

[Federal Register: May 17, 2007 (Volume 72, Number 95)]
[Notices]               
[Page 27871-27874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17my07-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55736; File No. SR-CBOE-2007-37]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change as Modified by Amendment No. 1 to Trade the 
iShares MSCI Index Funds and the S&P Europe 350 Index Fund Pursuant to 
UTP

May 10, 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 April 20, 2007, the Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE''), 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. On May 7, 2007, the Exchange filed Amendment No. 1 to the 
proposed rule change. This notice and order provides notice of the 
proposed rule change, as amended, and approves the proposal 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 Chicago Board Options Exchange, Incorporated proposes to trade 
on its subsidiary, the CBOE Stock Exchange (``CBSX''), shares of 15 
international exchange-traded funds (``ETFs'' or ``Funds'') pursuant to 
unlisted trading privileges (``UTP''). The text of the proposed rule 
change is available on the Exchange's Web site (http://www.cboe.org/Legal
), at the Exchange's principal office, and at the Commission's 

Public Reference Room.

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 purpose of the proposed rule change is to trade on CBSX shares 
of 15 international ETFs (the ``Shares'') pursuant to UTP. These Funds 
are:

 iShares MSCI Australia Index Fund
 iShares MSCI Brazil Index Fund
 iShares MSCI EAFE Index Fund
 iShares MSCI Emerging Markets Index Fund
 iShares MSCI Germany Index Fund
 iShares MSCI Hong Kong Index Fund
 iShares MSCI Malaysia Index Fund
 iShares MSCI Mexico Index Fund
 iShares MSCI Pacific ex-Japan Index Fund
 iShares MSCI Singapore Index Fund
 iShares MSCI South Africa Index Fund
 iShares MSCI South Korea Index Fund
 iShares MSCI Taiwan Index Fund
 iShares MSCI United Kingdom Index Fund
 iShares S&P Europe 350 Index Fund

    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to existing CBSX rules 
governing the trading of equity securities.
a. Description of the Funds
    The following funds are listed on the American Stock Exchange 
(``Amex''):

 iShares MSCI Australia Index Fund
 iShares MSCI Brazil Index Fund
 iShares MSCI Germany Index Fund
 iShares MSCI Hong Kong Index Fund
 iShares MSCI Malaysia Index Fund
 iShares MSCI Mexico Index Fund
 iShares MSCI Singapore Index Fund
 iShares MSCI South Korea Index Fund
 iShares MSCI Taiwan Index Fund
 iShares MSCI United Kingdom Index Fund
 iShares S&P Europe 350 Index Fund

    The following funds are listed on the New York Stock Exchange 
(``NYSE''):\3\
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    \3\ Effective February 16, 2007, the iShares MSCI Index Funds 
for EAFE, Emerging Markets, Pacific ex-Japan, and South Africa 
transferred their primary listing to the NYSE and are no longer 
listed on Amex. See Supplement dated February 16, 2007 to the 
Prospectus dated January 1, 2007 for the iShares MSCI Series, and 
Supplement dated February 16, 2007 to the Prospectus dated December 
1, 2006 for the iShares Goldman Sachs Series and the iShares MSCI 
EAFE Series.

 iShares MSCI EAFE Index Fund
 iShares MSCI Emerging Markets Index Fund
 iShares MSCI Pacific ex-Japan Index Fund
 iShares MSCI South Africa Index Fund

    In addition to being listed on the Amex or NYSE, the Shares \4\ are 
traded on those and other securities exchanges and in the over-the-
counter market.\5\ The information below is intended to provide a 
description of how the Shares were created and are traded.\6\
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    \4\ The Funds (with the exception of the MSCI EAFE and S&P 
Europe 350 Funds) were formerly known as World Equity Benchmark 
Shares or WEBS. An initial series of WEBS, including the iShares 
MSCI Australia, Germany, Hong Kong, Malaysia, Mexico, Singapore, and 
United Kingdom Index Funds were initially approved for listing and 
trading on Amex in 1996. See Securities Exchange Act Release No. 
36947 (March 8, 1996), 61 FR 10606 (March 14, 1996) (SR-Amex-95-43). 
Additional WEBS series were approved for listing and trading in 
2000, including iShares MSCI Brazil, iShares MSCI Taiwan, iShares 
MSCI South Africa and iShares MSCI South Korea. See Securities 
Exchange Act Release No. 42748 (May 2, 2000), 65 FR 30155 (May 10, 
2000) (SR-Amex-98-49). iShares MSCI EAFE and iShares S&P Europe 350, 
issued by iShares Trust, were approved for Amex listing and trading 
in, respectively, in 2001. See Securities Exchange Release No. 44700 
(August 14, 2001), 66 FR 43927 (August 21, 2001) (SR-Amex-2001-34); 
Securities Exchange Act Release No. 42786 (May 15, 2000), 65 FR 
33586 (May 24, 2000) (SR-Amex-99-49) (collectively, ``Listing 
Approval Orders'').
    \5\ See, e.g., Securities Exchange Act Release No. 50142 (August 
3, 2004), 69 FR 48539 (August 10, 2004) (SR-NYSE-2004-27) (approving 
trading of the Shares pursuant to UTP).
    \6\ Much of the information in this filing was taken from the 
Prospectuses and Statements of Additional Information of iShares, 
Inc. dated January 1, 2007, the Prospectus of iShares S&P Europe 
350, dated August 1, 2006, the Prospectus of iShares Trust MSCI 
EAFE, dated December 1, 2006, and the Web sites of Amex (http://www.amex.com), the NYSE (http://www.nyse.com), and iShares (http://

http://www.ishares.com). Fund information relating to net asset value 

(``NAV''), returns, dividends, component stock holdings, and the 
like is updated on a daily basis on the Web sites.
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    The Shares are issued by iShares, Inc., except for iShares MSCI 
EAFE and S&P Europe 350, which are issued by iShares Trust. iShares, 
Inc. and iShares Trust are open-ended management investment companies. 
Each Fund seeks investment results that correspond generally to the 
price and yield performance, before fees and expenses, of the 
applicable

[[Page 27872]]

underlying index. The Funds utilize representative sampling to invest 
in a representative sample of securities in the applicable underlying 
index. Barclays Global Fund Advisors (``BGFA''), a subsidiary of 
Barclays Global Investors, N.A. (``BGI''), is the investment advisor 
for each Fund. BGI is a wholly owned indirect subsidiary of Barclays 
Bank PLC of the United Kingdom. BGFA and its affiliates are not 
affiliated with the index providers (MSCI and Standard & Poor's). 
Investors Bank and Trust Company serves as administrator, custodian, 
and transfer agent for the Funds, and SEI Investments Distribution Co. 
is distributor for the Funds. The distributor is not affiliated with 
BGFA.
b. MSCI and S&P Indexes
    The MSCI Indexes are calculated by MSCI for each trading day in the 
applicable foreign exchange markets based on official closing prices in 
such exchange markets. For each trading day, MSCI publicly disseminates 
the MSCI Index values for the previous day's close. The S&P Europe 350 
Index is calculated by Standard & Poor's (``S&P''), and is publicly 
disseminated by S&P for the previous day's close. The indexes are 
reported periodically in major financial publications, and the intra-
day values of the Indexes, disseminated every 15 seconds throughout the 
trading day, are available through vendors of financial information as 
further described in the Listing Approval Orders.
c. Tracking Error
    The Funds have chosen to pursue a representative sampling strategy 
that, by its very nature, entails some risk of tracking error. (It 
should also be noted that Fund expenses, the timing of cash flows, and 
other factors all contribute to tracking error.) The Web site for the 
Funds, http://www.iShares.com, contains detailed information on the 

performance and tracking error for each Fund.
d. Availability of Information Regarding Funds
    The Web site for the Funds (http://www.iShares.com) contains the 

prior business day's NAV and the reported closing price, and a 
calculation of the premium or discount of such price against NAV; and 
data in chart format displaying the frequency distribution of discounts 
and premiums of the daily closing price against the NAV.
    The intra-day values of the indexes will be disseminated every 15 
seconds throughout the trading day by organizations authorized by the 
index providers and are available through major financial information 
vendors.
    The intraday indicative value (``IIV'') of each Fund will be 
disseminated every 15 seconds throughout the trading day by the 
national securities exchange on which the Fund is listed or by other 
information providers or market data vendors. The IIV likely will not 
reflect the value of all securities included in the applicable indexes. 
In addition, the IIV will not necessarily reflect the precise 
composition of the current portfolio of securities held by the Funds at 
a particular moment. The IIV disseminated throughout the trading day 
should not be viewed as a real-time update of the NAV of the Funds, 
which is calculated only once a day. It is expected, however, that 
during the trading day the IIV will closely approximate the value per 
share of the portfolio of securities for the Funds, except under 
unusual circumstances.
    For the iShares MSCI Australia, Hong Kong, Malaysia, Pacific ex-
Japan, Singapore, South Korea, and Taiwan Funds, there is no overlap in 
trading hours between the foreign and U.S. markets. Therefore, for each 
of these Funds, the IIV calculator utilizes closing prices (denominated 
in the applicable foreign currency) in the principal foreign market for 
securities in the applicable Fund's portfolio and converts the price to 
U.S. dollars. This IIV is updated every 15 seconds, during the trading 
hours of the national securities exchange on which the Fund is listed, 
to reflect changes in currency exchange rates between the U.S. dollar 
and the applicable foreign currency. The IIV also includes the 
estimated cash component for each Fund.
    For the iShares MSCI Brazil, EAFE, Germany, Mexico, South Africa, 
and United Kingdom Funds, and the S&P Europe 350 Fund, there is an 
overlap in trading hours between the foreign and U.S. markets. 
Therefore, the IIV calculator updates the applicable IIV every 15 
seconds to reflect price changes in the applicable foreign market or 
markets and converts such prices into U.S. dollars based on the 
currency exchange rate. When a relevant foreign market is closed but 
the U.S. markets are open, the IIV is updated every 15 seconds to 
reflect changes in currency exchange rates after the foreign market 
closes. The IIV also includes the applicable cash component for each 
Fund.
e. Information Circular
    In connection with the trading of the Shares, the Exchange will 
inform members and member organizations in an Information Circular of 
certain characteristics of certain Funds, as discussed below. The 
circular will discuss the special characteristics and risks of trading 
this type of security. Specifically, the circular, among other things, 
will discuss what the Funds are, how they are created and redeemed, the 
requirement that members and member firms deliver a prospectus or 
Product Description to investors purchasing Shares prior to or 
concurrently with the confirmation of a transaction, applicable 
Exchange rules, dissemination information, trading information, and the 
applicability of suitability rules.\7\
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    \7\ The Commission issued an order (``Order'') granting the 
Funds an exemption from Section 24(d) of the Investment Company Act 
of 1940. See, e.g., Investment Company Act Release No. 25623 (June 
25, 2002). Any Product Description used in reliance on the Section 
24(d) exemptive order will comply with all representations made and 
all conditions contained in the Application for the Order.
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    In addition, the circular will note Exchange responsibilities, 
including that before an Exchange member, member organization, or 
employee thereof recommends a transaction in the Shares, a 
determination must be made that the recommendation is in compliance 
with all applicable Exchange and federal rules and regulations. The 
circular will also discuss exemptive, no-action, and interpretive 
relief granted by the Commission from Section 11(d)(1) and certain 
rules under the Act, including Rule 10a-1, 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 NAV for the iShares MSCI Malaysia, South Korea, and Taiwan 
Index Funds will be calculated every day that the listing exchange is 
open for trading, normally as of 10 a.m. Central Time. This is in 
contrast to the other Funds, for which the NAV is normally calculated 
at 3 p.m. Central Time.
f. Other Issues
i. Surveillance Procedures
    The Exchange intends to utilize its existing surveillance 
procedures applicable to equity securities to monitor trading in the 
Shares. The Exchange represents that these procedures are adequate to 
monitor Exchange trading of the Shares.
ii. Trading Hours
    The trading hours for the Shares on CBSX will be 8:15 a.m. until 
3:15 p.m. Central Time (unless the value of a Fund is not being 
calculated and widely disseminated before 8:30 a.m., in which case 
trading in that Fund will begin at 8:30 a.m.; and unless the original 
listing

[[Page 27873]]

exchange closes trading of a Fund at 3 p.m., in which case trading in 
that Fund will end at 3 p.m.).
iii. Trading Halts
    The Exchange proposes to modify its Rule 52.3 to provide that (i) 
From 8:15 to 8:30 Central Time, if a security described in Rules 54.1, 
54.2, and 54.3 (an ``ETF'') (the Shares are among the securities 
covered by this provision) begins trading on CBSX and subsequently a 
temporary interruption occurs in the calculation or wide dissemination 
of the IIV or the value of the underlying index, as applicable, to such 
ETF, by a major market data vendor, CBSX may continue to trade the ETF 
for the remainder of the 8:15 to 8:30 session; and, (ii) during normal 
market hours, if a temporary interruption occurs in the calculation or 
wide dissemination of the applicable IIV or value of the underlying 
index by a major market data vendor and the listing market halts 
trading in the ETF, CBSX, upon notification by the listing market of 
such halt due to such temporary interruption, also shall immediately 
halt trading in the ETF on CBSX.
2. Statutory Basis
    CBOE believes that the proposed rule change is consistent with the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange. Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \8\ requirements 
that an exchange have rules that are 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 
to protect investors and the public interest. In addition, CBOE 
believes that the proposal is consistent with Rule 12f-5 under the Act 
\9\ because it deems each Share to be an equity security, thus 
rendering trading in each Fund subject to the Exchange's existing rules 
governing the trading of equity securities.\10\
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    \8\ 15 U.S.C. 78(f)(b)(5).
    \9\ 17 CFR 240.12f-5.
    \10\ See e-mail dated May 8, 2007 from Brian Jung, Law Clerk, 
CBOE, to Geoffrey Pemble, Special Counsel, Division of Market 
Regulation, Commission.
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    The Exchange neither solicited nor received comments on the 
proposal.

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-CBOE-2007-37 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-CBOE-2007-37. 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-CBOE-2007-37 and should be submitted on or before June 
7, 2007.

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

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\11\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\12\ 
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. The Commission believes that this proposal should 
benefit investors by increasing competition among markets that trade 
the Shares.
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    \11\ 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).
    \12\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\13\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\14\ The Commission notes that it previously approved the 
listing and trading of each of the Shares on either Amex or the 
NYSE.\15\ The Commission also finds that the proposal is consistent 
with Rule 12f-5 under the Act,\16\ which provides that an exchange 
shall not extend UTP to a security unless the exchange has in effect a 
rule or rules providing for transactions in the class or type of 
security to which the exchange extends UTP. The Exchange has 
represented that it meets this requirement because it 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.
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    \13\ 15 U.S.C. 78l(f).
    \14\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \15\ See supra notes 3-5.
    \16\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section

[[Page 27874]]

11A(a)(1)(C)(iii) of the Act,\17\ which sets forth Congress's 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. Quotations 
for and last-sale information regarding the Shares are disseminated 
through the facilities of the CTA and the Consolidated Quotation 
System. In addition, the IIV of each Fund is disseminated every 15 
seconds throughout the trading day by the national securities exchange 
on which the Fund is listed or by other information providers or market 
data vendors.
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    \17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Furthermore, the Commission believes that the proposal is 
reasonably designed to preclude trading of the Shares when transparency 
is impaired. New CBOE Rule 52.3 sets forth trading halt procedures when 
CBOE trades an ETF pursuant to UTP. Under this rule, if the listing 
market halts trading when the IIV is not being calculated or 
disseminated, CBOE also would halt trading in the Shares. This rule is 
substantially similar to those recently adopted by other exchanges and 
found by the Commission to be consistent with the Act.\18\
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    \18\ See e.g., NYSE Arca Equities Rule 7.34; Securities Exchange 
Act Release No. 54997 (December 21, 2006), 71 FR 78501 (December 29, 
2006).
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    The Commission notes that, if the Shares should be delisted by the 
listing market, the Exchange would no longer have authority to trade 
the Shares pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Shares and to deter and detect 
violations of Exchange rules.
    2. Prior to the commencement of trading, the Exchange would inform 
its members and member organizations in an Information Circular of the 
special characteristics and risks associated with trading the Shares.
    3. The Information Circular would include the requirement that 
members and member firms deliver a prospectus to investors purchasing 
newly issued Shares prior to or concurrently with the confirmation of a 
transaction.
    This approval order is conditioned on the Exchange's adherence to 
these representations.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. As noted previously, the Commission previously found 
that the listing and trading of the Shares on either Amex or the NYSE 
is consistent with the Act. The Commission presently is not aware of 
any regulatory issue that should cause it to revisit that finding or 
would preclude the trading of the Shares on the Exchange pursuant to 
UTP. Therefore, accelerating approval of this proposal should benefit 
investors by creating, without undue delay, additional competition in 
the market for the Shares.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-CBOE-2007-37), as modified 
by Amendment No. 1 thereto, be and it hereby is, approved on an 
accelerated basis.
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    \19\ 19 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 20 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E7-9465 Filed 5-16-07; 8:45 am]

BILLING CODE 8010-01-P
