

[Federal Register: March 24, 2006 (Volume 71, Number 57)]
[Notices]               
[Page 14967-14975]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr06-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53521; File No. SR-Amex-2005-072]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto 
Relating to the Listing and Trading of Shares of the iShares[supreg] 
Silver Trust

March 20, 2006.

I . Introduction

    On June 30, 2005, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade under Amex 
Rules 1200A et seq. iShares[supreg] Silver Trust shares (the ``Silver 
Shares'' or ``Shares'').\3\ On September 15, 2005, the Exchange 
submitted Amendment No. 1 to the proposed rule change.\4\ The proposed 
rule change, as amended, was published for comment in the Federal 
Register on January 23, 2006.\5\ The Commission received 255 comment 
letters regarding the proposed rule change.\6\ On February 28, 2006, 
the Exchange filed a response to these comments.\7\ This order approves 
the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ iShares[supreg] is a registered trademark of Barclays Global 
Investors, N.A.
    \4\ Amendment No. 1 to the proposed rule change clarifies the 
valuation procedure that would be used by the Bank of New York to 
determine the daily value of the silver contained in the 
iShares[supreg] Silver Trust.
    \5\ See Securities Exchange Act Release No. 53130 (January 17, 
2006), 71 FR 3570 (January 23, 2006) (``Notice'').
    \6\ These comment letters are available for review on the 
Commission's Web site at http://www.sec.gov/rules/sro/ amex/

amex2005072.shtml.
    \7\ See letter from Neal L Wolkoff, Chairman and Chief Executive 
Officer, Amex, to Nancy M. Morris, Secretary, Commission, dated 
February 28, 2006 (``Wolkoff Letter'').
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II. Description of Proposal

    In January 2005, the Exchange adopted rules for the listing and 
trading of ``Commodity-Based Trust Shares.'' \8\ Commodity-Based Trust 
Shares (the ``Commodity Shares'') are securities issued by a trust that 
represent investors' discrete identifiable and undivided beneficial 
ownership interest in the commodities deposited into the trust. 
Commodity Shares are a form of trust issued receipt (``TIR'') \9\ that 
instead of holding one or more discrete securities will hold one or 
more physical commodities. The Exchange has listed the iShares COMEX 
Gold Trust \10\ and trades pursuant to unlisted trading privileges 
(``UTP''), the streetTRACKS Gold Trust,\11\ as Commodity-Based Trust 
Shares pursuant to Exchange Rules 1200A et seq.
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    \8\ See Securities Exchange Act Release No. 51058 (January 19, 
2005), 70 FR 3749 (January 26, 2005) (approving the listing and 
trading of the iShares COMEX Gold Trust).
    \9\ A Trust Issued Receipt or ``TIR'' is defined in Exchange 
Rule 1200(b) as a security (a) that is issued by a trust that holds 
specified securities deposited with the trust; (b) that, when 
aggregated in some specified minimum number, may be surrendered to 
the trust by the beneficial owner to receive the securities; and (c) 
that pays beneficial owners dividends and other distributions on the 
deposited securities, if any are declared and paid to the trustee by 
an issuer of the deposited securities. Under Amex Rule 1201, the 
Exchange may approve for listing and trading TIRs based on one or 
more securities. The Exchange defines a ``security'' or 
``securities'' to include stocks, bonds, options, and other 
interests or instruments commonly known as securities. See Article 
I, Section 3(j) of the Amex Constitution.
    \10\ See supra note 8.
    \11\ See Securities Exchange Act Release No. 51446 (March 29, 
2005), 70 FR 17272 (April 5, 2005) (approving the UTP trading of the 
streetTRACKS Gold Shares).
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    Pursuant to Amex Rule 1201A, the Exchange may approve for listing 
and trading Commodity Shares on an underlying commodity.\12\ 
Accordingly, the Amex proposes to list for trading Silver Shares under 
Exchange Rule 1200A et. seq.\13\
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    \12\ Amex Rule 1200A(b)(2) defines ``commodity'' as set forth in 
Section 1(a)(4) of the Commodity Exchange Act (``CEA'').
    \13\ See applicable Amex Rules 1200A, 1201A, 1202A, 1203A, 
1204A, and 1205A.
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    The Exchange proposes to list and trade the Silver Shares, which 
represent beneficial ownership interests in the net assets of the 
iShares Silver Trust \14\ (the ``Silver Trust'' or ``Trust'') 
consisting primarily of silver bullion. Each Silver Share will 
initially correspond to 10 ounces of silver.\15\ The Silver Shares will 
meet the initial and continued listing criteria under Amex Rule 
1202A.\16\
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    \14\ The Trust is not an investment company as defined in 
Section 3(a) of the Investment Company Act of 1940. The Silver Trust 
will be formed under a depositary trust agreement, among Bank of New 
York, as Trustee, Barclays Global Investors International, Inc. 
(``Barclays'' or ``Sponsor''), the Sponsor, all depositors, if any, 
and the holders of Silver Shares.
    \15\ The amount of silver associated with each basket (and 
individual Silver Share) is expected to decrease over time as the 
Trust incurs and pays maintenance fees and other expenses.
    \16\ The initial listing standards set forth in Amex Rule 
1202A(a) provide that the Exchange establish a minimum number of 
TIRs required to be outstanding at the time of the commencement of 
trading on the Exchange. As set forth in the section ``Criteria for 
Initial and Continued Listing,'' the Exchange expects the minimum 
number of Silver Shares required to be outstanding at the time of 
trading to be 150,000.

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[[Page 14968]]

    In effect, purchasing Silver Shares will provide investors a new 
mechanism to participate in the silver market. Information about the 
liquidity, depth, and pricing mechanisms of the international silver 
market, management and structure of the Trust, and description of the 
Silver Shares follows below.

A. Description of the Silver Market

    The silver market is a global marketplace consisting of both over-
the-counter (``OTC'') transactions and exchange-traded products. The 
OTC market generally consists of transactions in spot, forwards, 
options and other derivatives, while exchange-traded transactions 
consist of futures and options. In its filing with the Commission, Amex 
provided a description of the silver market.\17\
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    \17\ See Notice, supra note 5.
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1. The OTC Market
    The OTC market trades on a 24-hour continuous basis and accounts 
for the substantial portion of global silver trading. The London OTC 
market is the largest silver clearing market. The Exchange believes the 
period of greatest liquidity in the silver market is typically that 
time of day when trading in the European time zone overlaps with 
trading in the United States. This occurs when the OTC market trading 
in New York, London, Zurich and other centers coincides with futures 
and options trading on the Commodity Exchange, Inc. (``COMEX'').\18\ 
This period lasts for approximately five (5) hours \19\ each New York 
business day, from 8:25 a.m.-1:25 p.m. Eastern Time (``ET'').
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    \18\ COMEX is a division of the New York Mercantile Exchange, 
Inc. (``NYMEX'') where silver futures contracts and related options 
are traded. The open outcry trading hours of the COMEX silver 
futures contract is from 8:25 a.m. to 1:25 p.m. ET Monday through 
Friday. NYMEX ACCESS[supreg], an electronic trading system, is open 
for price discovery on COMEX silver futures contracts from 2 p.m. 
Monday afternoon until 8 a.m. Friday morning ET; and from 7 p.m. 
Sunday night until Monday morning at 8 a.m. ET.
    \19\ Telephone conference between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on January 13, 2006.
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    The OTC market has no formal structure and no open-outcry meeting 
place. The main centers of the OTC market are London (the largest 
market), New York, and Zurich. Bullion dealers have offices around the 
world, and most of the world's major bullion dealers are either members 
or associate members of the London Bullion Market Association 
(``LBMA'').\20\
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    \20\ Further information about the LBMA may be found at http://www.lbma.org.uk.
 There are currently nine (9) market-making members 

of the LBMA, five of which offer clearing services, and 51 full 
members.
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    The Exchange indicates that there are no authoritative published 
figures for overall worldwide volume in silver trading. There are 
published sources that do suggest the significant size of the overall 
market. The LBMA publishes statistics compiled from the five (5) 
members offering clearing services.\21\ The Exchange notes that the 
monthly average daily volume figures published by the LBMA for 2004 
range from, a high of 143.4 million to a low of 75.5 million troy 
ounces per day. Through May 2005, the monthly average daily volume has 
ranged from a high of 152.1 million to a low of 76.9 million. The COMEX 
also publishes price and volume statistics for exchange-traded 
transactions in contracts for the future delivery of silver (and 
related options).\22\
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    \21\ Information regarding clearing volume estimates by the LBMA 
can be found at http://www.lbma.org.uk/ clearing--table.htm. The 

three measures published by the LBMA are: volume, the amount of 
metal transferred on average each day measured in millions of troy 
ounces; value, measured in U.S. dollars, using the monthly average 
London PM fixing price; and the number of transfers, which is the 
average number recorded each day. The statistics exclude allocated 
and unallocated balance transfers where the sole purpose is for 
overnight credit and physical movements arranged by clearing members 
in locations other than London.
    \22\ Information regarding price and average daily volume on the 
COMEX can be found at http://www.nymex.com/jsp/ markets.md--annual-- 

volume.jsp.
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2. Futures Exchanges
    The Exchange states that the most significant silver futures 
exchanges are the COMEX and the Tokyo Commodity Exchange 
(``TOCOM'').\23\ Trading on these exchanges is based on fixed delivery 
dates and transaction sizes for the futures and options contracts 
traded. Trading costs on these exchanges are negotiable. The Exchange 
represents that as a matter of practice, only a small percentage of the 
future market turnover ever comes to physical delivery of the silver 
represented by the contracts traded. Both COMEX and TOCUM permit 
trading on margin. COMEX operates through a central clearance system. 
TOCOM has a similar clearance system. In each case, the exchange acts 
as a counterparty for each member for clearing purposes.
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    \23\ There are other silver exchange markets, such as the London 
Metals Exchange, the Istanbul Gold Exchange, the Shanghai Gold 
Exchange, and the Hong Kong Chinese Gold & Silver Exchange Society.
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3. Silver Market Regulation
    There is no direct regulation of the global OTC market in silver. 
However, indirect regulation of some of the overseas participants does 
occur. In the United Kingdom, responsibility for the regulation of 
financial market participants, including the major participating 
members of the LBMA, falls under the authority of the Financial 
Services Authority (``FSA'') as provided by the Financial Services and 
Market Act of 2000 (``FSM Act''). The Exchange states that under the 
FSM Act, all UK-based banks, together with other investment firms, are 
subject to a range of requirements, including fitness and properness, 
capital adequacy, liquidity, and systems and controls. The FSA is 
responsible for regulating investment products, including derivatives, 
and those who deal in investment products. Regulation of spot, 
commercial forwards and deposits of silver not covered by the FSM Act 
is provided for by The London Code of Conduct for Non-Investment 
Products, which was established by market participants in conjunction 
with the Bank of England, and is a voluntary code of conduct among 
market participants.
    The Exchange states that participants in the U.S. OTC market for 
silver are generally regulated by their institutional supervisors, 
which regulate their activities in the other markets in which they 
operate. For example, participating banks are regulated by the banking 
authorities. In the U.S., the Commodities Futures Trading Commission 
(``CFTC''), an independent governmental agency with the mandate to 
regulate commodity futures and options markets in the U.S., regulates 
market participants and has established rules designed to prevent 
market manipulation, abusive trade practices and fraud.
    The Exchange states that TOCOM has authority to perform financial 
and operational surveillance on its members' trading activities, 
scrutinize positions held by members and large-scale customers, and 
monitor price movements of futures markets by comparing them with cash 
and other derivative markets' prices.

B. Product Description

1. Creation and Redemption Process
    Issuances of Silver Shares will be made only in baskets of 50,000 
shares or multiples thereof (the ``Basket

[[Page 14969]]

Aggregations'' or ``Baskets'').\24\ The Trust will issue and redeem 
Basket Aggregations on a continuous basis, by or through registered 
broker-dealers that have entered into participant agreements (each, an 
``Authorized Participant'') \25\ with the Sponsor and the Trustee, Bank 
of New York (``BNY'').\26\ Following issuance, the Shares will be 
traded on the Exchange similar to other equity securities, such as 
shares of the iShares COMEX Gold Trust and the streetTRACKS Gold 
Trust.\27\
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    \24\ Initially, each Share represents 10 ounces of silver. 
Telephone conference between Jeffrey Burns, Associate General 
Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division 
of Market Regulation, Commission, on January 13, 2006.
    \25\ An ``Authorized Participant'' is a person, who at the time 
of submitting to the Trustee an order to create or redeem one or 
more Baskets, (i) is a registered broker-dealer, (ii) is a 
Depository Trust Company (``DTC'') Participant or an Indirect 
Participant, and (iii) has in effect a valid Authorized Participant 
Agreement.
    \26\ BNY will charge a transaction fee in connection with the 
redemption and/or creation of Baskets. In addition, Barclays 
Capital, Inc., the Initial Purchaser, will purchase 150,000 shares 
of the Trust that compose the initial Baskets.
    \27\ See supra notes 8 and 11.
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    Basket Aggregations of Shares will be issued as an in-kind exchange 
for a corresponding amount of silver. The basket amount of silver, 
measured in ounces (the ``Basket Silver Amount'') will be determined on 
each business day by the Trustee, BNY.\28\ Authorized Participants that 
wish to purchase a Basket must transfer the Basket Silver Amount to the 
Trust in exchange for a Basket of Shares. Authorized Participants that 
wish to redeem a Basket of Shares will receive the Basket Silver Amount 
in exchange for each Basket surrendered. JP Morgan Chase Bank, N.A., 
London Branch (``JP Morgan Chase'' or ``Custodian'') will be the 
custodian for the Trust and responsible for safekeeping the silver.\29\
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    \28\ A troy ounce, equal to 1.0971428 ounces avoirdupois, with a 
minimum fineness of 0.999. ``Avoirdupois'' is the system of weights 
used in the U.S. and U.K. for goods other than precious metals, 
gems, and drugs. In that system, a pound is 16 ounces and an ounce 
is 16 drams.
    \29\ If the total value of the Trust's silver held by the 
Custodian exceeds $1 billion, then the Custodian will be under no 
obligation to accept additional silver deliveries. In such a case, 
the Trustee will retain an additional custodian.
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    On each business day, BNY will make available immediately prior to 
the opening of trading on the Amex, the Indicative Basket Silver Amount 
for the creation of a Basket.\30\ BNY will adjust the quantity of 
silver included in the Basket Silver Amount (determined shortly after 4 
p.m.) to reflect sales of silver to cover expenses and any loss of 
deposited silver that may occur since the previous calculation. The 
Amex will disseminate at least every 15 seconds throughout the trading 
day, via the facilities of the Consolidated Tape Association (``CTA''), 
an amount representing on a per share basis, the current value of the 
Basket Silver Amount, known as the ``Indicative Trust Amount.''
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    \30\ The Sponsor will also make the next day's Indicative Basket 
Silver Amount available on the Trust Web site (http://www.iShares.com
) shortly after 4 p.m. ET each business day. The 

Basket Silver Amount, Indicative Basket Silver Amount, and net asset 
value (``NAV'') will be publicly available simultaneously to all 
market participants (to avoid any informational advantage) on either 
the Trust Web site or Amex Web site. These items will also be 
communicated to Authorized Participants via facsimile or electronic 
mail message. Telephone conference between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on January 13, 2006.
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    The Shares will not be individually redeemable but will only be 
redeemable in Basket Aggregations. To redeem, an Authorized Participant 
will be required to accumulate enough Silver Shares to constitute a 
Basket Aggregation (i.e., 50,000 shares). An Authorized Participant 
redeeming a Basket Aggregation will receive the silver amount of the 
Basket Silver Amount announced by the Trustee. Upon the surrender of 
the Shares and payment of applicable Trustee's fee and any expenses, 
taxes or charges, BNY will deliver to the redeeming Authorized 
Participant the amount of silver corresponding to the redeemed Baskets. 
Unless otherwise requested by the Authorized Participants, silver will 
then be delivered to the redeeming Authorized Participants in the form 
of physical bars only. Silver Shares will be registered in book entry 
form through DTC.
    The Exchange states that the Basket Silver Amount necessary for the 
creation of a Basket will slightly diminish each day depending on the 
Trust's daily expense accrual. The initial Basket Silver Amount is 
500,000 ounces of silver (with each Share initially representing 10 
ounces of Silver). On each day that the Amex is open for regular 
trading, BNY will adjust the quantity of silver constituting the Basket 
Silver Amount as appropriate to reflect sales of silver needed for 
payment of the Sponsor's fee (which is similar to an expense ratio) 
\31\ and any extraordinary expenses or liabilities not assumed by the 
Sponsor. BNY will determine the Basket Silver Amount for a given 
business day by subtracting the daily expense accrual from the previous 
day's total ounces of silver in the Trust and then dividing by the 
number of Baskets outstanding. Fractions of an ounce of silver smaller 
than .001 will be disregarded.
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    \31\ The Sponsor has agreed to assume the following 
administrative and marketing expenses incurred by the Trust: The 
Trustee's fee, the Custodian's fee, Amex listing fees, SEC 
registration fees, printing and mailing costs, audit fees and 
expenses and up to $100,000 per annum in legal fees and expenses. 
The Sponsor will also pay the costs of the Trust's organization and 
the initial sale of the iShares, including applicable SEC 
registration fees. Telephone conference between Jeffrey Burns, 
Associate General Counsel, Amex, and Florence Harmon, Senior Special 
Counsel, Division of Market Regulation, Commission, on January 13, 
2006.
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    The creation/redemption process in connection with the Silver 
Shares is an in-kind exchange of silver for Shares, rather than an 
exchange of silver for cash. Except for the accrual of the Sponsor's 
fee or extraordinary expenses or liabilities, the process is based 
entirely on the delivery of silver in exchange for Shares. Thus, 
throughout each business day, the Exchange states that the actual 
number of ounces required for the Basket Silver Amount usually will not 
change even though the value of the Basket Silver Amount may change 
based on the market price of silver.
2. Determination of NAV, Basket Silver Amount, and Indicative Basket 
Amount
    Shortly after 4 p.m. (ET) each business day, the BNY will determine 
the NAV of the Trust, utilizing that day's announced London silver fix 
price (unless the Sponsor, in consultation with the Trustee, determines 
that an alternative publicly available pricing benchmark more fairly 
represents the commercial value of the silver held by the Trust).\32\ 
Once the value of the silver is determined, BNY will then determine an 
``adjusted NAV'' by subtracting all accrued fees (other than the fees 
to be computed by reference to the value of the Trust or its assets 
(i.e., the Sponsor's fee)), expenses, and other liabilities of

[[Page 14970]]

the Trust from the total value of silver and all other assets of the 
Trust. This adjusted NAV is then used to compute the Sponsor's fees 
that are calculated from the value of Trust assets. Then to determine 
the final NAV, BNY will subtract from the adjusted NAV the amount of 
accrued fees from the value of Trust assets. BNY will calculate the NAV 
per share by dividing the NAV by the number of Silver Shares 
outstanding.
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    \32\ In Amendment No. 1, Amex clarified that if there is no 
London silver fix price on that day, the BNY will use the most 
recently announced London silver fix price unless the BNY, in 
consultation, with the Sponsor (Barclays), determines such London 
silver fix price to be inappropriate.
    Barclays, in consultation with the BNY, may determine that an 
alternative publicly available pricing benchmark more fairly 
represents the commercial value of silver held by the Trust. In the 
case of a temporary disruption of the London silver fix price, the 
Exchange believes that it is unnecessary for a filing pursuant to 
Section 19(b) under the Act to be submitted to the Commission. The 
Exchange submits that for a temporary disruption of the London 
silver fix, a determination by Barclays, in consultation with the 
BNY, to use an alternative pricing source for silver, is 
appropriate. However, the Exchange represents that if the use of an 
alternative pricing source for the London silver fix price is more 
than of a temporary nature, a rule filing will be submitted pursuant 
to Section 19(b) of the Act.
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    After the NAV is determined, at or about 4 p.m. each business day, 
BNY will then determine the Basket Silver Amount for orders placed by 
Authorized Participants received before 4 p.m. that day. BNY will also 
at the same time determine an ``Indicative Basket Silver Amount'' that 
Authorized Participants can use as an indicative amount of silver to be 
deposited for issuance of the Silver Shares on the next business day. 
Thus, although Authorized Participants place orders to purchase Silver 
Shares throughout the trading day, the actual Basket Silver Amount is 
determined at 4 p.m. or shortly thereafter.
    Shortly after 4 p.m. each business day, BNY and the Sponsor will 
disseminate the NAV for the Silver Shares, the Basket Silver Amount 
(for orders properly placed by 4 p.m. during the day), and the next 
day's Indicative Basket Silver Amount. The Basket Silver Amount, the 
Indicative Basket Silver Amount, and the NAV are communicated by BNY to 
all Authorized Participants via facsimile or electronic mail message 
and on the Trust's Web site at http://www.iShares.com. The Amex will 

also disclose the NAV, Basket Silver Amount, and Indicative Basket 
Silver Amount on its Web site.
    The Sponsor fee, in the absence of any extraordinary expenses and 
liabilities, is established at 0.50% of the net assets of the Trust. As 
a result, assuming there is no extraordinary movement in the intra-day 
market price of silver, the amount of silver by which the Basket Silver 
Amount will decrease each day will be predictable (i.e., \1/365\th of 
the net asset value of the Trust multiplied by 0.50%). Given the 
anticipated predictability of the daily decline in the Basket Silver 
Amount, as stated, BNY will disclose and disseminate the Indicative 
Basket Silver Amount for the next business day shortly after 4 p.m. 
Authorized Participants may use the Indicative Basket Silver Amount as 
guidance regarding the amount of silver expected to be deposited with 
the custodian, JP Morgan Chase, in connection with the issuance of 
Silver Shares on the next business day.
    As a result, the amount of silver required for the Basket Silver 
Amount is not disseminated during the trading day to correspond to 
changes in the value of silver as measured by spot silver prices.\33\ 
Before 4 p.m., the Authorized Participants may use the Indicative 
Basket Silver Amount published by the Sponsor and BNY the day before as 
guidance in respect of the amount of silver that they may expect to be 
required to deposit. But if the Indicative Basket Silver Amount 
published by the Sponsor and BNY turns out to be incorrect (for 
example, because the Trust incurred an extraordinary expense such as 
legal fees in excess of the amount assumed by the Sponsor), the amount 
actually determined by BNY will control.
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    \33\ The Amex will disseminate via the facilities of the CTA an 
``Indicative Trust Value'' at least every 15 seconds during the 
trading day that represents an indicative value for the Silver 
Shares based silver dealer pricing. Telephone conference between 
Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, 
Senior Special Counsel, Division of Market Regulation, Commission, 
on March 9, 2006.
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3. 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 
the non-concurrent trading hours between the major silver markets and 
the Amex. While the Silver Shares will trade on the Exchange until 4:15 
p.m. ET, the Exchange states that liquidity in the OTC market for 
silver will be reduced after the close of the major world silver 
markets, including London, Zurich, and the COMEX. As a result, trading 
spreads and the resulting premium or discount on the Silver Shares may 
widen as a result of reduced liquidity.\34\
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    \34\ As noted above in the section titled ``Description of the 
Silver Market,'' the period of greatest liquidity in the silver 
market is typically that time of the day when trading in the 
European time zones overlaps with trading in the United States, 
which is when OTC market trading in New York, London, Zurich, and 
other centers coincides with futures and options trading on the 
COMEX division of the NYMEX. This period lasts for approximately 
four hours each New York business day morning.
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    The Exchange believes that Silver Shares will not trade at a 
material discount or premium to the underlying silver held by the Trust 
based on potential arbitrage opportunities. Due to the fact that the 
Shares can be created and redeemed only in Basket Aggregations, the 
Exchange submits that arbitrage opportunities should provide a 
mechanism to mitigate the effect of any premiums or discounts that may 
exist from time to time. If the price of the Shares deviates enough 
from the price of silver to create a material discount or premium, an 
arbitrage opportunity is created. If the Shares are inexpensive 
compared to the silver that underlies them, an arbitrageur may buy the 
Shares at a discount, immediately redeem them in exchange for silver, 
and sell the silver in the cash market at a profit. If the Shares are 
expensive compared to the silver that underlies them, an arbitrageur 
may sell the Shares short, buy enough silver to acquire the number of 
Shares sold short, acquire the Shares through the creation process, and 
deliver the Shares to close out the short position. In both instances, 
the Exchange states that the arbitrageur serves efficiently to correct 
price discrepancies between the Shares and the underlying silver.

C. Availability of Information Regarding Silver Prices

    Although the spot price of silver will not be disseminated over the 
facilities of CTA, the last sale price for the Shares, as is the case 
for all equity securities traded on the Exchange will be disseminated 
over the CTA's Network B. In addition, the Exchange states that there 
is a considerable amount of silver price and market information 
available on public Web sites and through professional and subscription 
services.
    Investors may obtain on a 24-hour basis silver pricing information 
based on the spot price of an ounce of silver from various financial 
information service providers, such as Reuters and Bloomberg. In 
addition, the daily London silver fix is also disseminated by various 
market data vendors and is available from the LBMA's Web site. Reuters 
and Bloomberg provide at no charge on their Web sites delayed 
information regarding the spot price of silver and last sale prices of 
silver futures contracts and related options, as well as information 
about news and developments in the silver market. Reuters and Bloomberg 
also offer a professional service to subscribers for a fee that 
provides information on silver prices directly from market 
participants.\35\ Complete real-time data

[[Page 14971]]

for silver futures contracts and options prices traded on the COMEX (a 
division of the NYMEX) is available by subscription from Reuters and 
Bloomberg and also on a delayed basis free of charge on the NYMEX Web 
site at http://www.nymex.com. The Exchange also notes that there are a 

variety of other public Web sites providing information on silver, 
ranging from those specializing in precious metals to sites maintained 
by major newspapers, such as The Wall Street Journal. Current silver 
spot prices are also generally available with bid/ask spreads from 
silver bullion dealers.
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    \35\ In addition, EBS also provides an electronic trading 
platform to institutions such as bullion banks and dealers for the 
trading of spot silver, as well as a feed of live streaming prices 
to Reuters and Moneyline Telerate subscribers. EBS was launched in 
September 1993 by a group of the world's largest foreign exchange 
market making banks. The Exchange states that EBS is the pre-eminent 
provider of precious metals and foreign exchange trading solutions 
to the precious metals and interbank spot foreign exchange 
community. Approximately 500,000 ounces in gold, 4 million ounces in 
silver and $110 billion a day in spot foreign exchange transactions 
is traded each day over the EBS trading platform. The shareholders 
of EBS include the subsidiaries of the following organizations: ABN 
AMRO, Bank of America, Barclays, Citibank, Commerzbank, Credit 
Suisse First Boston, Lehman Brothers, HSBC, JPMorgan Chase, The 
Royal Bank of Scotland, S-E-Banken, UBS AG and the Minex Corporation 
of Japan. See http://www.ebs.com.

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    The Amex, via a link to the Trust's Web site, will provide at no 
charge continuously updated bids and offers indicative of the spot 
price (i.e., real time information) of silver on its own public Web 
site at http://www.amex.com.\36\

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    \36\ The Trust Web site's silver spot price will be provided by 
TheBullionDesk at http://www.thebulliondesk.com. The Amex will 

provide a link to the Trust Web site. TheBullionDesk is not 
affiliated with the Trust, Sponsor, Custodian or the Exchange. The 
silver spot price is indicative only, constructed using a variety of 
sources to compile a spot price that is intended to represent a 
theoretical quote that might be obtained from a market maker from 
time to time. The Trust Web site will indicate, as noted above in 
the discussion titled ''Availability of Information Regarding Silver 
Prices,'' that there are other sources for obtaining the silver spot 
price. In the event that, during Amex trading hours, the Trust Web 
site should cease to provide this indicative silver spot price from 
an unaffiliated source and the intraday ``Indicative Trust Value'' 
of the Shares is not disseminated via the CTA, the Exchange will 
delist the shares. See ``Criteria for Initial and Continued 
Listing,'' below.
---------------------------------------------------------------------------

D. Availability of Information Regarding Silver Shares

    The Web site for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) The prior business 
day's NAV and the reported closing price; (b) the mid-point of the bid-
ask price \37\ in relation to the NAV as of the time the NAV is 
calculated (the ``Bid-Asked Price''); (c) calculation of the premium or 
discount of such price against such NAV; (d) data in chart form 
displaying the frequency distribution of discounts and premiums of the 
Bid-Ask Price against the NAV, within appropriate ranges for each of 
the four (4) previous calendar quarters; (e) the Basket Silver Amount; 
(f) the Indicative Basket Silver Amount: (h) the Prospectus; and (g) 
other applicable quantitative information.
---------------------------------------------------------------------------

    \37\ The bid-ask price of Shares is determined using the highest 
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------

    As described above, the NAV for the Trust will be calculated and 
disseminated daily. The Amex also intends to disseminate for the Trust 
on a daily basis by means of CTA/CQ High Speed Lines information with 
respect to the Indicative Trust Value (as discussed below), recent NAV, 
and shares outstanding. As stated, the Trust Web site will also provide 
a real time indicative silver spot price through TheBullionDesk at 
http://www.thebulliondesk.com.\38\ Notwithstanding that they will be 

provided free of charge, the indicative spot price from TheBullionDesk 
on the Trust Web site and the Indicative Trust Value per Share 
disseminated via the CTA will be provided essentially on a real-time 
basis.\39\ The Exchange will also make available on its Web site daily 
trading volume, closing prices, NAV, and the Basket Silver Amount, and 
the Indicative Basket Silver Amount. The London silver fix price is 
readily available from the LBMA at http://www.lbma.org.uk, automated 

quotation systems, published or other public sources, or on-line 
information services such as Bloomberg or Reuters. In addition, the 
Exchange will provide a hyperlink on its Web site at http://www.amex.com to the Trust's Web site at http://www.iShares.com.

---------------------------------------------------------------------------

    \38\ Telephone conference between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on January 13, 2006.
    \39\ These values are subject to an average delay of 5 to 10 
seconds. The Indicative Trust Value per Share will not be posted on 
the Trust's Web site but will be disseminated via the facilities of 
the CTA. Telephone conference between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on March 8, 2006.
---------------------------------------------------------------------------

E. Dissemination of Indicative Trust Value

    As noted above, BNY calculates the NAV of the Silver Trust once 
each trading day. In addition, BNY causes to be made available on a 
daily basis the required amount of silver to be deposited in connection 
with the issuance of Silver Shares in Basket Aggregations. In addition, 
other investors can request such information directly from the BNY.
    In order to provide updated information relating to the Trust for 
use by investors, professionals, and Authorized Participants wishing to 
create or redeem Silver Shares, the Exchange will disseminate through 
the facilities of CTA an updated Indicative Trust Value (the 
``Indicative Trust Value''). The Indicative Trust Value will be 
disseminated on a per Silver Share basis at least every 15 seconds 
during regular Amex trading hours of 9:30 a.m. to 4:15 p.m. ET. The 
Indicative Trust Value will be calculated based on the amount of silver 
required for creations and redemptions and a price of silver derived 
from updated bids and offers indicative of the spot price of silver 
from silver dealer pricing.\40\ The Indicative Trust Value on a per 
Silver Share basis disseminated during Amex trading hours should not be 
viewed as a real time update of the NAV, which is calculated only once 
a day.
---------------------------------------------------------------------------

    \40\ See supra note 33.
---------------------------------------------------------------------------

    The Exchange believes that dissemination of the Indicative Trust 
Value based on the amount of silver required for a Basket Aggregation 
provides additional information that is not otherwise available to the 
public and is useful to professionals and investors in connection with 
Silver Shares trading on the Exchange or the creation or redemption of 
Silver Shares. In addition, the Trust's Web site at http://www.iShares.com
 will also provide from TheBullionDesk continuously 

updated bids and offers indicative of the spot price of silver in the 
OTC market for the purpose of disclosing to investors on a real-time 
basis the underlying or spot price of silver.

G. Criteria for Initial and Continued Listing

    The Trust will be subject to the criteria in Amex Rules 1201A and 
1202A for initial and continued listing of Silver Shares. The continued 
listing criteria provides for the delisting or removal from listing of 
the Silver Shares under any of the following circumstances:
     Following the initial twelve month period from the date of 
commencement of trading of the Silver Shares: (i) If the Trust has more 
than 60 days remaining until termination and there are fewer than 50 
record and/or beneficial holders of the Silver Shares for 30 or more 
consecutive trading days; (ii) if the Trust has fewer than 50,000 
Silver Shares issued and outstanding; or (iii) if the market value of 
all Silver Shares is less than $1,000,000.
     If the value of the underlying silver is no longer 
calculated or available on at least a 15-second delayed basis from a 
source unaffiliated with the Sponsor, Trust, Custodian or the Exchange 
or the Exchange stops providing a hyperlink on its Web site to any such 
unaffiliated silver value.

[[Page 14972]]

     The Indicative Trust Value is no longer made available on 
at least a 15-second delayed basis.
     If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.
    It is anticipated that a minimum of 150,000 Silver Shares will be 
required to be outstanding at the start of trading. The minimum number 
of shares required to be outstanding at the start of trading is 
comparable to requirements that have been applied to previously listed 
series of the iShares COMEX Gold Trust, the streetTRACKS Gold Trust, 
trust issues receipts and exchange-traded funds (``ETFs''). It is 
anticipated that the initial price of a Silver Share will be 
approximately $91.\41\ The Exchange believes that the anticipated 
minimum number of Silver Shares outstanding at the start of trading is 
sufficient to provide adequate market liquidity and to further the 
Trust's objective to seek to provide a simple and cost effective means 
of making an investment similar to an investment in silver.
---------------------------------------------------------------------------

    \41\ Telephone conference between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on January 13, 2006 
(updating initial price of a Silver Share that initially will 
represent 10 ounces of silver).
---------------------------------------------------------------------------

    The Exchange represents that it prohibits the initial and/or 
continued listing of any security that is not in compliance with Rule 
10A-3 under the Act.\42\
---------------------------------------------------------------------------

    \42\ See The Exchange represents that Silver Shares qualifies 
for the exemption in Rule 10A-3(c)(7) under the Act.
---------------------------------------------------------------------------

H. Original and Annual Listing Fees

    The Amex original listing fee applicable to the listing of the 
Silver Trust is $5,000. In addition, the annual listing fee applicable 
under Section 141 of the Amex Company Guide (``Company Guide'') will be 
based upon the year-end aggregate number of shares in all series of 
Silver Trusts outstanding at the end of each calendar year.

I. Trading Rules

    Silver Shares are equity securities subject to Amex Rules governing 
the trading of equity securities, including, among others, rules 
governing priority, parity and precedence of orders, specialist 
responsibilities and account opening and customer suitability (Amex 
Rule 411). Initial equity margin requirements of 50% will apply to 
transactions in Silver Shares. Silver Shares will trade on the Amex 
until 4:15 p.m. ET each business day and will trade in a minimum price 
variation of $0.01 pursuant to Amex Rule 127. Trading rules pertaining 
to odd-lot trading in Amex equities (Amex Rule 205) will also apply.
    Amex Rule 154, Commentary .04(c) provides that stop and stop limit 
orders to buy or sell a security (other than an option, which is 
covered by Amex Rule 950(f) and Commentary thereto), the price of which 
is derivatively priced based upon another security or index of 
securities, may with the prior approval of a Floor Official, be elected 
by a quotation, as set forth in Commentary .04(c) (i-v). The Exchange 
has designated Silver Shares as eligible for this treatment.\43\
---------------------------------------------------------------------------

    \43\ See Securities Exchange Act Release No. 29063 (April 10, 
1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the 
Exchange's designation of equity derivative securities as eligible 
for such treatment under Amex Rule 154, Commentary .04(c).
---------------------------------------------------------------------------

    Silver Shares will be deemed ``Eligible Securities,'' as defined in 
Amex Rule 230, for purposes of the Intermarket Trading System Plan and 
therefore will be subject to the trade through provisions of Amex Rule 
236, which require that Amex members avoid initiating trade-throughs 
for ITS securities.
    Specialist transactions of Silver Shares made in connection with 
the creation and redemption of Silver Shares will not be subject to the 
prohibitions of Amex Rule 190.\44\ Unless exemptive or no-action relief 
is available, Silver Shares will be subject to the short sale rule, 
Rule 10a-1 and Regulation SHO under the Act.\45\ If exemptive or no-
action relief is provided, the Exchange will issue a notice detailing 
the terms of the exemption or relief. The Silver Shares will generally 
be subject to the Exchange's stabilization rule, Amex Rule 170, except 
that specialists may buy on ``plus ticks'' and sell on ``minus ticks,'' 
in order to bring the Silver Shares into parity with the underlying 
silver and/or futures price. Commentary .01 to Amex Rule 1203A sets 
forth this limited exception to Amex Rule 170.
---------------------------------------------------------------------------

    \44\ See Commentary .05 to Amex Rule 190.
    \45\ The Silver Trust has requested relief in connection with 
the trading of Silver Shares from the operation of the short sale 
rule, Rule 10a-1, and Regulation SHO under the Act.
---------------------------------------------------------------------------

    Amex Rule 1203A relating to certain specialist prohibitions 
addresses potential conflicts of interest in connection with acting as 
a specialist in the Silver Shares. Specifically, Amex Rule 1203A 
provides that the prohibitions in Amex Rule 175(c) apply to a 
specialist in the Silver Shares so that the specialist or affiliated 
person may not act or function as a market maker in the underlying 
silver, related silver futures contract or option, or any other related 
silver derivative. An affiliated person of the specialist, consistent 
with Amex Rule 193, may be afforded an exemption to act in a market 
making capacity, other than as a specialist in the Silver Shares on 
another market center, in the underlying silver, related silver futures 
or options, or any other related silver derivative. In particular, Amex 
Rule 1203A provides that an approved person of an equity specialist 
that has established and obtained Exchange approval for procedures 
restricting the flow of material, non-public market information between 
itself and the specialist member organization, and any member, officer, 
or employee associated therewith, may act in a market making capacity, 
other than as a specialist in the Silver Shares on another market 
center, in the underlying commodity, related commodity futures or 
options on commodity futures, or any other related commodity 
derivatives.
    Amex Rule 1204A(a) provides that the member organization acting as 
specialist in Commodity-Based Trust Shares is obligated to conduct all 
trading in the Shares in its specialist account, subject only to the 
ability to have one or more investment accounts, all of which must be 
reported to the Exchange (see Rule 170). In addition, the member 
organization acting as specialist in Commodity-Based Trust Shares must 
file, with the Exchange, in a manner prescribed by the Exchange, and 
keep current a list identifying all accounts for trading the underlying 
physical commodity, related commodity futures or options on commodity 
futures, or any other related commodity derivatives, which the member 
organization acting as specialist may have or over which it may 
exercise investment discretion. No member organization acting as 
specialist in Commodity-Based Trust Shares shall trade in the 
underlying physical commodity, related commodity futures or options on 
commodity futures, or any other related commodity derivatives, in an 
account in which a member organization acting as specialist, directly 
or indirectly, controls trading activities, or has a direct interest in 
the profits or losses thereof, which has not been reported to the 
Exchange as required by this Rule.\46\
---------------------------------------------------------------------------

    \46\ Telephone conference between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on January 13, 2006 
(inserting discussion of Amex Rule 1204A(a)).
---------------------------------------------------------------------------

    Amex Rule 1204A(b) also ensures that specialists handling the 
Silver Shares provide the Exchange with all the necessary information 
relating to their

[[Page 14973]]

trading in physical silver, related silver futures contracts and 
options thereon, or any other silver derivative. As a general matter, 
the Exchange has regulatory jurisdiction over its members, member 
organizations, and approved persons of a member organization. The 
Exchange also has regulatory jurisdiction over any person or entity 
controlling a member organization, as well as a subsidiary or affiliate 
of a member organization that is in the securities business. A 
subsidiary or affiliate of a member organization that does business 
only in commodities would not be subject to Exchange jurisdiction, but 
the Exchange could obtain information regarding the activities of such 
subsidiary or affiliate through surveillance sharing agreements with 
regulatory organizations of which such subsidiary or affiliate is a 
member.
    Amex Rule 1204A(c) also prohibits the specialist in the Silver 
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 physical silver, silver futures 
contracts, options on silver futures, or any other silver derivative 
(including the Silver Shares).\47\
---------------------------------------------------------------------------

    \47\ Telephone conference between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on January 13, 2006 
(inserting discussion of Amex Rule 1204A(c)).
---------------------------------------------------------------------------

    Prior to the commencement of trading, the Exchange will issue an 
Information Circular (described below) to members informing them of, 
among other things, Exchange policies regarding trading halts in Silver 
Shares. First, the Circular will advise that trading will be halted in 
the event the market volatility trading halt parameters set forth in 
Amex Rule 117 have been reached. Second, the Circular will advise that, 
in addition to the parameters set forth in Amex Rule 117, the Exchange 
may halt trading in Silver Shares if conditions in the underlying 
silver market have caused disruptions and/or lack of trading. Third, 
with respect to a halt in trading that is not specified above, the 
Exchange may also consider other relevant factors and the existence of 
unusual conditions or circumstances that may be detrimental to the 
maintenance of a fair and orderly market. The Exchange will halt 
trading in the Shares if the Trust Web site (to which Amex will link) 
ceases to provide the value of the silver updated at least every 15 
seconds from a source not affiliated with the Sponsor, Trust, or the 
Exchange, or the Exchange ceases to provide via the CTA the Indicative 
Trust Value per Share updated at least every 15 seconds.\48\
---------------------------------------------------------------------------

    \48\ In the event such spot price of silver or Indicative Trust 
Value is no longer calculated or disseminated during the time the 
Silver Shares trade on Amex, the Exchange would immediately contact 
the Commission to discuss measures that may be appropriate under the 
circumstances. Telephone conversation between Jeffrey Burns, 
Associate General Counsel, Amex, and Florence Harmon, Senior Special 
Counsel, Division of Market Regulation, Commission, on January 13, 
2006.
---------------------------------------------------------------------------

J. Information Circular

    The Amex will distribute an Information Circular (the ``Circular'') 
to its members in connection with the trading of Silver Shares. The 
Circular, will discuss the special characteristics and risks of trading 
this type of security. Specifically, the Circular, among other things, 
will discuss what the Silver Shares are, notify members and member 
organizations about the procedures for creation and redemption of 
Silver Shares in a basket, the requirement, as described below, that 
members and member firms deliver a prospectus to investors purchasing 
the Silver Shares prior to or concurrently with the confirmation of a 
transaction, applicable Amex rules, dissemination of information 
regarding the per share Indicative Trust Value, NAV, and other 
information pertaining to the Shares, including trading information, 
trading halt procedures, and applicable suitability rules. For example, 
in the Information Circular, members and member organizations will be 
informed that procedures for purchases and redemptions of Silver Shares 
in Basket Aggregations are described in the Prospectus and that Silver 
Shares are not individually redeemable but are redeemable only in 
Basket Aggregations or multiples thereof. Similarly, the Information 
Circular will advise members and member organizations, prior to 
commencement of trading, of the prospectus delivery requirements 
applicable to the Trust. The Exchange notes that investors purchasing 
Silver Shares directly from the Trust (by delivery of the Basket Silver 
Amount) will receive a prospectus. Amex members purchasing Silver 
Shares from the Trust for resale to investors will deliver a prospectus 
to such investors.
    The Circular will also explain that the Silver Trust is subject to 
various fees and expenses described in the Registration Statement and 
that the number of ounces of silver required to create a basket or to 
be delivered upon a redemption of a basket will gradually decrease over 
time because the Silver Shares comprising a basket will represent a 
decreasing amount of silver due to the sale of the Silver Trust's 
silver to pay Trust expenses. The Circular will also reference the fact 
that there is no regulated source of last sale information regarding 
physical silver, that the Commission has no jurisdiction over the 
trading of silver as a physical commodity, and that the CFTC has 
regulatory jurisdiction over the trading of silver futures contracts 
and options on silver futures contracts.
    The Circular will advise members of their suitability obligations 
with respect to recommended transactions to customers in the Silver 
Shares. The Exchange notes that pursuant to Amex Rule 411 (Duty to Know 
and Approve Customers), members and member organizations are required 
in connection with recommending transactions in the Silver Shares to 
have a reasonable basis to believe that a customer is suitable for the 
particular investment given reasonable inquiry concerning the 
customer's investment objectives, financial situation, needs, and any 
other information known by such member.
    The Circular will also discuss any relief, if granted, by the 
Commission or the staff from any rules under the Act.

K. Surveillance

    The Exchange represents that its surveillance procedures applicable 
to trading in the proposed Silver Shares will be similar to those 
applicable to the iShares COMEX Gold Trust, the streetTRACKS Gold 
Trust, trust issued receipts, Portfolio Depository Receipts and Index 
Fund Shares currently trading on the Exchange. For intermarket 
surveillance purposes, the Exchange currently has in place an 
Information Sharing Agreement with the NYMEX for the purpose of 
providing information in connection with trading in or related to COMEX 
silver futures contracts. The Exchange submits that its surveillance 
procedures are adequate to properly monitor the trading of the Shares.
    Also, as noted above, the Exchange states that Amex Rule 1204A(b), 
which requires that the specialist handling the Silver Shares provide 
the Exchange with information relating to its trading in physical 
silver, silver futures contracts, options on silver futures, or any 
other silver derivative, will facilitate surveillance of specialist 
handling Silver Shares.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent

[[Page 14974]]

with the Act \49\ and the rules and regulations thereunder applicable 
to a national securities exchange.\50\
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b).
    \50\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission received a total of 255 comment letters on the 
Exchange's proposed rule change. Of these 255 comment letters, 248 
comments supported the proposed rule change and 7 comments opposed the 
proposed rule change. In general, those commenters opposed to the 
proposed rule change argued that approval of the Silver Shares would 
result in serious liquidity problems in the silver market.\51\ In 
particular, these commenters contended that the Silver Shares would 
negatively impact the silver market because their creation would 
require the holding of silver in allocated accounts, which would drain 
large amounts of silver from the open market and cause higher prices 
for silver products.\52\ Furthermore, the commenters asserted that the 
higher silver prices caused by the creation of the Silver Shares would 
cause the loss of jobs specific to the silver industry.\53\
---------------------------------------------------------------------------

    \51\ See letters from Congressman J. Gresham Barrett (3rd 
District, SC) to Christopher Cox, Chairman, Commission, dated 
February 16, 2006; Paul A. Miller, Executive Director, Silver Users 
Association, to Nancy M. Morris, Secretary, Commission, dated 
February 13, 2006; John Patrick, Vice President, Fujifilm America, 
Inc., to Nancy M. Morris, Secretary, Commission, dated February 7, 
2006; James F. Kirsch, President and Chief Executive Officer, Ferro 
Corporation, to Nancy M. Morris, Secretary, Commission, dated 
February 2, 2006; a Memorandum from the CPM Group regarding Silver 
Inventories, dated January 30, 2006; a Web Comment from Justin D. 
Reynolds, dated January 29, 2006; and a Web Comment from George 
Bloom, Jr., dated January 29, 2006. A Web Comment from Theodore 
Butler, dated February 6, 2006, made positive and negative 
conclusions about the proposed rule change.
    \52\ Id.
    \53\ Id.
---------------------------------------------------------------------------

    The Exchange responded to these comments by stating that it 
believes that the listing and trading of Silver Shares will make the 
market for silver more efficient and transparent by providing investors 
with an easier and more cost-effective alternative for investing in 
silver. The Exchange asserts that a transparent marketplace for Silver 
Shares will allow for a more accurate representation of the supply and 
demand for silver, and therefore, a more accurate market price.\54\ The 
Exchange also disagrees with some commenters' assertions that the Trust 
will reduce the amount of silver in the marketplace. In this regard, 
the Exchange notes that, at the commencement of trading, the Exchange 
will require 150,000 Silver Shares to be outstanding, which will 
require 1.5 million ounces of silver to be deposited with the custodian 
of the Trust. The Exchange states that Trust assets will grow only to 
the extent that demand for the Silver Shares grows and that a wide 
variety of factors are capable of influencing supply and demand for 
silver.\55\
---------------------------------------------------------------------------

    \54\ See Wolkoff Letter, supra note 7.
    \55\ Id.
---------------------------------------------------------------------------

    The Commission agrees with Amex that, like other derivative 
products, the Silver Shares will increase the efficiency and 
transparency of the market for the underlying instrument, i.e., silver. 
In this regard, the Commission finds that the proposed rule change is 
in the public interest.\56\ The Commission also does not believe that 
the Silver Shares are likely to cause serious liquidity problems in the 
silver market such that approval of the proposed rule change is not 
consistent with the Act.\57\
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f(b)(5).
    \57\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Surveillance

    The Commission also finds that the rules of the Exchange are 
designed to prevent fraudulent and manipulative acts and practices.\58\ 
In its response to comment letters, the Amex represents that it has 
safeguards to ensure that the trading of the Silver Shares is fair and 
consistent with the operation of a public marketplace and the 
protection of investors and that surveillance procedures at the 
Exchange serve to deter and detect potential misconduct and 
manipulative acts by members and investors.\59\
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78f(b)(5).
    \59\ See Wolkoff Letter, supra note 7.
---------------------------------------------------------------------------

    In addition, the Exchange has an information sharing agreement with 
NYMEX for the purpose of providing information in connection with 
trading in or related to silver futures contracts.\60\ Information 
sharing agreements with markets trading securities underlying a 
derivative product are an important part of a self-regulatory 
organization's ability to monitor for trading abuses in derivative 
products. Although an information sharing agreement with the OTC silver 
market is not possible, the Commission believes that Amex's information 
sharing agreement with NYMEX (of which COMEX is a division) and 
Exchange Rules 1203A and 1204A, create the basis for Amex to monitor 
for fraudulent and manipulative practices in the trading of the Silver 
Shares.
---------------------------------------------------------------------------

    \60\ Id.
---------------------------------------------------------------------------

    The Exchange also represents that it will review firms that have 
been actively acquiring or selling Silver Shares.\61\ Moreover, Amex 
Rule 1204A will require that the specialist handling the Silver Shares 
provide the Exchange with information relating to its trading in 
physical silver, silver futures contracts, options on silver futures, 
or any other silver derivative. The Commission believes these reporting 
and record-keeping requirements will assist the Exchange in identifying 
situations potentially susceptible to manipulation. Amex Rule 1204A 
will also prohibit the specialist in the Silver 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 physical silver, silver futures contracts, options on 
silver futures, or any other silver derivatives (including the Silver 
Shares). In addition, Amex Rule 1203A will prohibit the specialist in 
the Silver Shares from being affiliated with a market maker in physical 
silver, silver futures, or options on silver futures unless adequate 
information barriers are in place and approved by the Exchange.
---------------------------------------------------------------------------

    \61\ See Wolkoff Letter, supra note 7.
---------------------------------------------------------------------------

B. Dissemination of Information About the Silver Shares

    The Commission finds that sufficient venues for obtaining reliable 
silver price information exist so that investors in the Silver Shares 
can adequately monitor the underlying spot market in silver relative to 
the NAV of their Silver Shares. As discussed more fully above, the 
Commission notes that there is a considerable amount of silver price 
and silver market information available 24 hours per day on public Web 
sites and through professional and subscription services. The Trust at 
its Web site (http://www.iShares.com) will provide a real time indicative silver spot price through TheBullionDesk at http://

http://www.thebuilliondesk.com. In addition, the Trustee will disseminate each 

day an estimated amount representing the Basket Silver Amount. The 
Exchange will also disseminate through the CTA the Indicative Trust 
Value on a per share basis at least every 15 seconds during regular 
Amex trading hours of 9:30 a.m. to 4:15 p.m. New York time. The last 
sale price for Silver Shares will also be disseminated on a real-time 
basis over the CTA.
    The Commission also notes that the Trust's Web site at http://www.iShares.com
 is and will be publicly accessible at no charge and 

will contain the NAV of the Silver Shares and the Basket Silver Amount 
as of the prior business day, the Indicative Basket Amount, the Bid-Ask 
Price, and a

[[Page 14975]]

calculation of the premium or discount of the Bid-Ask Price in relation 
to the closing NAV. Additionally, the Trust's Web site, to which the 
Amex will link, will also provide data in chart form displaying the 
frequency distribution of discounts and premiums of the Bid-Ask Price 
against the NAV, within appropriate ranges for each of the four 
previous calendar quarters, the Prospectus, and other applicable 
quantitative information. The Commission believes that dissemination of 
this information will facilitate transparency with respect to the 
Silver Shares and diminish the risk of manipulation or unfair 
informational advantage.

C. Listing and Trading

    Further, the Commission finds that the Exchange's proposed rules 
and procedures for the listing and trading of the proposed Silver 
Shares are consistent with the Act. For example, Silver Shares will be 
subject to Amex rules governing trading halts, responsibilities of the 
specialist, and customer suitability requirements. In addition, the 
Silver Shares will be subject to Amex Rules 1201A and 1202A for initial 
and continued listing of Silver Shares.
    The Commission believes that listing and delisting criteria for the 
Silver Shares should help to maintain a minimum level of liquidity and 
therefore minimize the potential for manipulation of the Silver Shares. 
Finally, the Commission believes that the Exchange's Information 
Circular adequately will inform members and member organizations about 
the terms, characteristics, and risks in trading the Silver Shares.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\62\ that the proposed rule change (SR-Amex-2005-072), as amended, 
is hereby approved.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\63\
---------------------------------------------------------------------------

    \63\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E6-4268 Filed 3-23-06; 8:45 am]

BILLING CODE 8010-01-P
