

[Federal Register: May 24, 2006 (Volume 71, Number 100)]
[Notices]               
[Page 30003-30006]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24my06-138]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53824; File No. SR-Amex-2006-43]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To List for Trading Options on the iShares MSCI Emerging Markets Index 
Fund

May 17, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 2, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Amex has 
filed the proposed rule change, pursuant to Section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade options on the iShares MSCI 
Emerging Markets Index Fund (``Fund Options''). The Exchange has 
designated this proposal as non-controversial and has requested that 
the Commission waive both the five-day pre-filing requirement and the 
30-day pre-operative waiting period contained in Rule 19b-4(f)(6)(iii) 
under the Act.\5\ The text of the proposed rule change is available on 
the Amex's Web site at http://www.amex.com, the Office of the 

Secretary, Amex and at the Commission's Public Reference Room.
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    \5\ 17 CFR 240.19-4(f)(6)(iii).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange seeks approval to list for trading on the Exchange 
options on the iShares MSCI Emerging Markets Index Fund (``Fund''). 
Commentary .06 to Amex Rule 915 and Commentary .07 to Amex Rule 916, 
respectively (the ``Listing Standards'') establish the Exchange's 
initial listing and maintenance standards. The Listing Standards permit 
the Exchange to list funds structured as open-end investment companies, 
such as the Fund, without having to file for approval with the 
Commission to list for trading options on such funds.\6\ The Exchange 
submits that the Fund meets substantially all of the Listing Standard 
requirements, and for the requirements that are not met, sufficient 
mechanisms exist that would provide the Exchange with adequate 
surveillance and regulatory information with respect to the Fund.
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    \6\ Commentary .06 to Amex Rule 915 sets forth the initial 
listing and maintenance standards for shares or other securities 
(``Exchange-Traded Fund Shares'') that are principally traded on a 
national securities exchange or through the facilities of a national 
securities exchange and reported as a national market security, and 
that represent an interest in a registered investment company 
organized as an open-end management investment company, a unit 
investment trust, or other similar entity.
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    The Fund is an open-end investment company designed to hold a 
portfolio of securities that tracks the MSCI Emerging

[[Page 30004]]

Markets Index (``Index'') \7\. The Fund employs a ``representative 
sampling'' methodology to track the Index, which means that the Fund 
invests in a representative sample of securities in the Index that have 
a similar investment profile as the Index.\8\ Securities selected by 
the Fund have aggregate investment characteristics (based on market 
capitalization and industry weightings), fundamental characteristics 
(such as return variability, earnings valuation and yield) and 
liquidity measures similar to those of the Index. The Fund generally 
invests at least 90% of its assets in the securities of the Index or in 
American Depositary Receipts (``ADRs'') and Global Depositary Receipts 
(``GDRs'') representing such securities. In order to improve portfolio 
liquidity and give the Fund additional flexibility to comply with the 
requirements of the U.S. Internal Revenue Code and other regulatory 
requirements and to manage future corporate actions and index changes 
in smaller markets, the Fund also has the authority to invest the 
remainder of its assets in securities that are not included in the 
Index or in ADRs and GDRs representing such securities. The Fund may 
invest up to 10% of its assets in other MSCI index funds that seek to 
track the performance of equity securities of constituent countries of 
the Index. The Fund is not permitted to concentrate its investments 
(i.e., hold 25% or more of its total assets in the stocks of a 
particular industry or group of industries), except that, to the extent 
practicable, the Fund will concentrate to approximately the same extent 
that the Index concentrates in the stocks of such particular industry 
or group of industries. The Exchange believes that these requirements 
and policies prevent the Fund from being excessively weighted in any 
single security or small group of securities and significantly reduce 
concerns that trading in the Fund could become a surrogate for trading 
in unregistered securities.
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    \7\ As provided on the Web site of Morgan Stanley Capital 
International Inc. (``MSCI'') (http://www.msci.com), which is the 

entity that created and currently maintains the Index, the Index is 
a capitalization-weighted index whose component securities are 
adjusted for available float and must meet objective criteria for 
inclusion in the Index. The Index aims to capture 85% of the 
publicly available total market capitalization in each emerging 
market included in the Index. As of March 31, 2006, the Index was 
comprised of 828 constituents with the top five constituents 
representing the following weights: 4.08%, 2.14%, 2.14%, 1.76%, and 
1.72%. The Index is rebalanced quarterly, calculated in U.S. Dollars 
on a real time basis, and disseminated every 60 seconds during 
market trading hours.
    \8\ The Fund is comprised of 267 securities as of March 31, 
2006. Samsung Electronics Co LTD GDR, a South Korean security, has 
the greatest individual weight at 5.78%. The aggregate percentage 
weighting of the top 5, 10, and 20 securities in the Fund are 
18.36%, 28.24%, and 43.46%, respectively.
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    Shares of the Fund (``Fund Shares'') are issued in exchange for an 
``in kind'' deposit of a specified portfolio of securities, together 
with a cash payment, in minimum size aggregation size of 150,000 shares 
(each, a ``Creation Unit''), as set forth in the Fund's prospectus. The 
Fund issues and sells Fund Shares in Creation Unit sizes through a 
principal underwriter on a continuous basis at the net asset value per 
share next determined after an order to purchase Fund Shares and the 
appropriate securities are received. Following issuance, Fund Shares 
are traded on an exchange like other equity securities, and equity 
trading rules apply. Likewise, redemption of Fund Shares is made in 
Creation Unit size and ``in kind,'' with a portfolio of securities and 
cash exchanged for Fund Shares that have been tendered for redemption.
    The Exchange notes that the maintenance listing standards set forth 
in Commentary .07 to Amex Rule 916 for open-end investment companies do 
not include criteria based on either the number of shares or other 
units outstanding or on their trading volume. The absence of such 
criteria is justified on the ground that since it should always be 
possible to create additional shares or other interests in open-end 
investment companies at their net asset value by making an in-kind 
deposit of the securities that comprise the underlying index or 
portfolio, there is no limit on the available supply of such shares or 
interests. This, in turn, should make it highly unlikely that the 
market for listed, open-end investment company shares could be capable 
of manipulation, since whenever the market price for such shares 
departs from net asset value, arbitrage will occur. Similarly, since 
the Fund meets all of the requirements of the Listing Standards except 
as described below, the Exchange believes that the same analysis 
applies to the Fund.
    The Exchange has reviewed the Fund and determined that it satisfies 
the Listing Standards except for the requirement set forth in 
Commentary .06(b)(i) to Amex Rule 915, which requires the Fund to meet 
the following condition: ``any non-U.S. component stocks in the index 
or portfolio on which the Fund Shares are based that are not subject to 
comprehensive surveillance agreements do not in the aggregate represent 
more than 50% of the weight of the index or portfolio.'' The Exchange 
currently has in place surveillance agreements with foreign exchanges 
that cover 46.72% of the securities in the Fund. One of the foreign 
exchanges on which component securities of the Fund are traded and with 
which the Exchange does not have a surveillance agreement is the Bolsa 
Mexicana de Valores (``Bolsa''). The percentage of the weight of the 
Fund represented by these securities is 7.42%.
    The Exchange understands that the Commission has been willing to 
allow an exchange to rely on a memorandum of understanding entered into 
between regulators in the event that the exchanges themselves cannot 
enter into a surveillance agreement. The Exchange previously attempted 
to enter into a surveillance agreement with Bolsa as part of seeking 
approval to list and trade options on the Mexico Index \9\. 
Additionally, the Chicago Board Options Exchange, Incorporated (the 
``CBOE'') also previously attempted to enter into a surveillance 
agreement with Bolsa at or about the time when the CBOE sought approval 
to list for trading options on the CBOE Mexico 30 Index in 1995, which 
was comprised of stocks trading on Bolsa.\10\ Since, in both instances, 
Bolsa was unable to provide a surveillance agreement, the Commission 
previously allowed the Exchange and the CBOE to rely on the memorandum 
of understanding executed by the Commission and the CNBV, dated as of 
October 18, 1990 (``MOU''). The Commission noted in the respective 
Approval Orders that in cases where it would be impossible to secure an 
agreement, the Commission relied in the past on surveillance sharing 
agreements between the relevant regulators. The Commission further 
noted in the respective Approval Orders that pursuant to the terms of 
the MOU, it was the Commission's understanding that both the Commission 
and the CNBV could acquire information from and provide information to 
the other, similar to that which would be required in a surveillance 
sharing agreement between exchanges, and therefore, should the Exchange 
or the CBOE need information on Mexican trading in the component 
securities of the Mexico Index or the CBOE Mexico 30 Index, the 
Commission could request such information from the CNBV under the 
MOU.\11\ The Exchange

[[Page 30005]]

has attempted to contact Bolsa with a request to enter into a 
surveillance agreement. The Exchange is uncertain whether the same 
barriers that prevented Bolsa from previously entering into an 
information sharing agreement still exist today. In this regard, the 
Exchange requests permission to rely on the MOU entered into between 
the Commission and the CNBV for purposes of satisfying its surveillance 
and regulatory responsibilities for the component securities in the 
Fund that trade on Bolsa until the Exchange is able to secure a 
surveillance agreement with Bolsa. The Exchange believes this request 
is reasonable in that the Commission has already acknowledged that the 
MOU permits both the Commission and the CNBV to acquire information 
from and provide information to the other, similar to that which would 
be required in a surveillance sharing agreement between exchanges. The 
Commission's approval of this request would otherwise render the Fund 
compliant with all of the Listing Standards.\12\
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    \9\ See Securities Exchange Act Release No. 34500 (August 8, 
1994), 59 FR 41534 (August 12, 1994).
    \10\ See Securities Exchange Act Release No. 36415 (October 25, 
1995), 60 FR 55620 (November 1, 1995).
    \11\ The Exchange also states that the Commission noted if 
securing an information sharing agreement is not possible, an 
exchange should contact the Commission prior to listing a new 
derivative securities product. In such case, the Commission may 
determine instead that it is appropriate to rely on a memorandum of 
understanding between the Commission and the foreign regulator. See 
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 
70952 (December 22, 1998).
    \12\ The Exchange notes that the component securities of the 
Fund change periodically. Therefore, the Exchange may in fact have 
in place surveillance agreements that would otherwise cover the 
percent weighting requirements set forth in the Listing Standards 
for securities not trading on Bolsa. In this event, the Fund would 
satisfy all of the Listing Standards and reliance on an approval 
order for the Fund would be unnecessary.
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    The Exchange will list the Fund Options subject to a sixty-day 
pilot program and rely on the MOU entered into between the Commission 
and the CNBV for purposes of satisfying its surveillance and regulatory 
responsibilities until the Exchange is able to secure a surveillance 
agreement with Bolsa. During this period, the Exchange agrees to use 
its best efforts to obtain a comprehensive surveillance agreement with 
Bolsa, which shall reflect the following: (i) Express language 
addressing market trading activity, clearing activity, and customer 
identity; (ii) Bolsa's reasonable ability to obtain access to and 
produce requested information; and (iii) based on the comprehensive 
surveillance agreement and other information provided by Bolsa, the 
absence of existing rules, laws, or practices that would impede the 
Exchange from foreign information relating to market activity, clearing 
activity, or customer identity, or, in the event such rules, laws, or 
practices exist, they would not materially impede the production of 
customer or other information. The Exchange also represents that it 
will regularly update the Commission on the status of its negotiations 
with Bolsa.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \13\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\14\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purpose of the Act or the administration of 
the Exchange.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative prior to 30 days after the date of filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interests, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \15\ 
and Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
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    Amex requests that the Commission waive both the five-day pre-
filing requirement and the 30-day pre-operative period specified in 
Rule 19b-4(f)(6)(iii).\17\ The Commission is exercising its authority 
to waive the five-day pre-filing notice requirement and believes that 
waiving the 30-day pre-operative period is consistent with the 
protection of investors and public interest. The Exchange has agreed to 
use its best efforts to obtain a comprehensive surveillance agreement 
with the Bolsa during a sixty-day pilot period in which the Exchange 
will rely on the MOU with respect to surveillance of Fund components 
trading on Bolsa. The Exchange also represents that it will regularly 
update the Commission on the status of its negotiations with Bolsa. The 
Commission notes that Amex currently has in place surveillance 
agreements with foreign exchanges that cover 46.72% of the securities 
in the Fund and that the Index upon which the Fund is based appears to 
be a broad-based index. For these reasons, the Commission designates 
the proposal to be effective and operative upon filing with the 
Commission.\18\
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    \17\ CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors or otherwise in 
furtherance of the purposes of the Act.\19\
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    \19\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2006-43 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission,

[[Page 30006]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2006-43. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all 

written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal offices of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Amex-2006-43 and should be submitted on or before June 
14, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-7872 Filed 5-23-06; 8:45 am]

BILLING CODE 8010-01-P
