers 
of the worldwide foreign exchange market, with approximately 58% of all 
foreign exchange business executed in the United Kingdom, United States 
(``U.S.''), and Japan.
    Approximately 89% of foreign exchange transactions involve the U.S. 
dollar (``USD''), and approximately 37% involve the euro. The Exchange 
represents that the euro/USD pair is by far the most-traded currency 
pair and in recent years has comprised approximately 28% of the global 
turnover in foreign exchange. As of September 26, 2005, $1 USD was 
worth approximately 0.828 euro, calculated at the then-current Noon 
Buying Rate.\5\
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    \5\ For April 2004, the daily average foreign exchange turnover 
of the U.S. dollar against the euro was approximately $550 billion. 
See Bank for International Settlements, Triennial Central Bank 
Survey, March 2005, Statistical annex tables, Table E-2. In 
addition, the reported daily turnover of foreign exchange contracts 
(USD against euro) in over-the-counter derivatives markets for April 
2004, including outright forwards and Forex swaps, was $1.15 
trillion. See id. at 17.
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    The Exchange states that there are three major kinds of 
transactions in the traditional foreign exchange markets: spot 
transactions, outright forwards, and foreign exchange swaps. There also 
are transactions in currency options, which trade both over-the-counter 
and, in the U.S., on the Philadelphia Stock Exchange (``Phlx''). 
Currency futures are traded on a number of regulated markets, including 
the International Monetary Market division of the Chicago Mercantile 
Exchange (``CME''), the Singapore Exchange Derivatives Trading Limited 
(``SGX,'' formerly the Singapore International Monetary Exchange or 
SIMEX), and the London International Financial Futures

[[Page 72487]]

Exchange (``LIFFE'').\6\ Over 85% of currency derivative products 
(swaps, options, and futures) are traded over-the-counter.\7\
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    \6\ Volume in euro futures (Euro FX) on the CME for 2004 was 
17,791,457 contracts. The 2005 Euro FX futures volume on the CME 
through October 19, 2005 was 25,222,252 contracts. Euro options 
(EURFX) volume on the Phlx was 6,162 contracts in June 2005 and 
2,918 in July 2005. The 2005 EURFX volume through July was 33,408 
contracts. See Telephone conference between Michael Cavalier, 
Assistant General Counsel, NYSE, and Florence E. Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, on 
October 21, 2005 (confirming Euro FX volume on CME).
    \7\ See Bank for International Settlements, Triennial Central 
Bank Survey of Foreign Exchange and Derivatives Market Activity in 
April 2004, September 2004 (Tables 2 and 6).
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    The primary participants in the foreign exchange market are banks 
(including government-controlled central banks), investment banks, 
money managers, multinational corporations, and institutional 
investors. The most significant participants are the major 
international commercial banks that act both as brokers and as dealers. 
In their dealer role, these banks maintain long or short positions in a 
currency and seek to profit from changes in exchange rates. In their 
broker role, the banks handle buy and sell orders from commercial 
customers, such as multinational corporations.
    The Euro. According to the Registration Statement, in 1998, the 
European Central Bank in Frankfurt was organized by Austria, Belgium, 
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, 
Portugal, and Spain in order to establish a common currency--the euro. 
In 2001, Greece joined as the twelfth country adopting the euro as its 
national currency. Unlike the U.S. Federal Reserve System, the Bank of 
Japan, and other comparable central banks, the European Central Bank is 
a central authority that conducts monetary policy for an economic area 
consisting of many otherwise largely autonomous states.
    Foreign Currency Regulation. Most trading in the global over-the-
counter foreign currency markets is conducted by regulated financial 
institutions, such as banks and broker-dealers. In addition, in the 
U.S., the Foreign Exchange Committee of the New York Federal Reserve 
Bank has issued Guidelines for Foreign Exchange Trading, and central-
bank sponsored committees in Japan and Singapore have published similar 
best practice guidelines. In the United Kingdom, the Bank of England 
has published the Non-Investment Products Code, which covers foreign 
currency trading. The Financial Markets Association, whose members 
include major international banking organizations, has also established 
best practices guidelines called the Model Code.
    Participants in the U.S. over-the-counter market for foreign 
currencies are generally regulated by their oversight regulators. For 
example, participating banks are regulated by the banking authorities. 
In addition, in the U.S., the SEC regulates trading of options on 
foreign currencies on the Phlx, and the Commodity Futures Trading 
Commission (``CFTC'') regulates trading of futures, options, and 
options on futures on foreign currencies on regulated futures 
exchanges.
    The Phlx, CME, SGX, and LIFFE have authority to perform 
surveillance on their members' trading activities, review positions 
held by members and large-scale customers, and monitor the price 
movements of options and/or futures markets by comparing them with cash 
and other derivative markets' prices.

B. Trust Management and Structure

    The Exchange proposes to list and trade Shares, which represent 
units of fractional undivided beneficial interest in and ownership of 
the Trust. The investment objective of the Trust is for the Shares to 
reflect the value of the euro. The Trust's assets will consist only of 
euro on demand deposit in a euro-denominated, interest-bearing account 
at JPMorgan Chase, London Branch.\8\ The Trust will not hold any 
derivative products. Each Share will represent a proportional interest, 
based on the total number of Shares outstanding, in the euro owned by 
the Trust, less the estimated accrued but unpaid expenses (both asset-
based and non-asset based) of the Trust. The price of a Share will 
reflect accumulated interest, as well as the estimated accrued but 
unpaid expenses of the Trust. The Trust will terminate upon the 
occurrence of any of the termination events listed in the Depositary 
Trust Agreement and will otherwise terminate on a specified date in 
2045.
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    \8\ The Deposit Account is the euro account of the Trust 
established with the Depository (the London branch of JP Morgan 
Chase Bank, N.A.) by the Deposit Account Agreement. The Deposit 
Account holds the euro deposited with the Trust.
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    The Trust is an investment trust and is not managed like a 
corporation or an active investment vehicle. The Trust has no board of 
directors or officers or persons acting in a similar capacity.\9\
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    \9\ The Exchange states that the Trust is not a registered 
investment company under the Investment Company Act of 1940 (``1940 
Act'') and is not required to register under the 1940 Act.
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    Rydex Specialized Products LLC is the sponsor of the Trust 
(``Sponsor''), The Bank of New York is the trustee of the Trust 
(``Trustee''), JPMorgan Chase Bank, N.A., London Branch, is the 
depository for the Trust (``Depository''), and Rydex Distributors, Inc. 
is the distributor for the Trust (``Distributor''). The Sponsor, 
Trustee, Depository, and Distributor are not affiliated with the 
Exchange or one another, with the exception that the Sponsor and 
Distributor are affiliated.

C. Trust Expenses and Management Fees

    The Trust will use interest earned on the Deposit Account to pay 
the Sponsor's fee and any other Trust expenses that may arise from time 
to time. If that interest is not sufficient to fully pay the Sponsor's 
fee and Trust expenses, then the Trustee will sell deposited euro as 
needed.
    The Trust's only ordinary recurring expense is expected to be the 
Sponsor's fee, and, in turn, the Sponsor is obligated to pay: The 
Trustee's monthly fee, the Distributor's fee, NYSE listing fees, SEC 
registration fees, printing and mailing costs, audit fees and expenses, 
and up to $100,000 per year in legal fees and expenses. The Sponsor is 
also obligated to pay the costs of the Trust's organizational expenses 
and the costs of the initial sale of the Shares, including the 
applicable SEC registration fees.\10\
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    \10\ The following additional expenses may be charged to the 
Trust: (1) Expenses and costs of any extraordinary services 
performed by the Trustee or the Sponsor on behalf of the Trust or 
action taken by the Trustee or the Sponsor to protect the Trust or 
interests of Shareholders; (2) indemnification of the Sponsor; (3) 
taxes and other governmental charges; and (4) expenses of the Trust 
other than those the Sponsor is obligated to pay pursuant to the 
Depositary Trust Agreement.
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    Under the Deposit Account Agreement, the Depository is entitled to 
invoice the Trustee or debit the Deposit Account for certain out-of-
pocket expenses; however, except for certain reimbursable expenses, the 
Depository will not be paid a fee for its services to the Trust.
    The Sponsor expects that the price of a Share will fluctuate in 
response to fluctuations in the price of the euro and that the price of 
a Share will reflect accumulated interest, as well as the estimated 
accrued but unpaid expenses of the Trust.

D. Description and Characteristics of the Shares

1. Net Asset Value and Distributions
    The Trustee expects to determine the net asset value (``NAV'') of 
the Trust between 12 p.m. and 2 p.m. (New York time) each business day. 
In doing so, the Trustee will value the euro held by the

[[Page 72488]]

Trust on the basis of the Noon Buying Rate, which is the USD/euro 
exchange rate as determined by the Federal Reserve Bank of New York as 
of 12 p.m. (New York time) on each day that the NYSE is open for 
regular trading.\11\ If, on a particular business day, the Noon Buying 
Rate has not been determined and announced by 2 p.m. (New York time), 
then the most recent Federal Reserve Bank of New York determination of 
the Noon Buying Rate will be used to determine the value of the euro 
held by the Trust, unless the Trustee, in consultation with the 
Sponsor, determines that such price is inappropriate to use as the 
basis for such valuation. In the event that the Trustee and the Sponsor 
determine that the most recent Federal Reserve Bank of New York 
determination of the Noon Buying Rate is not an appropriate basis for 
valuation of the Trust's euro, they shall determine an alternative 
basis for such evaluation to be employed by the Trustee.
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    \11\ The Trustee and the Sponsor may determine to apply an 
alternative basis for evaluation in extraordinary circumstances, 
such as if the Federal Reserve Bank of New York does not announce a 
Noon Buying Rate, or discontinues such announcements, or if there is 
an extraordinary change in the spot price of euro after the Noon 
Buying Rate is established. In the event the Sponsor and Trustee 
determine to use, on a regular and ongoing basis, a source other 
than the Noon Buying Rate, the Exchange will make an appropriate 
filing pursuant to Rule 19b-4 under the Exchange Act.
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    To calculate the NAV of the Trust, the Trustee will subtract the 
Sponsor's accrued fee for the current day from the euro held by the 
Trust (including all unpaid interest accrued through the immediately 
preceding day). The Trustee will also determine the NAV per Share, 
which equals the NAV of the Trust divided by the number of outstanding 
Shares.\12\ The NAV will be posted on the Trust's Web site as soon as 
the valuation of the euro held by the Trust is complete (ordinarily by 
2:00 p.m. (New York time)). Ordinarily, it will be posted no more than 
thirty minutes after the Noon Buying Rate is published by the Federal 
Reserve Bank of New York. The Exchange states that all market 
participants will have access to this data at the same time and, 
therefore, no market participant will have a time advantage in using 
such data.
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    \12\ Shares deliverable under a purchase order will be 
considered outstanding for purposes of determining NAV per Share; 
Shares deliverable under a redemption order will not be considered 
outstanding for this purpose.
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    Distributions. The Depositary Trust Agreement requires the Trustee 
to promptly distribute ``Surplus Property'' that are in USD and sell or 
convert all other Surplus Property into USD and distribute the 
proceeds. ``Surplus Property'' includes, among other things, interest 
on euro in the Deposit Account that the Trustee determines is not 
required to pay estimated Trust expenses within the following month. In 
addition, if the Trust is terminated and liquidated, then the Trustee 
will distribute to the Shareholders upon surrender of their Shares any 
amounts remaining after the satisfaction of all outstanding liabilities 
of the Trust and the establishment of such reserves for applicable 
taxes, other governmental charges and contingent or future liabilities 
as the Trustee shall determine. All distributions will be made monthly 
in USD. The Trustee will effectuate the conversion and will determine 
the exchange rate, which will be proximate to the Noon Buying Rate on 
the record date for the distribution. Shareholders of record on the 
record date fixed by the Trustee for any distribution will be entitled 
to receive their pro-rata portion of the distribution.\13\
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    \13\ On the last calendar day of each month, the Depository will 
deposit into the Deposit Account the accrued but unpaid interest for 
that month and pay the accrued Sponsor's fee for the month plus any 
other Trust expenses. If the last calendar day of the month is not a 
business day, the deposit of interest and payment of the Sponsor's 
fee and expenses will be made on the next following business day. In 
the event that the interest deposited exceeds the sum of the 
Sponsor's fees for the month plus other Trust expenses, if any, then 
the Trustee shall convert the excess into dollars based on the Noon 
Buying Rate and distribute the dollars promptly to Shareholders of 
record on the last calendar day of the month, on a pro rata basis 
(in accordance with the number of Shares that they own). The 
distribution per Share shall be rounded down to the nearest penny, 
and any excess remaining after the rounding shall be retained by the 
Trust in euro.
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2. Liquidity
    The Exchange states that the amount of the discount or premium in 
the trading price relative to the NAV per Share may be influenced by 
non-concurrent trading hours between the major euro markets and the 
NYSE. The period of greatest liquidity in the euro market is typically 
that time of the day when trading in the European time zones overlap 
with trading in the U.S., which is when over-the-counter market trading 
in London, New York, and other centers coincides with futures and 
options trading on the euro. While the Shares will trade on the NYSE 
until 4:15 p.m. (New York time), liquidity in the over-the-counter 
market for euro will be slightly reduced after the close of the London 
foreign currency markets.
    Because of the potential for arbitrage inherent in the structure of 
the Trust, the Sponsor believes that the Shares will not trade at a 
material discount or premium to the value of underlying euro held by 
the Trust. The Exchange states that the arbitrage process, which, in 
general, provides investors the opportunity to profit from differences 
in prices of assets, increases the efficiency of the markets, serves to 
prevent potentially manipulative efforts, and can be expected to 
operate efficiently in the case of the Shares and euro.
3. Creation and Redemption of Trust Shares
    The Trust will create Shares on a continuous basis only in 
aggregations of 50,000 Shares (such aggregation referred to as a 
``Basket'') in exchange for deposits of euro and will distribute euro 
in connection with redemptions of Baskets. Authorized Participants are 
the only persons that may place orders to create and redeem Baskets. 
Authorized Participants purchasing Baskets will be able to separate a 
Basket into individual Shares for resale. Each Share will initially 
represent 100 euro. Except when aggregated in Baskets, the Shares are 
not redeemable. The Trust will impose transaction fees in connection 
with creation and redemption transactions.
    The creation and redemption of Baskets requires the delivery to the 
Trust or the distribution by the Trust of the amount of euro 
represented by the Baskets being created or redeemed. This amount is 
based on the combined NAV per Share of the number of Shares included in 
the Baskets being created or redeemed, determined on the day the order 
to create or redeem Baskets is properly received. The number of Shares 
outstanding is expected to increase and decrease from time to time as a 
result of the creation and redemption of Baskets. Authorized 
Participants pay for Baskets with euro. Shareholders pay for Shares 
with U.S. dollars.
    The Exchange states that certain Authorized Participants are 
expected to have the facilities to participate directly in the global 
foreign exchange market. In some cases, an Authorized Participant may 
acquire euro from, or sell euro to, an affiliated foreign exchange 
trading desk, which may profit in these instances. The Sponsor believes 
that the size and operation of the foreign exchange market make it 
unlikely that an Authorized Participant's direct activities in the 
foreign exchange and securities markets will impact the price of euro 
or the price of Shares. The Exchange states that each Authorized 
Participant is (i) regulated as a broker-dealer regulated under the 
Exchange Act and registered with the National Association of Securities

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Dealers, Inc. (``NASD''), or (ii) is exempt from being, or otherwise is 
not required to be, regulated as a broker-dealer under the Exchange Act 
or registered with the NASD, and in either case is qualified to act as 
a broker or dealer in the states or other jurisdictions where the 
nature of its business so requires.\14\ Certain Authorized Participants 
will be regulated under federal and state banking laws and regulations. 
The Exchange states that each Authorized Participant will have its own 
set of rules and procedures, internal controls, and information 
barriers as it determines is appropriate in light of its own regulatory 
regime. Authorized Participants may act for their own accounts or as 
agents for broker-dealers, custodians, and other securities market 
participants that wish to create or redeem Baskets. An order for one or 
more Baskets may be placed by an Authorized Participant on behalf of 
multiple clients.
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    \14\ The Commission notes that as of October 1, 2003, the 
temporary exemption for banks from the definition of ``dealer'' 
under the Act expired. Accordingly, banks that act as Authorized 
Participants should consider whether they are ``dealers'' under the 
federal securities laws. See 15 U.S.C. 78c(a)(5); Securities 
Exchange Act Release No. 47364 (February 14, 2003), 68 FR 8686 
(February 24, 2003).
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4. Information About Underlying Euro Holdings
    Currently, the Consolidated Tape Plan does not provide for 
dissemination of the spot price of a foreign currency, such as euro, 
over the Consolidated Tape. However, the last sale price for the Shares 
will be disseminated over the Consolidated Tape, as is the case for all 
equity securities traded on the Exchange (including exchange-traded 
funds). In addition, there is a considerable amount of euro price and 
euro market information available on public Web sites and through 
professional and subscription services. In most instances, real-time 
information is only available for a fee, and information available free 
of charge is subject to delay (typically, 15 to 20 minutes).
    Investors may obtain on a 24-hour basis euro pricing information 
based on the euro spot price from various financial information service 
providers. Current spot prices are also generally available with bid/
ask spreads from foreign exchange dealers. Complete real-time data for 
euro futures and options prices traded on the CME and Phlx are also 
available by subscription from information service providers. The CME 
and Phlx also provide delayed futures and options information on 
current and past trading sessions and market news free of charge on 
their respective Web sites.
    There are a variety of other public Web sites that provide 
information on foreign currency and the euro, such as Bloomberg (http://www.bloomberg.com/markets/currencies/
 eurafr--currencies.html), which 

regularly reports current foreign exchange pricing for a fee. Other 
service providers include CBS Market Watch (http://www.marketwatch.com/tools/ stockresearch/globalmarkets) and Yahoo! Finance (http://

finance.yahoo.com/currency). Many of these sites offer price quotations 
drawn from other published sources, and as the information is supplied 
free of charge, it generally is subject to time delays.\15\ The 
Exchange states that, like bond securities traded in the over-the-
counter market with respect to which pricing information is available 
directly from bond dealers, current euro spot prices are also generally 
available with bid/ask spreads from foreign currency dealers.
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    \15\ There may be incremental differences in the euro spot price 
among the various information service sources. While the Exchange 
believes the differences in the euro spot price may be relevant to 
those entities engaging in arbitrage or in the active daily trading 
of euro or foreign currency derivatives, the Exchange believes such 
differences are likely of less concern to individual investors 
intending to hold the Shares as part of a long-term investment 
strategy.
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    In addition, the Trust's Web site will provide the following 
information: (1) The euro spot price,\16\ including the bid and offer 
and the midpoint between the bid and offer for the euro spot price, 
updated every 5 to 10 seconds; \17\ (2) an intraday indicative value 
(``IIV'') per share for the Shares calculated by multiplying the 
indicative spot price of euro by the quantity of euro backing each 
Share, on a 5- to 10-second delay basis; \18\ (3) a delayed indicative 
value (subject to a 20-minute delay), which is used for calculating 
premium/discount information; (4) premium/discount information, 
calculated on a 20-minute delayed basis; (5) the NAV of the Trust as 
calculated each business day by the Sponsor; (6) accrued interest per 
Share; (7) the daily Federal Reserve Bank of New York Noon Buying Rate; 
(8) the Basket Euro Amount; and (9) the last sale price (under symbol 
FXE) of the Shares as traded in the U.S. market, subject to a 20-minute 
delay, as it is provided free of charge.\19\ The Exchange will provide 
on its own public Web site (http://www.nyse.com) a link to the Trust's 

Web site. The market prices for the Shares will also be available from 
a variety of sources, including brokerage firms, financial information 
Web sites, and other information service providers.
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    \16\ The Trust Web site's euro spot price will be provided by 
The Bullion Desk (http://www.thebulliondesk.com). The NYSE will 

provide a link to the Trust Web site. The Bullion Desk is not 
affiliated with the Trust, Trustee, Sponsor, Depository, 
Distributor, or the Exchange. In the event that the Trust's Web site 
should cease to provide this euro spot price information from an 
unaffiliated source and the intraday indicative value of the Shares, 
the NYSE will halt trading in the Shares and commence delisting 
proceedings for the Shares. See infra, note 26.
    \17\ The midpoint will be calculated by the Sponsor. The 
midpoint is used for purposes of calculating the premium or discount 
of the Shares. Assuming a euro spot bid of $1.2235 and an offer of 
$1.2236, the midpoint would be calculated as follows:
    (Euro spot bid plus ((euro spot offer minus euro spot bid) 
divided by 2)) or ($1.2235 + (($1.2236-$1.2235)/2)) = $1.22355.
    \18\ The intraday indicative value of the Shares is analogous to 
the intraday optimized portfolio value (sometimes referred to as the 
IOPV), indicative portfolio value, and the intraday indicative value 
(sometimes referred to as the IIV) associated with the trading of 
exchange-traded funds. See, e.g., Securities Exchange Act Release 
No. 46686 (October 18, 2002), 67 FR 65388 (October 24, 2002) (SR-
NYSE-2002-51) for a discussion of indicative portfolio value in the 
context of an exchange-traded fund. The Trust's Web site is expected 
to indicate that the intraday indicative value and euro spot prices 
are subject to an average delay of 5 to 10 seconds.
    \19\ The last sale price of the Shares in the secondary market 
is available on a real-time basis for a fee from regular data 
vendors.
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E. Initial Share Issuance and Continued Listing

    Bear Hunter Structured Products, LLC is expected to purchase three 
Baskets, representing 150,000 Shares, as the initial seed Baskets, 
which will be outstanding at the commencement of trading on the 
Exchange.\20\ Each Share will initially represent 100 euro. The 
Exchange's original listing fee applicable to the listing of the Trust 
will be $5,000. The annual continued listing fee for the Trust will be 
$2,000.
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    \20\ Telephone conference between Michael Cavalier, Assistant 
General Counsel, NYSE, and Florence E. Harmon, Senior Special 
Counsel, Division of Market Regulation, Commission, on November 18, 
2005.
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    The Exchange's applicable continued listing criteria require it to 
delist the Shares if any of the following occur: (1) Following the 
initial twelve-month period beginning upon the commencement of trading 
of the Shares, there are fewer than 50 record and/or beneficial holders 
of the Shares for 30 or more consecutive trading days; (2) the value of 
euro is no longer calculated or available on at least a 15-second 
delayed basis from a source unaffiliated with the Sponsor, the Trust, 
the Exchange, or the Exchange stops providing a hyperlink on the 
Exchange's Web site to any such unaffiliated euro value; (3) the IIV is 
no longer made available on at least a 15-second delayed basis; or (4) 
such other event shall occur

[[Page 72490]]

or condition exist that, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable. In addition, the Exchange will 
remove Shares from listing and trading upon termination of the Trust.

F. Exchange Trading Rules and Policies

    The Shares are considered ``securities'' pursuant to NYSE Rule 3 
and are subject to all applicable trading rules. The Exchange's 
surveillance procedures will be comparable to those used for investment 
company units currently trading on the Exchange and will incorporate 
and rely upon existing NYSE surveillance procedures governing equities.
    The Exchange has proposed to adopt new NYSE Rule 1300A (``Currency 
Trust Shares'') to deal with issues related to the trading of the 
Shares. Specifically, for purposes of NYSE Rules 13 (``Definitions of 
Orders''), 36.30 (``Communications Between Exchange and Members' 
Offices: Specialist Post Wires''), 98 (``Restrictions on Approved 
Person Associated with a Specialist's Member Organization''), 104 
(``Dealings by Specialists''), 105(m) (``Specialists'' Interest in 
Pools, Options, and Single Stock Futures: Specialist Shall Not Be 
Options or Single Stock Futures Market-Maker''),\21\ 460.10 
(``Specialists Participating in Contests''), 1002 (``Availability of 
Automatic Execution Feature''), and 1005 (``Orders May Not Be Broken 
Into Smaller Amounts'') the Shares will be treated the same as 
Investment Company Units. When these Rules discuss Investment Company 
Units, references to the word ``index'' (or derivative or similar 
words) will be deemed to be references to the applicable currency spot 
price, and reference to the word ``security'' (or derivative or similar 
words) will be deemed to be references to the Currency Trust Shares. 
The term ``applicable non-U.S. currency'' as used in proposed NYSE 
Rules 1300A and 1301A, is defined as the currency held by the Trust for 
a particular issue of Currency Trust Shares. Proposed NYSE Rules 1300A 
and 1301A are intended to accommodate possible future listings of 
trusts based on non-U.S. currencies in addition to the euro. Any 
Exchange listing of an issue of Currency Trust Shares will be subject 
to approval of a proposed rule change by the Commission pursuant to 
Section 19(b)(2) of the Exchange Act \22\ and Rule 19b-4 \23\ 
thereunder.
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    \21\ In particular, proposed NYSE Rule 1300A provides that NYSE 
Rule 105(m) is deemed to prohibit an equity specialist, his member 
organization, other member, allied member, or approved person in 
such member organization or officer or employee thereof from acting 
as a market-maker or functioning in any capacity involving market-
making responsibilities in the applicable non-U.S. currency, 
options, futures, or options on futures on such currency, or any 
other derivatives based on such currency, except as otherwise 
provided therein.
    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 17 CFR 240.19b-4.
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    The Exchange does not currently intend to exempt Currency Trust 
Shares from the Exchange's ``Market-on-Close/Limit-on-Close/Pre-Opening 
Price Indications'' Policy, although the Exchange may do so by means of 
a rule change in the future if, after having experience with the 
trading of the Shares, the Exchange believes such an exemption is 
appropriate.
    The Exchange is proposing to adopt new NYSE Rule 1301A (``Currency 
Trust Shares: Securities Accounts and Orders of Specialists'') to 
ensure that specialists handling Currency Trust Shares provide the 
Exchange with all necessary information relating to their trading in 
the applicable non-U.S. currency, options, futures contracts and 
options thereon or any other derivative on such currency.\24\ As a 
general matter, the Exchange has regulatory jurisdiction over its 
member organizations and any person or entity controlling a member 
organization. The Exchange also has regulatory jurisdiction over a 
subsidiary or affiliate of a member organization that is in the 
securities business. A member organization subsidiary or affiliate that 
does business only in commodities would not be subject to NYSE 
jurisdiction, but the Exchange could obtain certain information 
regarding the activities of such subsidiary or affiliate through 
reciprocal agreements with regulatory organizations of which such 
subsidiary or affiliate is a member.
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    \24\ Proposed NYSE Rule 1301A also states that, in connection 
with trading the applicable non-U.S. currency, options, futures, or 
options on futures, or any other derivatives on such currency 
(including Currency Trust Shares), the specialist shall not use any 
material nonpublic information received from any person associated 
with a member or employee of such person regarding trading by such 
person or employee in the applicable non-U.S. currency, options, 
futures, or options on futures, or any other derivatives on such 
currency. For purposes of proposed NYSE Rule 1301A, ``person 
associated with a member'' shall have the same meaning ascribed to 
it in Section 3(a)(21) of the Exchange Act.
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    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading on the Exchange in the Shares may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in euro, or 
(2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. In addition, 
trading in Shares will be subject to trading halts caused by 
extraordinary market volatility pursuant to the Exchange's ``circuit 
breaker'' rule.\25\ The Exchange will halt trading in the Shares if the 
Trust Web site (to which the NYSE will link) ceases to provide (1) the 
value of the euro updated at least every 15 seconds from a source not 
affiliated with the Sponsor, Trust, or the Exchange, or (2) the IIV per 
Share updated at least every 15 seconds.\26\
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    \25\ See NYSE Rule 80B.
    \26\ In the event that the Trust Web site (to which the NYSE 
will link) ceases to provide (1) the value of the euro updated at 
least every 15 seconds from a source not affiliated with the 
Sponsor, Trust, or the Exchange, or (2) the IIV per Share updated at 
least every 15 seconds, the Exchange would immediately contact the 
Commission to discuss measures that may be appropriate under the 
circumstances. Telephone conference between Michael Cavalier, 
Assistant General Counsel, NYSE, and Florence E. Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, on 
November 22, 2005.
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G. Surveillance

    The Exchange's surveillance procedures will be comparable to those 
used for Investment Company Units and streetTRACKSR Gold Shares and 
will incorporate and rely upon existing NYSE surveillance procedures 
governing equities. The Exchange represents that these procedures are 
adequate to monitor Exchange trading of the Shares and to detect 
violations of Exchange rules, thereby deterring manipulation.\27\
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    \27\ See Telephone conference between Michael Cavalier, 
Assistant General Counsel, NYSE, and Florence E. Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, on 
October 21, 2005.
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    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations. The Exchange is able to 
obtain information regarding trading in the Shares, euro options, and 
euro futures through NYSE members, in connection with such members' 
proprietary or customer trades which they effect on any relevant 
market. In addition, the Exchange may obtain trading information via 
the Intermarket Surveillance Group (``ISG'') from other exchanges who 
are members or affiliates of the ISG. Specifically, the NYSE can

[[Page 72491]]

obtain such information from the Phlx in connection with euro options 
trading on the Phlx and from the CME and LIFFE in connection with euro 
futures trading on those exchanges.\28\
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    \28\ Phlx is a member of ISG. CME and LIFFE are affiliate 
members of ISG.
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H. Due Diligence

    Before a member, member organization, allied member, or employee 
thereof recommends a transaction in the Shares, such person must 
exercise due diligence to learn the essential facts relative to the 
customer pursuant to NYSE Rule 405 and must determine that the 
recommendation complies with all other applicable Exchange and federal 
rules and regulations. A person making such recommendation should have 
a reasonable basis for believing, at the time of making the 
recommendation, that the customer has sufficient knowledge and 
experience in financial matters that he or she may reasonably be 
expected to be capable of evaluating the risks and any special 
characteristics of the recommended transaction and is financially able 
to bear the risks of the recommended transaction.

I. Information Memo

    The Exchange will distribute an Information Memo to its members in 
connection with the trading in the Shares. The Information Memo will 
discuss the special characteristics and risks of trading this type of 
security. Specifically, the Information Memo, among other things, will 
discuss what the Shares are, that Shares are not individually 
redeemable but are redeemable only in Baskets of 50,000 shares or 
multiples thereof, how a Basket is created and redeemed, applicable 
Exchange rules, the indicative price of euro and IIV, dissemination 
information, trading information, and the applicability of suitability 
rules.\29\ The Information Memo will also state that the number of euro 
required to create a Basket or to be delivered upon redemption of a 
Basket may gradually decrease over time in the event that the Trust is 
required to sell deposited euro to pay the Trust's expenses, and that 
if done at a time when the price of the euro is relatively low, it 
could adversely affect the value of the Shares.\30\ The Information 
Memo will also reference the fact that there is no regulated source of 
last sale information regarding euro, and that the Commission has no 
jurisdiction over the trading of euro. Finally, the Information Memo 
will also note to members their obligations regarding prospectus 
delivery requirements for the Shares.
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    \29\ The Information Memo will also discuss any exemptive relief 
granted by the Commission from certain rules under the Exchange Act.
    \30\ See Telephone conference between Michael Cavalier, 
Assistant General Counsel, NYSE, and Florence E. Harmon, Senior 
Special Counsel, Division of Market Regulation, Commission, on 
October 21, 2005.
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IV. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Exchange Act 
\31\ and the rules and regulations thereunder applicable to a national 
securities exchange.\32\ In particular, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Exchange Act,\33\ which requires, among other things, 
that the Exchange's rules be designed to promote just and equitable 
principles of trade, to remove impediments and to 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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    \31\ 15 U.S.C. 78f.
    \32\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \33\ 15 U.S.C. 78f(b)(5).
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A. Surveillance

    Information sharing agreements with markets trading securities 
underlying a derivative are an important part of a self-regulatory 
organization's ability to monitor for trading abuses in derivative 
products.\34\ Although an information sharing agreement is not possible 
with the OTC euro-dollar foreign exchange market, the Commission 
believes that the unique liquidity and depth of the euro-dollar foreign 
exchange market, together with the Exchange's participation in the 
ISG,\35\ and NYSE Rules 1300A(b) and 1301A create the basis for the 
NYSE to monitor for fraudulent and manipulative practices in the 
trading of the Shares.\36\
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    \34\ See e.g., Securities Exchange Act Release No. 50603 
(October 28, 2004), 69 FR 64614 (November 5, 2004) (approving 
proposal by the NYSE to list and trade trust shares that correspond 
to a fixed amount of gold) (``Gold Order'').
    \35\ See supra note 28 and accompanying text.
    \36\ The Commission notes that it had previously approved the 
listing and trading of foreign currency options, for which there is 
no self-regulatory organization or Commission surveillance of the 
underlying markets, on the basis that the magnitude of the 
underlying currency market militated against manipulations through 
inter-market trading activity. See id., at 64619 (Securities 
Exchange Act Release Nos. 19133 (October 14, 1982) (approving the 
listing of standardized options on foreign currencies); 36505 
(November 22, 1995) (approving the listing of dollar-denominated 
delivery foreign currency options on the Japanese Yen); and 36165 
(August 29, 1995) (approving listing standards for, among other 
things, currency and currency index warrants).
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    In particular, NYSE Rule 1301A will require that the specialist 
handling the Shares provide the Exchange with information relating to 
its trading in euro options, futures or options on futures on the euro, 
or any other derivatives based on the euro. The Exchange believes that 
these reporting and recordkeeping requirements will assist it in 
identifying situations potentially susceptible to manipulation. NYSE 
Rule 1301A(c) will also prohibit the specialist in the Shares from 
using any material, nonpublic information received from any person 
associated with a member or employee of such person regarding trading 
by such person or employee in euro, or options, futures or options on 
futures of euro, or any other derivatives based on euro (including the 
Shares). In addition, NYSE Rule 1300A(b) will prohibit the specialist 
in the Shares from being affiliated with a market maker in euro, or 
options, futures or options on futures on euro, or any other 
derivatives based on euro unless information barriers are in place that 
satisfy the requirements in NYSE Rule 98. The Commission believes that 
the NYSE can adequately surveil trading in the Shares, notwithstanding 
the lack of a surveillance sharing agreement with the OTC market that 
trades euro.

B. Dissemination of Information About the Shares

    The Commission believes that sufficient venues for obtaining 
reliable euro price information exist so that investors in the Shares 
can monitor the underlying spot market in euro relative to the NAV of 
their Shares. There is a considerable amount of euro price and euro 
market information available 24 hours per day through public Web sites 
and professional subscription services.
    In addition, the Exchange will provide a link to the Trust's Web 
site on the NYSE's public Web site. The Trust's Web site, which is and 
will be publicly accessible at no charge, will provide, among other 
things, the euro spot price,\37\ including the bid and offer and the 
midpoint between the bid and offer for the euro spot price, updated 
every 5- to 10-seconds \38\ and the daily Federal

[[Page 72492]]

Reserve Bank of New York Noon Buying Rate. The Commission also notes 
that the Trust's Web site will contain: (1) An intraday indicative 
value (``IIV'') per share for the Shares calculated by multiplying the 
indicative spot price of euro by the quantity of euro backing each 
Share, on a 5 to 10 second delay basis; (2) a delayed indicative value 
(subject to a 20 minute delay), which is used for calculating premium/
discount information; (3) premium/discount information, calculated on a 
20 minute delayed basis; (4) the NAV of the Trust as calculated each 
business day by the Sponsor; (5) accrued interest per Share; (6) the 
Basket Euro Amount; and (7) the last sale price (under symbol FXE) of 
the Shares as traded in the U.S. market, subject to a 20-minute delay, 
as it is provided free of charge.\39\
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    \37\ As noted above, the Trust Web site's euro spot price will 
be provided by The Bullion Desk (http://www.thebulliondesk.com), 

which is not affiliated with the Sponsor, the Trust, the Depository, 
the Distributor, or the Exchange. See supra note 16.
    \38\ As noted above, the midpoint will be calculated by the 
Sponsor. See supra note 17.
    \39\ The last sale price of the Shares in the secondary market 
is available on a real-time basis for a fee from regular data 
vendors.
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    The Commission believes that the wide availability of euro price 
information and dissemination of information described above will 
facilitate transparency with respect to the proposed Shares and 
diminish the risk of manipulation or unfair informational advantage.

C. Listing and Trading

    The Commission finds that the Exchange's proposed rules and 
procedures for the listing and trading of the proposed Shares are 
consistent with the Exchange Act. Shares will trade as equity 
securities subject to NYSE rules including, among others, rules 
governing trading halts, responsibilities of the specialist, account 
opening, and customer suitability requirements. In addition, the Shares 
will be subject to NYSE listing and delisting rules and procedures 
governing the trading of ICUs on the NYSE. The Commission believes that 
listing and delisting criteria for the Shares should help to maintain a 
minimum level of liquidity and therefore minimize the potential for 
manipulation of the Shares. Finally, the Commission believes that the 
Information Memo the Exchange will distribute will inform members and 
member organizations about the terms, characteristics and risks in 
trading the Shares, including their prospectus delivery obligations.

D. Acceleration

    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of the 
notice of filing thereof in the Federal Register. The Exchange has 
requested the Commission to approve the proposal on an accelerated 
basis, after a 15-day comment period, to enable investors to begin 
trading the Shares promptly. The Commission notes that the proposed 
rule change was noticed for a 15-day comment period and no comments 
were received. Therefore, the Commission finds good cause, consistent 
with Section 19(b)(2) of the Act,\40\ to approve the proposal on an 
accelerated basis.
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    \40\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\41\ that the proposed rule change (SR-NYSE-2005-65) is 
approved on an accelerated basis.
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    \41\ Id.
    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\42\
Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6830 Filed 12-2-05; 8:45 am]

BILLING CODE 8010-01-P
