

[Federal Register: June 26, 2006 (Volume 71, Number 122)]
[Notices]               
[Page 36372-36380]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jn06-86]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54013; File No. SR-NYSE-2006-17]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto, 
and Notice of Filing and Order Granting Accelerated Approval To 
Amendment No. 2, Relating to Listing and Trading Shares of the iShares 
GSCI Commodity Indexed Trust Under New Rules 1300B and 1301B, et seq.

June 16, 2006.
    On March 7, 2006, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to adopt rules that would provide for and govern the trading 
of Commodity Trust Shares, including shares (``Shares'') of the 
iShares[supreg] GSCI[supreg] Commodity--Indexed Trust (``Trust''). On 
March 24, 2006, the Exchange filed Amendment No. 1 to the proposed rule 
change. The proposed rule change, as amended, was published for comment 
in the Federal Register on April 24, 2006.\3\ On June 15, 2006, the 
Exchange filed Amendment No. 2 to the proposed rule change.\4\ The 
Commission received one comment letter.\5\ On May 12, 2006, the 
Exchange filed a response to those comments.\6\ This order approves the 
proposed rule change, as amended by Amendment No. 1. Simultaneously, 
the Commission provides notice of filing of Amendment No. 2, grants 
accelerated approval of Amendment No. 2, and solicits comments from 
interested persons on Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 53659 (April 17, 2006), 
71 FR 21074 (``Notice'').
    \4\ In Amendment No. 2, the Exchange states that: (1) The 
Sponsor (defined below) has informed the Exchange that the Trustee 
(also defined below) for the Trust will make the net asset value 
(``NAV'') for the Trust available to all market participants at the 
same time; (2) if the NAV is not disseminated to all market 
participants at the same time, the Exchange will halt trading in the 
Shares; and (3) if the NAV is not disseminated to all market 
participants at the same time, the Exchange will immediately contact 
the Commission staff to discuss measures that may be appropriate 
under the circumstances.
    \5\ See letter from Kevin Rich, Director and Chief Executive 
Officer, DB Commodity Services LLC (``DB''), to Nancy M. Morris, 
Secretary, Commission, dated March 17, 2006 (``Rich Letter''). That 
letter is available for review on the Commission's Web site at: 
http://www.sec.gov/ comments/sr-nyse-2006-17/ srnyse200617-1.pdf.

    \6\ See letter from Mary Yeager, Assistant Secretary, NYSE, to 
Nancy M. Morris, Secretary, Commission, dated May 12, 2006 (``Yeager 
Letter''). That letter also is available for review on the 
Commission's Web site at: http://www.sec.gov/ comments/sr-nyse-2006-

17/ myeager051206.pdf.
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I. Description of Proposal

    The NYSE proposes to adopt rules that would provide for and govern 
the trading of Commodity Trust Shares. A Commodity Trust Share is 
defined as

    A security that: (a) Is issued by a trust (``Trust'') which (i) 
is a commodity pool that is managed by a commodity pool operator 
registered as such with the Commodity Futures Trading Commission, 
and (ii) which holds positions in futures contracts on a specified 
commodity index, or interests in a commodity pool which, in turn, 
holds such positions; (b) when aggregated in some specified minimum 
number may be surrendered to the Trust by the beneficial owner to 
receive positions in futures contracts on a specified index and cash 
or short term securities.

Proposed NYSE Rule 1300B(a). In addition, Proposed NYSE Rule 1301B sets 
forth guidelines for specialists in Commodity Trust Shares and other 
products whose price is based, in whole or in part, on: (a) The price 
of a commodity or commodities; (b) any futures contracts or other 
derivatives based on a commodity or commodities; or any indexed based 
on either (a) or (b), above.

    Pursuant to Proposed NYSE Rule 1300B, et seq., the Exchange 
proposes to list and trade Shares, which fall within the definition of 
Commodity Trust Shares (as mentioned above) and are linked to the 
performance of the GSCI Total Return Index (``Index'' or ``GSCI-TR'').

Description of the Shares

    The Shares will constitute units of beneficial interest 
representing fractional undivided beneficial interests in the net 
assets of the Trust (described below). The performance of the Shares is 
designed to correspond generally to the performance of the Index before 
payment of the Trust's and the Investing Pool's expenses and 
liabilities. The investment objective of the Trust is for the 
performance of the Shares to correspond to the performance of the Index 
before payment of the Trust's and Investing Pool's expenses and 
liabilities. As discussed below, the value of the Index reflects the 
value of an investment in the Goldman Sachs Commodity Index (``GSCI''), 
a production-weighted index of the prices of a diversified group of 
futures contracts on physical commodities, together with a Treasury 
bill rate of interest that could be earned on funds committed to the 
trading of the

[[Page 36373]]

underlying futures contracts of the GSCI.
    Substantially all of the assets of the Trust consist of its 
holdings of the limited liability company interests (``Investing Pool 
Interests'') of iShares[supreg] GSCI Commodity-Indexed Investing Pool 
LLC (``Investing Pool'').\7\ In turn, the Investing Pool holds long 
positions in futures contracts on the GSCI Excess Return Index 
(``CERFs''), which are listed on the Chicago Mercantile Exchange 
(``CME'').
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    \7\ Investing Pool Interests are the only securities in which 
the Trust may invest.
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    The Investing Pool will hold long positions in CERFs, which are 
cash-settled futures contracts listed on the CME that have a term of 
approximately five years after listing and whose settlement at 
expiration is based on the value of the GSCI Excess Return Index 
(``GSCI-ER'') at that time. The Investing Pool will also hold cash or 
Short-Term Securities \8\ to post as margin to collateralize the 
Investing Pool's CERF positions.\9\ The Investing Pool will earn 
interest on the assets used to collateralize its holdings of CERFs.
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    \8\ ``Short-Term Securities'' means U.S. Treasury Securities or 
other short-term securities and similar securities, in each case 
that are eligible as margin deposits under the rules of the CME.
    \9\ The Investing Pool will satisfy the 100% margin requirement 
by depositing with the Clearing FCM cash or Short-Term Securities 
with a value equal to 100% of the value of each long position in 
CERFs. As a result of these arrangements, the Investing Pool will be 
subject to substantially greater initial margin requirements than 
other market participants buying a CERF, but it will not be required 
to pay any additional amounts to its FCM as variation margin if the 
value of the CERFs declines.
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    Each CERF is a contract that provides for cash settlement, at 
expiration, based upon the final settlement value of the GSCI-ER at the 
expiration of the contract multiplied by a fixed dollar multiplier. The 
final settlement value is determined for this purpose. Accordingly, a 
position in CERFs provides the holder with the positive or negative 
return on the GSCI-ER during the period in which the position is held. 
On a daily basis, most market participants with positions in CERFs are 
obligated to pay, or entitled to receive, cash (known as ``variation 
margin'') in an amount equal to the change in the daily settlement 
level of the CERF from the preceding trading day's settlement level 
(or, initially, the contract price at which the position was entered 
into). Specifically, if the daily settlement price of the contract 
increases over the previous day's price, the seller of the contract 
must pay the difference to the buyer, and if the daily settlement price 
is less than the previous day's price, the buyer of the contract must 
pay the difference to the seller. Trading of CERFs commenced on the CME 
Globex electronic trading platform effective March 12, 2006, for trade 
date March 13, 2006. CERFs are listed and traded separately from the 
GSCI futures contracts and options on futures contracts.

Management of the Trust and Investing Pool

    Both the Trust and the Investing Pool are commodity pools managed 
by the Sponsor. The Sponsor is registered as a commodity pool operator 
with the Commodity Futures Trading Commission (``CFTC''),\10\ and its 
primary business function is to act as Sponsor and commodity pool 
operator of the Trust and manager of the Investing Pool (``Manager''). 
As Manager, the Sponsor will serve as commodity pool operator of the 
Investing Pool and be responsible for its administration. The Manager 
will arrange for and pay the costs of organizing the Investing Pool. 
The Manager has delegated some of its responsibilities for 
administering the Investing Pool to the Administrator, Investors Bank & 
Trust Company, which in turn, has employed the Investing Pool 
Administrator and the Tax Administrator (Pricewaterhouse Coopers) to 
maintain various records on behalf of the Investing Pool.
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    \10\ Neither the Trust nor the Investing Pool is an investment 
company registered under the Investment Company Act of 1940.
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    The advisor to the Investing Pool (``Advisor'') is Barclays Global 
Fund Advisors, a California corporation and an indirect subsidiary of 
Barclays Bank PLC. The Advisor will invest all of the Investing Pool's 
assets in long positions in CERFs and post margin in the form of cash 
or Short-Term Securities to collateralize the CERF positions (as 
discussed below). Any cash that the Investing Pool accepts as 
consideration from the Trust for Investing Pool Interests will be used 
to purchase additional CERFs, in an amount that the Advisor determines 
will enable the Investing Pool to achieve investment results that 
correspond with the Index, and to collateralize the CERFs. The Advisor 
will not engage in any activities designed to obtain a profit from, or 
to ameliorate losses caused by, changes in value of any of the 
commodities represented by the GSCI or the positions or other assets 
held by the Investing Pool.
    The trustee of the Trust (``Trustee'') is Barclays Global 
Investors, N.A., a national banking association affiliated with the 
Sponsor. The Trustee is responsible for the day-to-day administration 
of the Trust. Day-to-day administration includes: (i) Processing orders 
for the creation and redemption of Baskets (as described below); (ii) 
coordinating with the Manager of the Investing Pool the receipt and 
delivery of consideration transferred to, or by, the Trust in 
connection with each issuance and redemption of Baskets; and (iii) 
calculating the net asset value of the Trust on each Business Day.\11\ 
The Trustee has delegated these responsibilities to the Trust 
Administrator, Investors Bank & Trust Company, a banking corporation 
that is not affiliated with the Sponsor or the Trustee.
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    \11\ The Trust Registration Statement defines ``Business Day'' 
as any day (1) on which none of the following occurs: (a) The NYSE 
is closed for regular trading, (b) the CME is closed for regular 
trading, or (c) the Federal Reserve transfer system is closed for 
cash wire transfers, or (2) the Trustee determines that it is able 
to conduct business.
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    The Exchange states that neither the Trust nor the Investing Pool 
will engage in any activities designed to obtain a profit from, or to 
ameliorate losses caused by, changes in the value of CERFs or 
securities posted as margin.

Related Indices

    The GSCI, the GSCI-ER, and the Index are administered, calculated, 
and published by Goldman, Sachs & Co. (``Index Sponsor''),\12\ a 
subsidiary of The Goldman Sachs Group Inc. The Index Sponsor is a 
broker-dealer.\13\ The index values for the three indexes, the Index, 
the GSCI, and the GSCI-ER, are updated and disseminated at least every 
15 seconds by one or more major market data vendors during the time the 
Shares trade on the Exchange.\14\ The settlement prices for the three 
indexes are also widely disseminated by one or more major market data 
vendors.
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    \12\ See telephone conversation between Michael Cavalier, 
Assistant General Counsel, NYSE, and Florence E. Harmon, Senior 
Special Counsel, Commission, on April 13, 2006 (``April 13 Telephone 
Conversation'').
    \13\ Id.
    \14\ See telephone conversation between Michael Cavalier, 
Assistant General Counsel, NYSE, and Florence E. Harmon, Senior 
Special Counsel, Commission, on June 1, 2006 (`` June 1 Telephone 
Conversation'').
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a. GSCI Index
    The GSCI, upon which the Index is based, is a proprietary index on 
a production-weighted basket of principal physical commodities that 
satisfy specified criteria. The GSCI reflects the level of commodity 
prices at a given time and is designed to be a measure of the 
performance over time of the markets for these commodities. The 
Exchange states that the commodities represented in the GSCI are those

[[Page 36374]]

physical commodities on which active and liquid contracts are traded on 
trading facilities in major industrialized countries. The commodities 
included in the GSCI are weighted, on a production basis, to reflect 
the relative significance (in the view of the Index Sponsor, in 
consultation with its Policy Committee described below) of those 
commodities to the world economy. The fluctuations in the level of the 
GSCI are intended generally to correlate with changes in the prices of 
those physical commodities in global markets.
    The contracts to be included in the GSCI[supreg] must satisfy 
several sets of eligibility criteria established by the Index 
Sponsor.\15\ First, the Index Sponsor identifies those contracts that 
meet the general criteria for eligibility. Second, the contract volume 
and weight requirements are applied and the number of contracts is 
determined, which serves to reduce the list of eligible contracts. At 
that point, the list of designated contracts for the relevant period is 
complete.
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    \15\ See GSCI[supreg] Manual at http://www.gs.com/gsci. Goldman, 

Sachs & Co. is the Index Sponsor for both the Index and the 
GSCI[supreg]. See April 13 Telephone Conversation.
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    The value of the GSCI[supreg] on any given day is equal to the 
total dollar weight of the GSCI[supreg] divided by a normalizing 
constant that assures the continuity of the GSCI[supreg] over time. The 
total dollar weight of the GSCI[supreg] is the sum of the dollar weight 
of each index component. The dollar weight of each such index component 
on any given day is equal to:
     The daily contract reference price,
     Multiplied by the appropriate contract production weights 
(``CPWs''), and
     During a roll period, the appropriate ``roll weights'' 
(discussed below).\16\
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    \16\ If the price is not made available or corrected by 4 p.m. 
New York time, the Index Sponsor, if it deems such action to be 
appropriate under the circumstances, will determine the appropriate 
daily contract reference price for the applicable futures contract 
in its reasonable judgment for purposes of the relevant GSCI[supreg] 
calculation. If such actions by the Index Sponsor are implemented on 
more than a temporary basis, the Exchange will contact the 
Commission staff and, as necessary, file a proposed rule change 
pursuant to Rule 19b-4, seeking Commission approval to continue to 
trade the Shares. Unless approved for continued trading, the 
Exchange would commence delisting proceedings. See ``Continued 
Listing Criteria,'' infra; telephone conversation between Florence 
E. Harmon, Senior Special Counsel, Commission; John Carey, Assistant 
General Counsel, Exchange; and Michael Cavalier, Assistant General 
Counsel, Exchange, on April 10, 2006 (``April 10 Telephone 
Conversation'').
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    These factors, along with the contract daily return for each Index 
component, are described in more detail in the Notice. Additionally, 
this information is publicly available each business day on the Index 
Sponsor's Web site at http://www.gs.com/gsci \17\ and the relevant 

futures exchanges, and/or from major market data vendors. However, if 
the volume of trading in the relevant contract, as a multiple of the 
production levels of the commodity, is below specified thresholds, the 
CPW of the contract is reduced until the threshold is satisfied. This 
is designed to ensure that trading in each contract is sufficiently 
liquid relative to the production of the commodity.
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    \17\ The CPWs are available in the GSCI[supreg] manual on the 
GSCI[supreg] Web site (http://www.gs.com/gsci) and are published on 

Reuters. The roll weights are not published but can be determined 
from the rules in the GSCI Manual. See telephone conversation 
between Florence E. Harmon, Senior Special Counsel, Commission, and 
John Carey, Assistant General Counsel, Exchange, on May 18, 2006 
(``May 18 Telephone Conversation'').
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    The composition of the GSCI[supreg] is reviewed on a monthly basis 
by the Index Sponsor and, if the multiple of any contract is below the 
prescribed threshold, the composition of the GSCI is reevaluated, based 
on the criteria and weighting procedures.\18\ This procedure is 
undertaken to allow the GSCI[supreg] to shift from contracts that have 
lost substantial liquidity into more liquid contracts during the course 
of a given year.\19\ As a result, it is possible that the composition 
or weighting of the GSCI[supreg] will change on one or more of these 
monthly Valuation Dates. In addition, regardless of whether any changes 
have occurred during the year, the Index Sponsor reevaluates the 
composition of the GSCI[supreg] at the conclusion of each year, based 
on the above criteria. Other commodities that satisfy such criteria, if 
any, will be added to the GSCI[supreg]. Commodities included in the 
GSCI[supreg] which no longer satisfy such criteria, if any, will be 
deleted.
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    \18\ The Index Sponsor, Goldman, Sachs & Co. (``Goldman 
Sachs''), which calculates and maintains the GSCI[supreg] and the 
Index, is a broker-dealer. Therefore, appropriate firewalls must 
exist around the personnel who have access to information concerning 
changes and adjustment to an index and the trading personnel of the 
broker-dealer. Accordingly, the Exchange states that the Index 
Sponsor has represented that it: (i) Has implemented and maintained 
procedures reasonably designed to prevent the use and dissemination 
by personnel of the Index Sponsor, in violation of applicable laws, 
rules and regulations, of material non-public information relating 
to changes in the composition or method of computation or 
calculation of the Index; and (ii) periodically checks the 
application of such procedures as they relate to such personnel of 
the Index Sponsor directly responsible for such changes. In 
addition, the Policy Committee members are subject to written 
policies with respect to material, non-public information. See 
telephone conversation between Florence E. Harmon, Senior Special 
Counsel, Commission; John Carey, Assistant General Counsel, 
Exchange; and Michael Cavalier, Assistant General Counsel, Exchange, 
on April 14, 2006 (``April 14 Telephone Conversation II'') and May 
18 Telephone Conversation.
    \19\ See also ``Contract Expirations'' in Notice, supra, note 3.
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    The Index Sponsor has established a Policy Committee to assist it 
with the operation of the GSCI[supreg].\20\ The principal purpose of 
the Policy Committee is to advise the Index Sponsor with respect to, 
among other things, the calculation of the GSCI[supreg], the 
effectiveness of the GSCI[supreg] as a measure of commodity futures 
market performance, and the need for changes in the composition or the 
methodology of the GSCI[supreg]. The Policy Committee acts solely in an 
advisory and consultative capacity. All decisions with respect to the 
composition, calculation and operation of the GSCI[supreg] and the 
Index are made by the Index Sponsor.\21\
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    \20\ The component selections for the GSCI[supreg] would 
obviously affect the Index. See telephone conversation between 
Florence E. Harmon, Senior Special Counsel, Commission, and Michael 
Cavalier, Assistant General Counsel, Exchange, on April 12, 2006 
(``April 12 Telephone Conversation'').
    \21\ The Exchange states that the Index Sponsor has represented 
that the Policy Committee members are subject to written policies 
with respect to material, non-public information. See telephone 
conversation between Florence E. Harmon, Senior Special Counsel, 
Commission, and Michael Cavalier, Assistant General Counsel, 
Exchange, on May 15, 2006 (``May 15 Telephone Conversation'').
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b. The GSCI-TR Index
    The Index, to which the performance of the Shares is linked, was 
established in May of 1991. The GSCI-TR reflects the return of the 
GSCI-ER, together with the return on specified U.S. Treasury securities 
that are deemed to have been held to collateralize a hypothetical long 
position in the futures contracts comprising the GSCI.\22\
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    \22\ The Exchange states that it recently listed and is trading 
another derivative product, the Barclays iPath Exchange-Traded 
Notes, whose return is based on the GSCI-TR. See Securities Exchange 
Act Release No. 53849 (May 22, 2006), 71 FR 30706 (May, 30, 2006) 
(SR-NYSE-2006-20). The description of the GSCI-TR in regards to that 
product is comparable as that herein because it states that the 
GSCI-TR reflects the ``excess returns'' that are potentially 
available through an unleveraged investment in the contracts 
comprising the GSCI, which is in effect the GSCI-ER. See telephone 
conversation between Florence E. Harmon, Senior Special Counsel, 
Commission, and Michael Cavalier, Assistant General Counsel, 
Exchange, on June 14, 2006 (``June 14 Telephone Conversation'').
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c. The GSCI-ER
    The GSCI-ER, to which the performance of the CERFs held by the 
Investing Pool is linked, was also established in May of 1991. The 
GSCI-ER is calculated based on the same commodities included in the 
GSCI, and it reflects the returns that are potentially available 
through a rolling \23\

[[Page 36375]]

uncollaterized investment in the contracts comprising the GSCI.\24\
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    \23\ Futures contracts have scheduled expirations, or delivery 
months. As one contract nears expiration it becomes necessary to 
close out the position in that delivery month and establish a 
position in the next available delivery month. This process is 
referred to as ``rolling'' the position forward.
    \24\ In the event the Trust utilizes any index that is a 
successor to or similar to the GSCI-ER or the GSCI-TR, the Exchange 
will file a proposed rule change pursuant to Rule 19b-4 under the 
Act. Such filing would address, among other things, the 
characteristics of the successor or substitute index and the 
Exchange's surveillance procedures applicable to such index. Unless 
approved for continued trading, the Exchange would commence 
delisting proceedings. See ``Continued Listing Criteria,'' infra. 
Telephone conversation between Michael Cavalier, Assistant General 
Counsel, NYSE, and Florence E. Harmon, Senior Special Counsel, 
Commission, on April 10, 2006 (``April 10 Telephone Conference'').
    The Exchange will also file a proposed rule change pursuant to 
Rule 19b-4 if GSCI substantially changes either the Index component 
selection methodology or the weighting methodology. In addition, the 
Exchange will file a proposed rule change pursuant to Rule 19b-4 
whenever GSCI adds a new component to the Index using pricing 
information from a market with which the Exchange does not have a 
previously existing information sharing agreement or switches to 
using pricing information from such a market with respect to an 
existing component when such component constitutes more than 10% of 
the weight of the Index. Unless approved for continued trading, the 
Exchange would commence delisting proceedings. See ``Continued 
Listing Criteria,'' infra. April 10 Telephone Conference.
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d. Calculation of Related Indexes
    The Index Sponsor makes the official calculations of the 
GSCI[supreg], the GSCI-TR, and the GSCI-ER (collectively, ``Related 
Indexes''). While the intraday and closing values of the Related 
Indexes are calculated by Goldman Sachs, a broker-dealer, a number of 
factors provide for the independent verification of these intraday and 
closing values.\25\ The calculation methodology is public and 
transparent, and the factors included in the Index calculation, such as 
the CPWs, are available in the GSCI Manual found on GSCI's Web site at 
http://www.gs.com/gsci and are published on Reuters; the roll weights 

are not published but can be determined from the rules in the GSCI 
Manual.\26\ This calculation is performed continuously and is reported 
on Reuters page GSCI[supreg] and will be updated on Reuters at least 
every 15 seconds during business hours on each day on which the offices 
of the Index Sponsor in New York City are open for business (a ``GSCI 
Business Day'').\27\ The settlement price for the Index is also 
reported on Reuters page GSCI[supreg] on each GSCI Business Day between 
4 p.m. and 6 p.m., New York time. The intraday and settlement prices 
for the Index and GSCI-ER are also reported on Bloomberg page GSCIER 
(index).
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    \25\ The Index Sponsor calculates the level of the Related 
Indexes intraday and at the end of the day. The intraday calculation 
is based on feeds of real-time data relating to the underlying 
commodities and updates intermittently approximately every 15 
seconds. In the GSCI market, trades are quoted or settled against 
the end-of-day value, not against the value at any other particular 
time of the day. With respect to the end-of-day closing level of the 
index, the Index Sponsor uses independent feeds from at least two 
vendors for each of the underlying commodities in the index to 
verify closing prices and limit moves. A number of commodities 
market participants independently verify the correctness of the 
disseminated intraday Index value and closing Index value. 
Additionally, the closing Index values are audited by a major 
independent accounting firm. See May 18 Telephone Conference.
    \26\ See id.
    \27\ Thus, this intraday index value of the Index (and the 
GSCI[supreg] and GSCI-ER) will be updated and disseminated at least 
every 15 seconds by a major market data vendor during the time the 
Shares trade on the Exchange. April 13 Telephone Conference. The 
intraday information with respect to the Index (and GSCI[supreg] and 
GSCI-ER) reported on Reuters is derived solely from trading prices 
on the principal trading markets for the various Index components. 
For example, the Index currently includes contracts traded on ICE 
Futures and the LME, both of which are located in London and 
consequently have trading days that end several hours before those 
of the U.S.-based markets on which the rest of the Index components 
are traded. During the portion of the New York trading day when ICE 
Futures and LME are closed, the last reported prices for Index 
Components traded on ICE Futures or LME are used to calculate the 
intraday Index information disseminated on Reuters.
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    In the event that the Exchange is open for business on a day that 
is not a GSCI Business Day, the Exchange will not permit trading of the 
Shares on that day.\28\
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    \28\ See ``Calculation of the Index,'' infra.
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Margin and Its Impact on Return

    The Investing Pool will deposit margin with a value equal to 100% 
of the value of each CERF position at the time it is established. 
Interest paid on the collateral deposited as margin, net of expenses, 
will be reinvested by the Investing Pool or, at the Trustee's 
discretion, may be distributed from time to time to the Shareholders. 
The Investing Pool's profit or loss on its CERF positions should 
correlate with increases and decreases in the value of the GSCI-ER, 
although this correlation will not be exact.
    The Exchange states that differences between the returns of the 
Investing Pool and the Index may be based on, among other factors, any 
differences between the return on the assets used by the Investing Pool 
to collateralize its CERF positions and the U.S. Treasury rate used to 
calculate the return component of the Index, timing differences, 
differences between the weighting of the Investing Pool's proportion of 
assets invested in CERFs versus the Index, and the payment of expenses 
and liabilities by the Investing Pool. The Trust's net asset value will 
reflect the performance of the Investing Pool, its sole investment.

Valuation of CERFs; Computation of Trust's Net Asset Value

    On each Business Day on which the NYSE is open for regular trading, 
as soon as practicable after the close of regular trading of the Shares 
on the NYSE (normally, 4:15 p.m., New York time), the Trustee will 
determine the NAV of the Trust and per share as of that time.
    The Trustee will value the Trust's assets based upon the 
determination by the Manager, which may act through the Investing Pool 
Administrator, of the NAV of the Investing Pool. The Manager will 
determine the NAV of the Investing Pool as of the same time that the 
Trustee determines the NAV of the Trust.
    The Manager will value the Investing Pool's long position in CERFs 
on the basis of that day's announced CME settlement price for the CERF. 
The value of the Investing Pool's CERF position (including any related 
margin) will equal the product of: (i) The number of CERF contracts 
owned by the Investing Pool and (ii) the settlement price on the date 
of calculation. If there is no announced CME settlement price for the 
CERF on a Business Day, the Manager will use the most recently 
announced CME settlement price unless the Manager determines that that 
price is inappropriate as a basis for evaluation. The daily settlement 
price for the CERF is established by the CME shortly after the close of 
trading in Chicago at 2:40 p.m. New York time on each trading day.\29\
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    \29\ See April 10 Telephone Conference.
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    Once the value of the CERFs and interest earned on any assets 
posted as margin and any other assets of the Investing Pool has been 
determined, the Manager will subtract all accrued expenses and 
liabilities of the Investing Pool as of the time of calculation in 
order to calculate the net asset value of the Investing Pool. The 
Manager, or the Investing Pool Administrator on its behalf, will then 
calculate the value of the Trust's Investing Pool Interest and provide 
this information to the Trustee.
    Once the value of the Trust's Investing Pool Interests have been 
determined and provided to the Trustee, the Trustee will subtract all 
accrued expenses and other liabilities of the Trust from the total 
value of the assets of the Trust, in each case as of the calculation 
time. The resulting amount is the NAV of the Trust. The Trustee will 
determine the NAV per Share by dividing the NAV of the Trust by the

[[Page 36376]]

number of Shares outstanding at the time the calculation is made.
    The NAV for each Business Day on which the NYSE is open for regular 
trading will be distributed through major market data vendors and will 
be published online at http://www.iShares.com, or any successor 

thereto. The Trust will update the NAV as soon as practicable after 
each subsequent NAV is calculated. The Trust will disseminate the NAV 
per Share to all market participants at the same time.

Creation and Redemption Process

    Creation and redemption of interests in the Trust, and the 
corresponding creation and redemption of interests in the Investing 
Pool, will generally be effected through transactions in ``exchanges of 
futures for physicals,'' or ``EFPs.'' EFPs involve contemporaneous 
transactions in futures contracts and the underlying cash commodity or 
a closely related commodity. In a typical EFP, the buyer of the futures 
contract sells the underlying commodity to the seller of the futures 
contract in exchange for a cash payment reflecting the value of the 
commodity and the relationship between the price of the commodity and 
the related futures contract. According to the Registration Statement, 
in the context of CERFs, CME rules permit the execution of EFPs 
consisting of simultaneous purchases (sales) of CERFs and sales 
(purchases) of Shares. This mechanism will generally be used by the 
Trust in connection with the creation and redemption of Baskets. 
Specifically, it is anticipated that an ``Authorized Participant'' 
(defined below) requesting the creation of additional Baskets typically 
will transfer CERFs and cash (or, in the discretion of the Trustee, 
Short-Term Securities in lieu of cash) to the Trust in return for 
Shares.
    The Trust will simultaneously contribute to the Investing Pool the 
CERFs (and any cash or securities) received from the Authorized 
Participant in return for an increase in its Investing Pool Interests. 
If an EFP is executed in connection with the redemption of one or more 
Baskets, an Authorized Participant will transfer to the Trust the 
Basket of Shares being redeemed, and the Trust will transfer to the 
Authorized Participant CERFs, cash, or Short-Term Securities. In order 
to obtain the CERFs, cash or Short-Term Securities to be transferred to 
the Authorized Participant, the Trust will redeem an equivalent portion 
of its interest in the Investing Pool Interests.
    The Trust will offer and redeem Shares on a continuous basis on 
each business day, but only in Baskets consisting of 50,000 Shares. 
Baskets will be typically issued only in exchange for an amount of 
CERFs and cash (or, in the discretion of the Trustee, Short-Term 
Securities in lieu of cash) equal to the Basket Amount for the Business 
Day on which the creation order was received by the Trustee. Similarly, 
Baskets will be redeemed only in exchange for an amount of CERFs and 
cash (or, in the discretion of the Trustee, Short-Term Securities in 
lieu of cash) equal to the Basket Amount on the Business Day the 
redemption request is received by the Trustee. The Basket Amount for a 
Business Day will have a per Share value equal to the NAV as of such 
day. However, creation and redemption orders received by the Trustee 
after 2:40 p.m., New York time, will be treated as received on the next 
following Business Day. The Trustee will notify the Authorized 
Participants of the Basket Amount on each Business Day prior to the 
opening of the Exchange. Additional information about the creation and 
redemption process is set forth in the Notice.

Dissemination of Information Relating to the Shares, Trust Holdings, 
and Related Indices

    The Web site for the Trust (http://www.iShares.com), which will be 

publicly accessible at no charge, will contain the following 
information: (i) The prior Business Day's NAV and the reported closing 
price; (ii) the mid-point of the bid-ask price in relation to the NAV 
as of the time the NAV is calculated (the ``Bid-Ask Price''); (iii) 
calculation of the premium or discount of such price against such NAV; 
(iv) 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; (v) 
the prospectus; (vi) the holdings of the Trust, including CERFs, cash 
and Treasury securities; (vii) the Basket Amount; and (viii) other 
applicable quantitative information. The Exchange on its Web site at 
http://www.nyse.com will include a hyperlink to the Trust's Web site at 

http://www.iShares.com.

    As described above, the NAV for the Trust \30\ will be calculated 
and disseminated daily.\31\ The NYSE also intends to disseminate, 
during NYSE trading hours for the Trust on a daily basis by means of 
CTA/CQ High Speed Lines information with respect to the Indicative 
Value (as discussed below), recent NAV, and Shares outstanding. The 
Exchange will also make available on http://www.nyse.com daily trading 

volume, closing prices, and the NAV.
---------------------------------------------------------------------------

    \30\ See telephone conversation between Florence E. Harmon, 
Senior Special Counsel, Commission, and Michael Cavalier, Assistant 
General Counsel, Exchange, on June 15, 2006 (``June 15 Telephone 
Conversation'') (authorizing change from ``Fund'' to ``Trust'').
    \31\ In Amendment No. 2, the Exchange states that the NAV will 
be distributed to all market participants at the same time.
---------------------------------------------------------------------------

    Real-time information is available about the Trust's holdings in 
the Investing Pool. Various data vendors and news publications publish 
futures prices and data. Futures quotes and last sale information for 
the commodities underlying the Index and the CERFs are widely 
disseminated through a variety of major market data vendors worldwide, 
including Bloomberg and Reuters. In addition, complete real-time data 
for such futures, including the CERFs, is available by subscription 
from Reuters and Bloomberg. The futures exchanges on which the 
underlying commodities and CERFs trade also provide delayed futures 
information on current and past trading sessions and market news 
generally free of charge on their respective Web sites. The specific 
contract specifications for the futures contracts are also available 
from the futures exchanges on their Web sites, as well as other 
financial informational sources.
    As stated above, a major market data vendor will disseminate at 
least every 15 seconds (during the time that the Shares trade on the 
Exchange) updated index values for the GSCI, the Index, and the GSCI-
ER.\32\ Daily settlement values for the GSCI, the Index, and the GSCI-
ER are also widely disseminated.\33\
---------------------------------------------------------------------------

    \32\ See June 1 Telephone Conversation. The value of a Share may 
accordingly be influenced by non-concurrent trading hours between 
the NYSE and the various futures exchanges on which the futures 
contracts based on the Index commodities are traded. While the 
Shares will trade on the NYSE from 9:30 a.m. to 4:15 p.m. New York 
time, the Notice lists the trading hours for each of the Index 
commodities underlying the futures contracts.
    \33\ See April 13 Telephone Conference.
---------------------------------------------------------------------------

Indicative Value

    In order to provide updated information relating to the Trust for 
use by investors, professionals, and other persons, the Exchange will 
disseminate through the facilities of Consolidated Tape Association 
(``CTA'') an updated Indicative Value on a per Share basis as 
calculated by Bloomberg. The Indicative Value will be disseminated at 
least every 15 seconds from 9:30 a.m. to 4:15 p.m. New York time. The 
Indicative

[[Page 36377]]

Value will be calculated based on the cash and collateral in a Basket 
Amount divided by 50,000, adjusted to reflect the market value of the 
investments held by the Investing Pool, i.e., CERFs.\34\ The Indicative 
Value will not reflect price changes to the price of an underlying 
commodity between the close of trading of the futures contract at the 
relevant futures exchange and the close of trading on the NYSE at 4:15 
p.m. New York time.
---------------------------------------------------------------------------

    \34\ See telephone conservation between Michael Cavalier, 
Assistant General Counsel, NYSE, and Florence E. Harmon, Senior 
Special Counsel, Commission, on April 5, 2006 (authorizing 
clarification of sentence).
---------------------------------------------------------------------------

    When the market for futures trading for each of the Index 
commodities is open, the Indicative Value can be expected to closely 
approximate the value per Share of the Basket Amount. However, during 
NYSE trading hours when the futures contracts have ceased trading, 
spreads and resulting premiums or discounts may widen, and, therefore, 
increase the difference between the price of the Shares and the NAV of 
the Shares. Indicative Value on a per Share basis disseminated during 
NYSE trading hours should not be viewed as a real time update of the 
NAV, which is calculated only once a day. The Exchange believes that 
dissemination of the Indicative Value provides additional information 
that is not otherwise available to the public and is useful to 
professionals and investors in connection with the Shares trading on 
the Exchange or creation or redemption of the Shares.

Continued Listing Criteria

    Under the applicable continued listing criteria, the Shares may be 
delisted as follows: (i) 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; (ii) the value of the Index ceases to be 
calculated or available on at least a 15-second basis from a source 
unaffiliated with the Sponsor, the Trust or the Trustee; (iii) the 
Indicative Value ceases to be available on at least a 15-second delayed 
basis; (iv) the NAV of the Shares is not distributed to all market 
participants at the same time; \35\ or (v) such other event shall occur 
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.
---------------------------------------------------------------------------

    \35\ In the event that the Index value, the Indicative Value, or 
simultaneous distribution of the NAV is not available, the Exchange 
will immediately contact the Commission to discuss measures that may 
be appropriate.
---------------------------------------------------------------------------

    Additionally, the Exchange will file a proposed rule change 
pursuant to Rule 19b-4 under the Act,\36\ seeking approval to continue 
trading the Shares and unless approved, the Exchange will commence 
delisting the Shares if:
---------------------------------------------------------------------------

    \36\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

     The Index Sponsor substantially changes either the Index 
component selection methodology or the weighting methodology;
     If a new component is added to the Index (or pricing 
information is used for a new or existing component) that constitutes 
more than 10% of the weight of the Index with whose principal trading 
market the Exchange does not have a comprehensive surveillance sharing 
agreement; \37\ or
---------------------------------------------------------------------------

    \37\ See April 10 Telephone Conference.
---------------------------------------------------------------------------

     If a successor or substitute index is used in connection 
with the Shares. The filing will address, among other things the 
listing and trading characteristics of the successor or substitute 
index and the Exchange's surveillance procedures applicable thereto.

Similarly, the Manager of the Investing Pool will utilize the most 
recent CERF settlement price to calculate NAV, unless ``extraordinary 
circumstances'' arise, which unless temporary in nature, would require 
Commission approval of an Exchange proposed rule change pursuant to 
Rule 19b-4.\38\
---------------------------------------------------------------------------

    \38\ See June 15 Telephone Conservation.
---------------------------------------------------------------------------

Exchange Trading Rules and Policies

    The Exchange states that the Shares are subject to all applicable 
equity trading rules. The Shares will trade between the hours of 9:30 
a.m. and 4:15 p.m. ET and will be subject to the equity margin rules of 
the Exchange.\39\ A minimum of three Baskets, representing 150,000 
Shares will be outstanding at the commencement of trading on the 
Exchange. The original listing fee applicable to the Shares will be 
$5,000. The annual continued listing fee for the Shares will be $2,000. 
The Exchange states that the Trust is exempt from corporate governance 
requirements in Section 303A of the NYSE Listed Company Manual, 
including the Exchange's audit committee requirements in Section 
303A.06.\40\
---------------------------------------------------------------------------

    \39\ See June 1 Telephone Conference (exchange citing NYSE Rule 
431).
    \40\ See Rule 10A-3(c)(7), 17 CFR 240.10A-3(c)(7).
---------------------------------------------------------------------------

    The Exchange is adopting new NYSE Rule 1300B (``Commodity 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''), 98 (``Restrictions on Approved Person Associated with a 
Specialist's Member Organization), 104 (``Dealings by Specialists''), 
105(m) (``Guidelines for Specialists' Specialty Stock Option 
Transactions Pursuant to Rule 105''), 460.10 (``Specialists 
Participating in Contests''), 1002 (``Availability of Automatic 
Feature''), and 1005 (``Order May Not Be Broken Into Smaller 
Accounts''), the Shares will be treated similar to 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 commodity or commodity index price and 
reference to the word security (or derivative or similar words) will be 
deemed to be references to the Commodity Index Trust Shares.
    The Exchange does not currently intend to exempt Commodity 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.

Trading Halts

    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 the underlying 
commodities 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 is subject to trading halts 
caused by extraordinary market volatility pursuant to Exchange's 
``circuit breaker'' rule.\41\ The Exchange will halt trading in the 
Shares if the value of the Index is no longer calculated or available 
on at least a 15-second basis through one or more major market data 
vendors during the time the Shares trade on the NYSE, if the Indicative 
Value per Share updated at least every 15 seconds is no longer 
calculated or available, or if the NAV

[[Page 36378]]

per Share is not available to all market participants at the same 
time.\42\
---------------------------------------------------------------------------

    \41\ NYSE Rule 80B.
    \42\ In such events, the Exchange would immediately contact the 
Commission to discuss measures that may be appropriate under the 
circumstances.
---------------------------------------------------------------------------

Specialists' Trading Obligations

    As a result of application of proposed NYSE Rule 1300B(b), the 
specialist in a relevant security,\43\ the specialist's member 
organization and other specified persons will be prohibited under 
paragraph (m) of NYSE Rule 105 Guidelines from acting as market maker 
or functioning in any capacity involving market-making responsibilities 
in the physical commodities included in, or options, futures or options 
on futures on, the index underlying the relevant security, or any other 
derivatives (collectively, ``derivative instruments'') based on such 
index. A specialist entitled to an exemption under NYSE Rule 98 from 
paragraph (m) of NYSE Rule 105 Guidelines could act in a market making 
capacity in physical commodities included in, or derivative instruments 
based on such index, other than as a specialist in the same security in 
another market center.
---------------------------------------------------------------------------

    \43\ New Supplementary Material .10 to proposed NYSE Rule 1301B 
would apply the provisions of proposed Rule 1300B(b) and Rule 1301B 
to certain securities listed on the Exchange pursuant to Section 
703.19 (``Other Securities'') of the NYSE Listed Company Manual. 
Examples of the securities to which Supplementary Material .10 will 
apply are the subjects of the following File Nos.: (i) SR-NYSE-2006-
16 (proposal to list and trade Index-Linked Securities of Barclays 
Bank PLC linked to the performance of the Dow Jones-AIG Commodity 
Index Total Returntm); (ii) SR-NYSE-2006-19 (proposal to 
list and trade Index-Linked Securities of Barclays Bank PLC linked 
to the performance of the Goldman Sachs Crude Oil Total Return 
Indextm); and (iii) File No. SR-NYSE-2006-20 (proposal to 
list and trade Index-Linked Securities of Barclays Bank PLC linked 
to the performance of the GSCI Total Return Indextm).
---------------------------------------------------------------------------

    Under NYSE Rule 1301B(a), the member organization acting as 
specialist in the relevant security: (i) Will be obligated to conduct 
all trading in the specialty security 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); (ii) will be required 
to file with the Exchange and keep current a list identifying all 
accounts for trading in the physical commodities included in, or 
derivative instruments based on the relevant index, which the member 
organization acting as specialist may have or over which it may 
exercise investment discretion; and (iii) will be prohibited from 
trading in physical commodities included in, or derivative instruments 
based on the relevant index, in an account in which a member 
organization acting as specialist, controls trading activities which 
have not been reported to the Exchange as required by proposed NYSE 
Rule 1301B.
    Under Rule 1301B(b), the member organization acting as specialist 
in a relevant security will be required to make available to the 
Exchange such books, records or other information pertaining to 
transactions by the member organization and other specified persons for 
its or their own accounts in derivative instruments on an index 
underlying such security or any commodity included in such index, as 
may be requested by the Exchange. This requirement is in addition to 
existing obligations under Exchange rules regarding the production of 
books and records.
    Under proposed NYSE Rule 1301B(c), in connection with trading 
derivative instruments based on an index underlying a relevant security 
in which the member organization acts as specialist, the specialist 
could 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 derivative instruments based on 
the underlying index or in any commodity included in such index.

Surveillance

    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Shares. The Exchange 
will rely upon existing NYSE surveillance procedures governing equities 
with respect to surveillance of the Shares. The Exchange believes that 
these procedures are adequate to monitor Exchange trading of the 
Shares, to detect violations of Exchange rules, consequently deterring 
manipulation. In this regard, the Exchange currently has the authority 
under NYSE Rules 476 and 1301B to request the Exchange specialist in 
the Shares to provide NYSE Regulation with information that the 
specialist uses in connection with pricing the Shares on the Exchange, 
including specialist proprietary or other information regarding 
securities, commodities, futures, options on futures or other 
derivative instruments. The Exchange believes it also has authority to 
request any other information from its members--including floor 
brokers, specialists and ``upstairs'' firms--to fulfill its regulatory 
obligations.\44\
---------------------------------------------------------------------------

    \44\ 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.
---------------------------------------------------------------------------

    With regard to the Index components, the Exchange can obtain market 
surveillance information, including customer identity information, with 
respect to transactions occurring on the New York Mercantile Exchange 
(``NYMEX''), the Kansas City Board of Trade, ICE Futures, and the LME, 
pursuant to its comprehensive information sharing agreements with each 
of those exchanges. All of the other trading venues on which current 
Index components and CERFs are traded are members of the Intermarket 
Surveillance Group (``ISG''), and the Exchange therefore has access to 
all relevant trading information with respect to those contracts 
without any further action being required on the part of the Exchange. 
All these surveillance arrangements constitute comprehensive 
surveillance sharing arrangements.

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.

Information Memorandum

    The Exchange will distribute an Information Memorandum to its 
members in connection with the trading in the Shares. The Information 
Memorandum will discuss the special characteristics and risks of 
trading this type of security. Specifically, the Information 
Memorandum, 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,

[[Page 36379]]

the Indicative Value, dissemination information, trading information 
and the applicability of suitability rules, and exemptive relief 
granted by the Commission from certain rules under the Act.\45\ The 
Information Memorandum will also reference that the Trust is subject to 
various fees and expenses described in the Registration Statement. 
Finally, the Information Memorandum will also note to members language 
in the Registration Statement regarding prospectus delivery 
requirements for the Shares.\46\ The Information Memorandum will also 
reference the fact that there is no regulated source of last sale 
information regarding physical commodities and that the Commission has 
no jurisdiction over the trading of physical commodities or the futures 
contracts on which the value of the shares is based.
---------------------------------------------------------------------------

    \45\ The applicable rules are: Rule 10a-1; Rule 200(g) of 
Regulation SHO; Section 11(d)(1) and Rule 11d1-2; and Rules 101 and 
102 of Regulation M under the Act.
    \46\ The Registration Statement provides:
    Because new Shares can be created and issued on an ongoing 
basis, at any point during the life of the Trust, a 
``distribution'', as such term is used in the Securities Act, will 
be occurring. Authorized Participants, other broker-dealers and 
other persons are cautioned that some of their activities may result 
in their being deemed participants in a distribution in a manner 
that would render them statutory underwriters and subject them to 
the prospectus-delivery and liability provisions of the Securities 
Act.
    For example, an Authorized Participant, other broker-dealer firm 
or its client will be deemed a statutory underwriter if it purchases 
a Basket from the Trust, breaks the Basket down into the constituent 
Shares and sells the Shares to its customers; or if it chooses to 
couple the creation of a supply of new Shares with an active selling 
effort involving solicitation of secondary market demand for the 
Shares. A determination of whether a particular market participant 
is an underwriter must take into account all the facts and 
circumstances pertaining to the activities of the broker-dealer or 
its client in the particular case, and the examples mentioned above 
should not be considered a complete description of all the 
activities that would lead to designation as an underwriter and 
subject them to the prospectus-delivery and liability provisions of 
the Securities Act.
---------------------------------------------------------------------------

II. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\47\ In particular, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of section 
6(b)(5) of the Act,\48\ which requires, among other things, that the 
Exchange's rules be designed to promote just and equitable principles 
of trade, 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.
---------------------------------------------------------------------------

    \47\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \48\ 15 U.S.C. 78s(b)(5).
---------------------------------------------------------------------------

    The Commission received one comment letter on the Exchange's 
proposed rule change, in which DB raised a number of concerns. DB 
argues that CERFs were created specifically for the Trust, have no 
other bona fide economic purpose, and therefore that the CERF market is 
illiquid and susceptible to manipulation.\49\ In this regard, CERFs are 
futures contracts on the GSCI-ER, an index whose value is based on the 
prices of the commodities contracts that comprise the GSCI-ER. 
Manipulation of the CERFs market would drive the price of CERFs out-of-
line with the price of the commodities contracts on which its value is 
based, providing a potential arbitrage opportunity.\50\ Moreover, as 
the Exchange also states, it has comprehensive surveillance sharing 
arrangements with futures exchanges trading the contracts that comprise 
the GSCI-ER. The Exchange also states that the CME and the NYSE have 
surveillance procedures in place to monitor the trading of CERFs and 
Shares, respectively, and through their participation in the ISG can 
access relevant trading information from each other's market.
---------------------------------------------------------------------------

    \49\ See Rich Letter, supra note 5, at 1-2.
    \50\ Information is available about the NAV of the Trust, the 
market value of the Shares, and pricing information about the value 
of the commodities contracts that underlie CERFs, which is reflected 
in the Index, the GSCI and the GSCI-ER.
---------------------------------------------------------------------------

    DB argues that no information is disclosed about the criteria the 
Manager would use to value the Investing Pool's long position in CERFs 
if it determines that the most recent CERF settlement price is an 
inappropriate basis for calculating NAV. According to DB, because the 
most recent CERF settlement price may not be a reliable measurement of 
value as a consequence of thin CERF trading, the Manager may exercise 
his discretion frequently. In response, the NYSE states that the 
Sponsor has told the Exchange that the alternate evaluation procedures 
would be applied only in ``extraordinary circumstances,'' such as when 
commodities representing a substantial weighting of the GSCI are 
experiencing extreme volatility in the spot market, where trading in 
some or all of the futures contracts in the underlying GSCI commodities 
has been suspended, or when operational issues are causing the 
dissemination of inaccurate market information.\51\ The Commission 
notes that the Exchange has committed to commence delisting of the 
Shares if the Index Sponsor and the Manager of the Investing Pool 
deviate from using the most recent CERF settlement price in calculating 
the Index and NAV, respectively, except in ``extraordinary 
circumstances'' on a temporary basis.
---------------------------------------------------------------------------

    \51\ See Yeager Letter, supra at note 6, at 4.
---------------------------------------------------------------------------

    Further, DB stated that the proposed calculation of the Indicative 
Value of the Trust is flawed. This comment references language in the 
original proposal that has since been modified. As originally proposed, 
the Indicative Value was to be ``calculated based on cash and 
collateral in a Basket Amount divided by 50,000, adjusted to reflect 
the market value of the Index commodities through investments held by 
the Investing Pool, i.e., CERFs'' (emphasis added). This ambiguous 
language has been clarified; \52\ the Indicative Value will be 
calculated based on the cash and collateral in a Basket Amount divided 
by 50,000, adjusted to reflect the market value of the investments held 
by the Investing Pool, i.e., CERFs.
---------------------------------------------------------------------------

    \52\ See supra at note 34.
---------------------------------------------------------------------------

A. Surveillance

    The Commission finds that the proposed rules provide the NYSE with 
the tools necessary to adequately monitor trading in the Shares and are 
designed to prevent fraudulent and manipulative acts and practices.\53\ 
Information sharing agreements with primary markets are an important 
part of a self-regulatory organization's ability to monitor for trading 
abuses in derivative products. The Commission believes that the 
Exchange's comprehensive surveillance sharing agreements with the 
NYMEX, the Kansas City Board of Trade, ICE Futures, and the LME for the 
purpose of providing information in connection with trading of 
Commodity Trust Shares create the basis for the NYSE to monitor for 
fraudulent and manipulative trading practices. The Exchange represents 
that all of the other trading venues on which current Index components 
and CERFs are traded are members of the ISG, and the Exchange has 
access to all relevant trading information with respect to those 
contracts without any further action.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Moreover, NYSE Rules 476 and 1301B require Exchange specialists, 
upon the Exchange's request, to provide NYSE Regulation with 
information that the specialist uses in connection with pricing the 
Shares on the Exchange,

[[Page 36380]]

including specialist proprietary or other information regarding 
securities, commodities, futures, options on futures, or other 
derivative instruments. Furthermore, the Exchange believes that it also 
has the authority to request any other information from its member--
including floor brokers, specialists and ``upstairs'' firms--to fulfill 
its regulatory obligations.

B. Dissemination of Information

    The Commission believes that sufficient venues exist for obtaining 
reliable information so that investors in the Shares can monitor the 
underlying Index relative to the Indicative Value of their Shares. 
There is a considerable amount of information about the Index and its 
components and the CERFs available through public Web sites and 
professional subscription services, including Reuters and Bloomberg. 
Real time information about the trading of the component futures 
contracts and the CERFs and their daily settlement prices are available 
from one or more major market data vendors. Delayed information is 
often available from futures exchanges trading the underlying Index 
components and the CERFs. The official calculation of the Index made by 
the Index Sponsor is performed continuously and is reported on Reuters 
page GSCI (or any successor or replacement page) and will be updated on 
Reuters at least 15 seconds during business hours during the time the 
Shares trade on the Exchange. The settlement price for the Index is 
reported on Reuters Page GSCI at the end of each GSCI Business Day and 
on Bloomberg page GSCIER (index). While the Index is calculated by a 
broker-dealer, a number of independent sources verify both the intraday 
and closing Index values.

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 Act. The Shares will trade as equity securities 
subject to NYSE rules including, among others, rules governing equity 
margins, specialist responsibilities, account opening, and customer 
suitability requirements. The Commission believes that the 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 notes that the 
Information Memorandum that 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. Amendment No. 2

    The changes proposed by Amendment No. 2 are designed to ensure that 
certain material information--i.e., the NAV for the Trust--is made 
available to all market participants at the same time. The Commission 
believes that these proposed changes strengthen the proposed rule 
change and do not raise any new regulatory issues. Therefore, the 
Commission finds good cause to approve Amendment No. 2 to the proposed 
rule change prior to the 30th day after the amendment is published for 
comment in the Federal Register.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
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 No. SR-NYSE-2006-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2006-17. 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 Commissions Internet Web site (http://www.sec.gov/rules/sro.shtml). 

Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
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-
NYSE-2006-17 and should be submitted by July 17, 2006.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\54\ that the proposed rule change (SR-NYSE-2006-17), as amended by 
Amendment No. 1, is hereby approved, and that Amendment No. 2 to the 
proposed rule change be, and hereby is, approved on an accelerated 
basis.
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    \54\ 15 U.S.C. 78s(b)(2).
    \55\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\55\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-9985 Filed 6-23-06; 8:45 am]

BILLING CODE 8010-01-P
