

[Federal Register: May 9, 2007 (Volume 72, Number 89)]
[Notices]               
[Page 26435-26442]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09my07-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55699; File No. SR-NYSEArca-2007-27]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change To List 
and Trade Shares of the iShares FTSE NAREIT Residential Index Fund

May 3, 2007.
    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 March 9, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange''), 
through its wholly owned subsidiary NYSE Arca Equities, Inc. (``NYSE 
Arca Equities''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Commission is publishing this notice and order to solicit comments 
on the proposed rule change from interested persons and to approve the 
proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 shares (``Shares'') of the 
iShares FTSE NAREIT Residential Index Fund (``Fund'') of the 
iShares[supreg] \3\ Trust (``Trust'') based on the FTSE NAREIT 
Residential Index (``Index'' or ``Underlying Index'') pursuant to NYSE 
Arca Equities Rule 5.2(j)(3). The text of the proposed rule change is 
available on the Exchange's Web site at http://www.nyse.com, at the Exchange's 

principal office, and at the Commission's Public Reference Room.
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    \3\ iShares[supreg] is a registered trademark of Barclays Global 
Investors, N.A.
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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 III 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list the Shares of the Fund. The Trust is 
an open-end management company with over 90 separate investment 
portfolios and is registered under the Investment Company Act of 1940 
(``1940 Act'').\4\ The Fund seeks investment results that correspond 
generally to the price and yield performance, before fees and expenses, 
of the Underlying Index, as described more fully below. The Fund would 
concentrate its investments in a particular industry or group of 
industries to approximately the same extent as the Index is so 
concentrated. Because all of the securities included in the Underlying 
Index are issued by real estate investment trusts (``REITs'') that 
invest in residential real estate, the Fund would always be 
concentrated in the residential real estate industry.\5\
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    \4\ See Post-Effective Amendment No. 63 to the Trust's 
Registration Statement on Form N-1A, as filed with the Commission on 
November 15, 2006 and accompanying Statement of Additional 
Information (``SAI'') (File No. 333-92935 and 811-09729) (the 
``Registration Statement''). The Trust was established as a Delaware 
statutory trust on December 16, 1999.
    \5\ See supra note 4; e-mail from Tim Milanowski, Director, NYSE 
Group, Inc. to Mitra Mehr, Special Counsel, Division of Market 
Regulation (``Division''), Commission, dated April 25, 2007.
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    Under NYSE Arca Equities Rule 5.2(j)(3), the Exchange may list and/
or trade pursuant to unlisted trading privileges (``UTP'') ``Investment 
Company Units'' (``ICUs'').\6\ The Fund does not meet the ``generic'' 
listing requirements of NYSE Arca Equities Rule 5.2(j)(3) applicable to 
listing of ICUs in reliance upon Rule 19b-4(e) under the Act,\7\ and 
thus cannot be listed without a filing pursuant to Rule 19b-4 under the 
Act. Specifically, the Underlying Index does not meet the requirement 
of Commentary .01(a)(3) to

[[Page 26436]]

NYSE Arca Equities Rule 5.2(j)(3) that the five most heavily weighted 
component stocks cannot exceed 65% of the weight of the index or 
portfolio.\8\
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    \6\ In October 1999, the Commission approved NYSE Arca Equities 
Rule 5.2(j)(3), which sets forth the rules related to listing and 
trading criteria for ICUs. See Securities Exchange Act Release No. 
41983 (October 6, 1999), 64 FR 56008 (October 15, 1999) (SR-PCX-
1998-29). In July 2001, the Commission also approved the Exchange's 
generic listing standards for listing and trading, or the trading 
pursuant to UTP, of ICUs under NYSE Arca Equities Rule 5.2(j)(3). 
See Securities Exchange Act Release No. 44551 (July 12, 2001), 66 FR 
37716 (July 19, 2001) (SR-PCX-2001-14). NYSE Arca Equities Rule 
5.1(b)(15) defines an ICU as a security representing an interest in 
a registered investment company that could be organized as a unit 
investment trust, an open-end management investment company, or a 
similar entity.
    \7\ 17 CFR 240.19b-4(e).
    \8\ The five most heavily weighted component stocks constitute 
approximately 69.90% of the weight of the index, as of March 9, 
2007. Source: Bloomberg.
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Operation of the Fund

    Barclays Global Fund Advisors (``BGFA''), a subsidiary of Barclays 
Global Investors, N.A. (``BGI''), would be the investment adviser 
(``Advisor'') to the Fund. The Advisor is registered as an investment 
adviser under Section 203 of the Investment Advisers Act of 1940 \9\ 
(``Advisers Act''). As the Advisor, BGFA would have overall 
responsibility for the general management and administration of the 
Trust. BGFA would provide an investment program for the Fund and would 
manage the investment of the Fund's assets. In seeking to achieve a 
Fund's investment objective, BGFA would use teams of portfolio 
managers, investment strategists, and other investment specialists. 
BGFA would also arrange for transfer agency, custody, fund 
administration, and all other non-distribution-related services 
necessary for the Fund to operate. While the Fund would be managed by 
the Advisor or portfolio manager, the Trust's Board of Trustees would 
have responsibility for the overall management and operations of the 
Fund.
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    \9\ 15 U.S.C. 80b.
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The Index Provider

    FTSE International Limited (``FTSE'') is the provider of the Index. 
FTSE is an independent company whose sole business is the creation and 
management of indices and associated data services. FTSE is a joint 
venture between The Financial Times and the London Stock Exchange and 
``FTSETM'' is a trademark owned jointly by the London Stock 
Exchange plc and The Financial Times Limited. FTSE calculates over 
60,000 indices daily, including more than 600 real-time indices. 
``NAREIT[supreg]'' is a trademark of National Association of Real 
Estate Investment Trusts (``NAREIT''). Both the FTSE and NAREIT 
trademarks are used by FTSE under license. FTSE is not affiliated with 
the Trust, BGFA, or its affiliates or SEI Investments Distribution Co. 
(``SEI''), the distributor of the Fund (as discussed below). BGI has 
entered into a license agreement with FTSE to use the Underlying Index 
and is sub-licensing rights in the Underlying Index to the Trust at no 
charge.

Administrator, Custodian, and Transfer Agent

    Investors Bank & Trust Company (``Investors Bank'') would serve as 
administrator, custodian, and transfer agent for the Fund 
(``Administrator''). Under the Administration Agreement with the Trust, 
the Administrator would provide necessary administrative, legal, tax, 
accounting, and financial reporting services for the maintenance and 
operations of the Trust and the Fund. Under the Custodian Agreement 
with the Trust, the Administrator would maintain cash, securities, and 
other assets of the Trust and the Fund and would keep all necessary 
accounts and records. The Administrator would be required to deliver 
securities held by the Administrator and to make payments for 
securities purchased by the Trust for the Fund. Also, under a 
Delegation Agreement, the Administrator may appoint certain foreign 
custodians or foreign custody managers for Fund investments outside the 
United States. Pursuant to a Transfer Agency and Service Agreement with 
the Trust, the Administrator would act as a transfer agent for the 
Fund's authorized and issued shares of beneficial interest, and as 
dividend disbursing agent of the Trust.

The Distributor

    SEI would be the distributor of shares of the Trust 
(``Distributor''). The Distributor has entered into a Distribution 
Agreement with the Trust pursuant to which it distributes Shares of the 
Fund. Shares would be offered continuously for sale by the Fund through 
the Distributor only in Creation Unit Aggregations (as described more 
fully below). Shares in less than Creation Unit Aggregations would not 
be distributed by the Distributor. The Distributor would deliver the 
prospectus and, upon request, the Statement of Additional Information 
(``SAI'') to persons purchasing Creation Unit Aggregations and would 
maintain records of both orders placed with it and confirmations of 
acceptance furnished by it. The Distributor is a broker-dealer 
registered under the Act and a member of NASD.
    The Fund intends to qualify as a ``regulated investment company'' 
(``RIC'') under the Internal Revenue Code (``Code''). The Fund must, 
among other things, meet certain diversification tests imposed by the 
Code to satisfy RIC requirements.\10\
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    \10\ Among these is a requirement that, at the close of each 
quarter of the Fund's taxable year: (1) At least 50% of the market 
value of the Fund's total assets must be represented by cash items, 
U.S. government securities, securities of other RICs, and other 
securities, with such other securities limited for the purpose of 
this calculation with respect to any one issuer to an amount not 
greater than 5% of the value of the Fund's assets and not greater 
than 10% of the outstanding voting securities of such issuer; and 
(2) not more than 25% of the value of its total assets may be 
invested in securities of any one issuer, or two or more issuers 
that are controlled by the Fund (within the meaning of Section 
851(b)(4)(B) of the Code) and that are engaged in the same or 
similar trades or business (other than U.S. government securities or 
other RICs).
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Description of the Fund and the Underlying Index

    According to the Fund's Registration Statement, the Fund would be 
an ``index fund'' that seeks investment results that correspond 
generally to the price and yield performance, before fees and expenses, 
of the Underlying Index. The Underlying Index measures the performance 
of the residential real estate sector of the U.S. equity market. The 
Fund would concentrate its investments in a particular industry or 
group of industries to approximately the same extent as the Underlying 
Index is so concentrated. Because all of the securities included in the 
Underlying Index are issued by REITs that invest in residential real 
estate, the Fund would always be concentrated in the residential real 
estate industry.\11\
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    \11\ See supra note 5.
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    The Underlying Index is sponsored by the Index Provider. The Index 
Provider determines the relative weightings of the securities in the 
Underlying Index and publishes information regarding the market value 
of the Underlying Index.
    The Advisor would use a ``passive'' or ``indexing'' approach to try 
to achieve the Fund's investment objective. The Fund would not try to 
``beat'' the index it tracks and would not seek temporary defensive 
positions when markets decline or appear overvalued. Indexing 
eliminates the chance that the Fund may substantially outperform the 
Underlying Index, but also may eliminate some of the risk of active 
management, such as poor security selection. Indexing seeks to achieve 
lower costs and better after-tax performance by keeping portfolio 
turnover low in comparison to actively managed investment companies.
    The Fund would invest at least 90% of its assets in the securities 
of its Underlying Index or in American Depositary Receipts (``ADRs'') 
representing securities in the Underlying Index. The Fund may invest 
the remainder of its assets in securities not included in the 
Underlying Index, but which the Advisor believes would help the Fund 
track the Underlying Index. For example, the Fund may

[[Page 26437]]

invest in securities not included in the Underlying Index to reflect 
various corporate actions (such as mergers) and other changes in the 
Underlying Index (such as reconstitutions, additions, and deletions). 
The Fund also may invest its other assets in futures contracts or other 
derivatives related to the Underlying Index, as well as cash and cash 
equivalents, including shares of money market funds affiliated with the 
Advisor. The Advisor would use a representative sampling indexing 
strategy for the Fund.
    ``Representative Sampling'' is an indexing strategy that involves 
investing in a representative sample of the securities, included in the 
Underlying Index, that collectively have an investment profile similar 
to the Underlying Index. The securities selected are expected to have, 
in the aggregate, investment characteristics (based on factors such as 
market capitalization and industry weightings), fundamental 
characteristics (such as return variability, earnings valuation, and 
yield), and liquidity measures similar to those of the Underlying 
Index. The Fund may or may not hold all of the securities that are 
included in the Underlying Index.
    The Advisor expects that, over time, the correlation between the 
Fund's performance and that of the Underlying Index, before fees and 
expenses, would be 95% or better. A correlation percentage of 100% 
would indicate perfect correlation. The difference between 100% 
correlation and the Fund's actual percentage correlation with the 
Underlying Index is called ``tracking error.'' The Fund's use of a 
representative sampling indexing strategy can be expected to result in 
greater tracking error than if the Fund used a replication indexing 
strategy. ``Replication'' is an indexing strategy in which a fund 
invests in substantially all of the securities in its underlying index 
in approximately the same proportions as in the underlying index.
    The Fund would concentrate its investments only in the residential 
real estate sector to approximately the same extent that the Underlying 
Index is so concentrated. For purposes of this limitation, securities 
of the U.S. government (including its agencies and instrumentalities), 
repurchase agreements collateralized by U.S. government securities, and 
securities of state or municipal governments and their political 
subdivisions are not considered to be issued by members of any 
industry.
    The Underlying Index is included in the FTSE NAREIT U.S. Real 
Estate Indices (``FTSE NAREIT Indices''). The FTSE NAREIT Indices are 
primarily rule-based, but are also monitored by the FTSE NAREIT Index 
Advisory Committee. All tax-qualified REITs that are listed on the New 
York Stock Exchange (``NYSE''), the American Stock Exchange (``Amex''), 
or the Nasdaq Stock Market (``Nasdaq'') are eligible for inclusion in 
the FTSE NAREIT Indices. Potential components of the FTSE NAREIT 
Residential Index are determined by sector classifications of 
components in the FTSE NAREIT Composite Index. As part of an annual 
review, all eligible securities are ranked by their full market 
capitalizations as at the close of business on the last business day in 
November. Stocks are then screened to ensure they have sufficient 
liquidity. Factors used to determine liquidity include the availability 
of current and reliable price information and the level of trading 
volume relative to shares outstanding. Value traded and float turnover 
are also analyzed periodically to monitor liquidity. The FTSE NAREIT 
Index Advisory Committee meets to approve the annual review on the 
Wednesday after the first Friday in December. Any component changes 
resulting from the annual review would be implemented at the close of 
business on the third Friday of December.
    When calculating index component weights, component companies' 
shares are adjusted for available float. In general, shares held by 
governments, corporations, strategic partners, or other control groups 
are excluded from a component company's outstanding shares. The FTSE 
NAREIT Composite Index would be periodically reviewed for changes in 
free float. These reviews would occur on a quarterly basis, and 
implementation of any changes to the Underlying Index, and potentially 
the FTSE NAREIT Indices, would happen at the close of business on the 
third Friday in March, June, September, or December.
    The FTSE NAREIT Index Advisory Committee is responsible for 
undertaking the review of the FTSE NAREIT Indices and for approving 
changes in components and is also responsible for the sector 
classification of components of the FTSE NAREIT Indices. The Chairman 
and Deputy Chairman of the FTSE NAREIT Index Advisory Committee are 
collectively responsible for approving component changes to the FTSE 
NAREIT Indices between meetings of the Advisory Committee. Adjustments 
to reflect a major change in the amount or structure of a component 
company's issued securities would be made before the start of the index 
calculation on the day on which the change takes effect. Adjustments to 
reflect less significant changes would be implemented before the start 
of the index calculation on the day following the announcement of the 
change. Adjustments generally would be made before the start of the 
index calculations on the day concerned, unless market conditions 
prevent such adjustment. If a component is delisted, or ceases to have 
a firm quotation, or is subject to a takeover offer which has been 
declared wholly unconditional, it would be removed from the indices of 
which it is a component.
    The FTSE NAREIT Indices are calculated continuously during normal 
trading hours of the Nasdaq, Amex, and NYSE, and would be closed on 
U.S. holidays. The prices used to calculate the FTSE NAREIT Indices are 
the Reuters daily closing prices or those figures accepted as such. 
FTSE NAREIT reserves the right to use an alternative pricing source on 
any given day. For end-of-day alternative currency calculations, FTSE 
NAREIT uses the WM/Reuters Closing Spot Rates.
    The Fund would issue and redeem, on a continuous basis, shares at 
its net asset value (``NAV'') only in blocks of 50,000 shares or 
multiples thereof (each, a ``Creation Unit'' or a ``Creation Unit 
Aggregation'').
    Only certain large institutional investors known as Authorized 
Participants (as defined below) may purchase or redeem Creation Units 
directly with the Fund at the NAV. These transactions are usually in 
exchange for a basket of securities similar to the Fund's portfolio and 
an amount of cash. Except when aggregated in Creation Units, Shares of 
the Fund are not redeemable securities. Shareholders who are not 
Authorized Participants may not redeem shares directly from the Fund.
    The Fund would impose a purchase transaction fee and a redemption 
transaction fee to offset transfer and other transaction costs 
associated with the issuance and redemption of Creation Units. 
Purchasers and redeemers of Creation Units for cash are required to pay 
an additional variable charge to compensate for brokerage and market 
impact expenses. The creation and redemption transaction fees for 
creations and redemptions in-kind for the Fund are described in the 
Fund's prospectus.
    All orders to purchase Shares of the Fund in Creation Units must be 
placed with the Distributor by or through an ``Authorized 
Participant,'' which is either: (1) A ``Participating Party,'' i.e., a 
broker-dealer or other participant in the clearing process through the

[[Page 26438]]

Continuous Net Settlement System of the National Securities Clearing 
Corporation (``NSCC''), a clearing agency that is registered with the 
Commission (``Clearing Process''); or (2) a Depository Trust Company 
(``DTC'') Participant that has executed a ``Participant Agreement'' 
with the Distributor.

Consideration for Purchase of Creation Units

    The consideration for purchase of Creation Unit Aggregations of the 
Fund generally consists of the in-kind deposit of a designated 
portfolio of equity securities, the Deposit Securities, which 
constitutes a substantial replication, or a portfolio sampling 
representation, of the stocks involved in the Fund's Underlying Index 
and an amount of cash (the ``Cash Component'') computed as described 
below. Together, the Deposit Securities and the Cash Component 
constitute the ``Fund Deposit,'' which represents the minimum initial 
and subsequent investment amount for a Creation Unit Aggregation.
    The Cash Component is sometimes also referred to as the ``Balancing 
Amount.'' The Cash Component serves the function of compensating for 
any difference between the NAV per Creation Unit Aggregation and the 
Deposit Amount. The Cash Component is an amount equal to the difference 
between the NAV of the shares (per Creation Unit Aggregation) and the 
``Deposit Amount,'' which is an amount equal to the market value of the 
Deposit Securities. If the Cash Component is a positive number (i.e., 
the NAV per Creation Unit Aggregation exceeds the Deposit Amount), the 
creator would deliver the Cash Component. If the Cash Component is a 
negative number (i.e., the NAV per Creation Unit Aggregation is less 
than the Deposit Amount), the creator would receive the Cash Component. 
Computation of the Cash Component excludes any stamp duty or other 
similar fees and expenses payable upon transfer of beneficial ownership 
of the Deposit Securities, which shall be the sole responsibility of 
the Authorized Participant.
    BGFA, through the NSCC, makes available on each business day, prior 
to the opening of business on the applicable listing exchange 
(currently 9:30 a.m. Eastern time), the list of the names and the 
required number of shares of each Deposit Security to be included in 
the current Fund Deposit (based on information at the end of the 
previous business day) for the Fund. Such Deposit Securities are 
applicable, subject to any adjustments as described below, in order to 
effect creations of Creation Unit Aggregations of the Fund until such 
time as the next-announced composition of the Deposit Securities is 
made available. The identity and number of shares of the Deposit 
Securities required for the Fund Deposit for the Fund changes as 
rebalancing adjustments and corporate action events are reflected from 
time to time by BGFA with a view to the investment objective of the 
Fund. The composition of the Fund may also change in response to 
adjustments to the weighting or composition of the component securities 
of the Underlying Index.
    In addition, the Trust reserves the right to permit or require the 
substitution of an amount of cash (i.e. a ``cash in lieu'' amount) to 
be added to the Cash Component to replace any Deposit Security that may 
not be available in sufficient quantity for delivery or that may not be 
eligible for transfer through the systems of DTC or the Clearing 
Process. The Trust also reserves the right to permit or require a 
``cash in lieu'' amount where the delivery of the Deposit Security by 
the Authorized Participant would be restricted under the securities 
laws or where the delivery of the Deposit Security to the Authorized 
Participant would result in the disposition of the Deposit Security by 
the Authorized Participant becoming restricted under the securities 
laws, or in certain other situations. The adjustments described above 
would reflect changes known to BGFA on the date of announcement to be 
in effect by the time of delivery of the Fund Deposit, in the 
composition of the Underlying Index or resulting from certain corporate 
actions.

Redemption of Shares in Creation Units

    Shares may be redeemed only in Creation Unit Aggregations at their 
NAV next determined after receipt of a redemption request in proper 
form by the Fund through Investors Bank and only on a business day. The 
Fund would not redeem shares in amounts less than Creation Unit 
Aggregations. A beneficial owner must accumulate enough shares in the 
secondary market to constitute a Creation Unit Aggregation to have such 
shares redeemed by the Trust. There can be no assurance, however, that 
there would be sufficient liquidity in the public trading market at any 
time to permit assembly of a Creation Unit Aggregation. Investors 
should expect to incur brokerage and other costs in connection with 
assembling a sufficient number of shares to constitute a redeemable 
Creation Unit Aggregation.
    With respect to the Fund, BGFA, through the NSCC and the 
Distributor, would make available immediately prior to the opening of 
business on the applicable listing exchange (currently 9:30 a.m. 
Eastern time) on each business day, the identity of the Fund securities 
that would be applicable (subject to possible amendment or correction) 
to redemption requests received in proper form on that day (``Fund 
Securities''). Fund Securities received on redemption may not be 
identical to Deposit Securities that are applicable to creations of 
Creation Unit Aggregations.
    Unless cash redemptions are available or specified for the Fund, 
the redemption proceeds for a Creation Unit Aggregation would generally 
consist of Fund Securities--as announced on the business day of the 
request for redemption received in proper form--plus cash in an amount 
equal to the difference between the NAV of the shares being redeemed, 
as next determined after a receipt of a request in proper form, and the 
value of the Fund Securities (the ``Cash Redemption Amount''), less a 
redemption transaction fee as described below. If the Fund Securities 
have a value greater than the NAV of the shares, a compensating cash 
payment equal to the difference must be made by or through an 
Authorized Participant by the redeeming shareholder.
    The right of redemption may be suspended or the date of payment 
postponed with respect to the Fund: (i) For any period during which the 
NYSE is closed (other than customary weekend and holiday closings); 
(ii) for any period during which trading on the NYSE is suspended or 
restricted; (iii) for any period during which an emergency exists as a 
result of which disposal of the shares of the Fund or determination of 
the Fund's NAV is not reasonably practicable; or (iv) in such other 
circumstances as is permitted by the Commission.

Dividends, Distributions, and Taxes

    Dividends from net investment income, if any, would be declared and 
paid at least annually by the Fund. Distributions of net realized 
securities gains, if any, generally would be declared and paid once a 
year, but the Trust may make distributions on a more frequent basis for 
the Fund. The Trust reserves the right to declare special distributions 
if, in its reasonable discretion, such action is necessary to improve 
tracking error or is necessary or advisable to preserve the status of 
the Fund as a RIC or to avoid imposition of income or excise taxes on 
undistributed income.

[[Page 26439]]

    Dividends and other distributions on shares would be distributed on 
a pro-rata basis to beneficial owners of such shares. Dividend payments 
would be made through DTC Participants and Indirect Participants to 
beneficial owners then of record with proceeds received from the Fund.

Dividend Reinvestment Service

    No dividend reinvestment service would be provided by the Trust. 
Broker-dealers may make available the DTC book-entry Dividend 
Reinvestment Service for use by beneficial owners of the Fund for 
reinvestment of their dividend distributions. Beneficial owners should 
contact their broker to determine the availability and costs of the 
service and the details of participation therein. Brokers may require 
beneficial owners to adhere to specific procedures and timetables. If 
this service is available and used, dividend distributions of both 
income and realized gains would be automatically reinvested in 
additional whole shares of the Fund purchased in the secondary market.

Availability of Information Regarding Shares and Underlying Index

    The Advisor, through the NSCC, would make available on each 
business day, prior to the opening of business on the Exchange 
(currently 9:30 a.m. Eastern time), the list of the names and the 
required number of shares of each Deposit Security to be included in 
the current Fund Deposit (based on information at the end of the 
previous business day) for the Fund.
    Additional information regarding the indicative value of shares of 
the Fund, also known as the ``indicative optimized portfolio value'' 
(``IOPV''), would be disseminated every 15 seconds through the 
Consolidated Tape throughout the Opening, Core, and Late Trading 
Sessions (4 a.m. ET to 8 p.m. Eastern Time) by the Exchange. The IOPV 
does not necessarily reflect the precise composition of the current 
portfolio of securities held by the Fund at a particular point in time 
or the best possible valuation of the current portfolio. Therefore, the 
IOPV should not be viewed as a ``real-time'' update of the NAV, which 
is computed only once a day. The IOPV is generally determined by using 
both current market quotations and/or price quotations obtained from 
broker-dealers that may trade in the portfolio securities held by the 
Fund.
    According to the Fund's Registration Statement, Investors Bank 
would calculate the NAV for the Fund generally once daily Monday 
through Friday generally as of the regularly scheduled close of 
business of the NYSE (normally 4:00 p.m. Eastern time) on each day that 
the NYSE is open for trading, based on prices at the time of closing, 
provided that: (i) Any assets or liabilities denominated in currencies 
other than the U.S. dollar shall be translated into U.S. dollars at the 
prevailing market rates on the date of valuation as quoted by one or 
more major banks or dealers that makes a two-way market in such 
currencies (or a data service provider based on quotations received 
from such banks or dealers); and (ii) U.S. fixed income assets may be 
valued as of the announced closing time for trading in fixed income 
instruments on any day that the Securities Industry and Financial 
Markets Association (SIFMA) announces an early closing time. The NAV of 
the Fund would be calculated by dividing the value of the net assets of 
the Fund (i.e., the value of its total assets less total liabilities) 
by the total number of outstanding shares of the Fund, generally 
rounded to the nearest cent. In calculating a Fund's NAV, a Fund's 
investments are generally valued using market valuations. If current 
market valuations are not readily available or such valuations do not 
reflect current market values, the affected investments would be valued 
using fair value pricing pursuant to the pricing policy and procedures 
approved by the Board of Trustees. The frequency with which a Fund's 
investments are valued using fair value pricing is primarily a function 
of the types of securities and other assets in which a Fund invests 
pursuant to its investment objective, strategies, and limitations.\12\
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    \12\ Valuing a Fund's investments using fair value pricing would 
result in using prices for those investments that may differ from 
current market valuations. Use of fair value prices and certain 
current market valuations could result in a difference between the 
prices used to calculate a Fund's NAV and the prices used by the 
Fund's Underlying Index, which in turn could result in a difference 
between the Fund's performance and the performance of the Fund's 
Underlying Index.
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    The NAV for the Fund would be calculated and disseminated daily. In 
addition, the Trust's Web site would include the Fund's Prospectus and 
SAI, information regarding the Underlying Index for the Fund, the prior 
business day's NAV, and the mid-point of the bid-ask spread at the time 
of calculation of the NAV (the ``Bid/Ask Price''), a calculation of the 
premium or discount of the Bid/Ask Price at the time of calculation of 
the NAV against such NAV, the Component Securities of the Underlying 
Index, and a description of the methodology used in these computations. 
The Bid/Ask Price of the Fund is determined using the highest bid and 
the lowest offer on the Exchange on which the shares are listed for 
trading. The Exchange would also disseminate a variety of data such as 
Total Cash Amount Per Creation Unit, Shares Outstanding, and the Fund's 
NAV on a daily basis by means of CTA and CQ High Speed Lines.
    BGFA has informed the Exchange that the Fund would make the Fund's 
NAV available to all market participants at the same time. If the NAV 
is not disseminated to all market participants at the same time, the 
Exchange would halt trading in the Fund shares.
    The closing prices of the Fund's Deposit Securities are readily 
available from, as applicable, the relevant Exchange, automated 
quotation systems, and published or other public sources or on-line 
information services that are major market data vendors, such as 
Bloomberg or Reuters. Similarly, information regarding market prices 
and volume of Shares would be broadly available on a real-time basis 
throughout the trading day. Quotation and last-sale information for the 
Shares would be widely disseminated pursuant to the CTA Plan.\13\ The 
previous day's closing price and volume information for the Shares 
would be published daily in the financial sections of many newspapers.
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    \13\ See e-mail from Tim Milanowski, Director, NYSE Group, Inc. 
to Mitra Mehr, Special Counsel, Division, Commission, dated May 2, 
2007 (``May NYSE Arca e-mail'').
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    The value of the Underlying Index would be updated intra-day on a 
real-time basis as individual Component Securities change in price and 
would be disseminated every 15 seconds throughout the Exchange's Core 
Trading Session by one or more major market data vendors.

The Underlying Index

    As of March 9, 2007, the FTSE NAREIT Residential Index component 
securities had a market capitalization of approximately 
$66,859,124,000, representing 20 securities. The average market 
capitalization was approximately $3,342,956,000. The ten largest 
components represented approximately 91.41% of the index weight. The 
five highest weighted securities represented approximately 69.90% of 
the index weight. The heaviest weighted security represented 
approximately 21.27% of the index weight.\14\
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    \14\ Source: Bloomberg.
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Criteria for Initial and Continued Listing

    The Shares would be subject to the criteria for initial and 
continued listing

[[Page 26440]]

of Investment Company Units under NYSE Arca Equities Rules 5.2(j)(3) 
and 5.5(g)(2). A minimum of two Creation Units (at least 100,000 
Shares) would be required to be outstanding at the start of trading. 
This minimum number of Shares required to be outstanding at the start 
of trading would be comparable to requirements that have been applied 
to previously listed series of ICUs. The Exchange believes that the 
proposed minimum number of Shares outstanding at the start of trading 
is sufficient to provide market liquidity.
    The continued listing criteria for ICUs under NYSE Arca Equities 
Rule 5.5(g)(2) provides that the Exchange would consider the suspension 
of trading and delisting (if applicable) of the Shares in any of the 
following circumstances:
     Following the initial 12-month period following upon the 
commencement of trading of the Shares of the Fund, there are fewer than 
50 record and/or beneficial holders of such Shares for 30 or more 
consecutive trading days;
     The value of the Underlying Index of the Fund is no longer 
calculated or available; or
     Such other event occurs or condition exists that, in the 
opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    In addition, the Exchange would remove the Shares from trading and 
listing upon termination of the Trust. The Exchange represents the 
Trust is required to comply with Rule 10A-3 under the Act \15\ for the 
initial and continued listing of the Shares.
---------------------------------------------------------------------------

    \15\ 17 CFR 240.10A-3.
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Trading Rules

    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The trading hours for 
the Funds on the Exchange are the same as those set forth in NYSE Arca 
Equities Rule 7.34 (4 a.m. to 8 p.m. Eastern Time). The minimum trading 
increment for shares of the Funds on the Exchange would be $0.01.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of a Fund. Trading 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: (i) the 
extent to which trading is not occurring in the securities comprising 
an Underlying Index and/or the financial instruments of a Fund; or (ii) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in the Shares could be halted pursuant to the Exchange's 
``circuit breaker'' rule \16\ or by the halt or suspension of trading 
of the underlying securities. If the IOPV or the Index value is not 
being calculated or widely disseminated as required,\17\ the Exchange 
may halt trading during the day in which the interruption to the 
calculation or wide dissemination of the IOPV or the Index value 
occurs. If the interruption to the calculation or wide dissemination of 
the IOPV or the Index value persists past the trading day in which it 
occurred, the Exchange would halt trading no later than the beginning 
of the trading day following the interruption.
---------------------------------------------------------------------------

    \16\ See NYSE Arca Equities Rule 7.12.
    \17\ See May NYSE Arca e-mail.
---------------------------------------------------------------------------

Surveillance

    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products to monitor trading in the 
Shares. The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules.
    The Exchange's current trading surveillance focuses on detecting 
when securities trade outside their normal patterns. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange may obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members or 
affiliates of the ISG.\18\
---------------------------------------------------------------------------

    \18\ For a list of the current members and affiliate members of 
ISG, see http://www.isgportal.com.

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

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.

Information Bulletin

    Prior to the commencement of trading, the Exchange would inform its 
ETP Holders in an Information Bulletin (``Bulletin'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Bulletin would discuss the following: (i) The 
procedures for purchases and redemptions of Shares in Creation Unit 
Aggregations (and that Shares are not individually redeemable); (ii) 
NYSE Arca Equities Rule 9.2(a),\19\ which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (iii) how information 
regarding the IOPV is disseminated; (iv) the requirement that ETP 
Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (v) trading information.
---------------------------------------------------------------------------

    \19\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder, 
before recommending a transaction, must have reasonable grounds to 
believe that the recommendation is suitable for its customer based 
on any facts disclosed by the customer as to his other security 
holdings and as to his financial situation and needs. Further, the 
rule provides, with a limited exception, that prior to the execution 
of a transaction recommended to a non-institutional customer, the 
ETP Holder shall make reasonable efforts to obtain information 
concerning the customer's financial status, tax status, investment 
objectives, and any other information that it believes would be 
useful to make a recommendation. See Securities Exchange Act Release 
No. 34-54045 (June 26, 2006), 71 FR 37971 (July 3, 2006) (SR-PCX-
2005-115).
---------------------------------------------------------------------------

    In addition, the Bulletin would reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Information Bulletin would discuss exemptive, no-action, and 
interpretive relief granted by the Commission from Section 11(d)(1) of 
the Act \20\ and certain rules under the Act, including Rule 10a-1, 
Regulation SHO, Rule 10b-10, Rule 14e-5, Rule 10b-17, Rule 11d1-2, 
Rules 15c1-5 and 15c1-6, and Rules 101 and 102 of Regulation M under 
the Act. The Bulletin would also disclose that the NAV for the Shares 
would be calculated after 4 p.m. eastern time each trading day.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78k(d)(1).
---------------------------------------------------------------------------

 2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\21\ in general, and furthers the 
objectives of Section 6(b)(5),\22\ 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 facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

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

[[Page 26441]]

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

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

Electronic Comments

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

File Number SR-NYSEArca-2007-27 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-NYSEArca-2006-27. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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-NYSEArca-2007-27 and should be submitted on or before 
May 30, 2007.

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

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\23\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\24\ which 
requires that an exchange have rules designed, among other things, 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.
---------------------------------------------------------------------------

    \23\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Fund does not meet the ``generic'' listing standards of NYSE 
Arca Rule 5.2(j)(3) and thus cannot be listed in reliance upon Rule 
19b-4(e) under the Act. As of March 9, 2007, the five highest weighted 
securities in the Underlying Index represented approximately 69.90% of 
the index weight, rather than 65% as required by NYSE Arca's listing 
standards under Rule 5.2(j)(3).\25\ Nevertheless, the Commission 
believes that the listing and trading of the Shares is consistent with 
the Act. The Commission notes that it previously has approved exchange 
rules that contemplate the listing and trading of derivative securities 
products based on indices with similar weightings.\26\ In addition, the 
market capitalization and liquidity of the Index components suggest 
that the Index has been reasonably designed to reduce the likelihood of 
manipulation.
---------------------------------------------------------------------------

    \25\ See supra note 8.
    \26\ See Securities Exchange Act Release No. 52826 (November 22, 
2005), 70 FR 71874 (November 30, 2005) (SR-NYSE-2005-67) (approving 
the listing of the iShares Dow Jones U.S. Energy Sector Index Fund 
where the five highest weighted securities in the underlying index 
represented 83.24% of the index weight and the iShares Dow Jones 
U.S. Telecommunications Sector Index Fund where the five highest 
weighted securities in the underlying index represented 93.5% of the 
index weight). The Commission also notes that, as of March 9, 2007, 
the heaviest weighted security in the Underlying Index represented 
approximately 21.27% of the index weight. See id. (the heaviest 
weighted security in iShares Dow Jones U.S. Energy Sector Index Fund 
represented 31.91% of the index weight).
---------------------------------------------------------------------------

    The Commission believes that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Exchange Act,\27\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotation and last-sale information for the Shares would be 
widely disseminated pursuant to the CTA Plan. Moreover, the IOPV would 
be calculated and disseminated at least every 15 seconds throughout the 
trading day, and the Index value would be calculated and disseminated 
every 15 seconds during the Exchange's Core Trading Session. The NAV of 
the Fund would be calculated once each trading day and disseminated to 
all market participants at the same time. In addition, the Trust's Web 
site would include the Fund's prospectus and SAI, information regarding 
the Underlying Index for the Fund, the prior business day's NAV, the 
Bid/Ask Price, a calculation of the premium or discount of the Bid/Ask 
Price at the time of calculation of the NAV against the NAV, the 
component securities of the Underlying Index, and a description of the 
methodology used in these computations. In sum, the Commission believes 
that the proposal is reasonably designed to facilitate access to 
information that will assist investors in properly valuing the Shares.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    The Commission believes that the proposal is reasonably designed to 
preclude trading of the Shares when transparency is impaired. The 
Exchange has represented that if the NAV is not disseminated to all 
market participants at the same time, the Exchange would halt trading 
in the Fund shares. If the IOPV or the Index value applicable to a 
series of Shares is not being calculated and disseminated as required, 
the Exchange may halt trading during the day in which the interruption 
to the dissemination of the IOPV or the Index value occurs. If the 
interruption to the calculation and dissemination of the IOPV or the 
Index value persists past the trading day in which it occurred, the 
Exchange would halt trading no later than the beginning of the trading 
day following the interruption.
    The Commission finds that the Exchange's proposed rules and 
procedures for trading of the Shares are consistent with the Act. The 
Exchange deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:

[[Page 26442]]

    1. The Exchange would rely on its existing surveillance procedures 
applicable to derivative products to monitor trading in the Shares. 
These procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules. The Exchange may obtain information via the ISG from 
other exchanges that are members or affiliates of the ISG.
    2. Prior to the commencement of trading, the Exchange would inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares.
    3. If the IOPV or the Index value applicable to a series of Shares 
is not being calculated and disseminated as required, the Exchange may 
halt trading during the day in which the interruption to the 
dissemination of the IOPV or the Index value occurs. If the 
interruption to the calculation and dissemination of the IOPV or the 
Index value persists past the trading day in which it occurred, the 
Exchange would halt trading no later than the beginning of the trading 
day following the interruption.

This Order is conditioned on NYSE Arca's adherence to the foregoing 
representations.
    The Commission finds good cause to approve the proposed rule 
change, prior to the thirtieth day after publication for comment in the 
Federal Register pursuant to Section 19(b)(2) of the Act.\28\ Except 
for the weighting of the Underlying Index, the Fund meets the 
``generic'' listing standards of NYSE Arca Equities Rule 5.2(j)(3). In 
this case, the weighting of the five highest components of the 
Underlying Index (69.90%) is only marginally higher than that required 
by NYSE Arca's generic listing standards (65%). The market 
capitalization and liquidity of the Index components and the fact that 
they are securities issued by REITs that are listed and traded on a 
national securities exchange reduce the likelihood of the Shares being 
manipulated. Finally, the Commission notes that it previously has 
approved exchange rules that contemplate the listing and trading of 
derivative securities based on indices with similar weightings.\29\ The 
listing and trading of the Shares do not appear to present any new 
regulatory concerns. Accelerating approval would allow the Shares to 
trade on NYSE Arca without undue delay and should generate additional 
competition in the market for such products.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(2).
    \29\ See supra note 26.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-NYSEArca-2007-27), be and it 
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-8860 Filed 5-8-07; 8:45 am]

BILLING CODE 8010-01-P
