
[Federal Register: November 17, 2009 (Volume 74, Number 220)]
[Notices]               
[Page 59283-59292]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no09-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60971; File No. SR-NYSEArca-2009-94]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of Shares of 
ETFS Palladium Trust

November 9, 2009.
    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 October 20, 2009, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca, through its wholly-owned subsidiary NYSE Arca Equities, 
Inc. (``NYSE Arca Equities''), proposes to list and trade shares of the 
ETFS Palladium Trust (the ``Trust'') pursuant to NYSE Arca Equities 
Rule 8.201. 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.

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 self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts 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 and trade ETFS Palladium Shares 
(``Shares'') of the Trust under NYSE Arca Equities Rule 8.201. Under 
NYSE Arca Equities Rule 8.201, the Exchange may propose to list and/or 
trade pursuant to unlisted trading privileges (``UTP'') ``Commodity-
Based Trust Shares.'' \3\ The Commission has previously approved 
listing on the Exchange under NYSE Arca Equities Rule 8.201 of other 
issues of Commodity-Based Trust Shares. The Commission has approved 
listing on the Exchange of the streetTRACKS Gold Trust and iShares 
COMEX Gold Trust.\4\ Prior to their listing on the Exchange, the 
Commission approved listing of the streetTRACKS Gold Trust on the New 
York Stock Exchange (``NYSE'') and listing of iShares COMEX Gold Trust 
on the American Stock Exchange LLC (now known as ``NYSE Amex LLC'').\5\ 
In

[[Page 59284]]

addition, the Commission has approved trading of the streetTRACKS Gold 
Trust and iShares Silver Trust on the Exchange pursuant to UTP.\6\ The 
Commission also has approved listing of the iShares Silver Trust on the 
Exchange \7\ and, previously, listing of the iShares Silver Trust on 
the American Stock Exchange LLC.\8\
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    \3\ Commodity-Based Trust Shares are securities issued by a 
trust that represent investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
Trust.
    \4\ See Securities Exchange Act Release No. 56224 (August 8, 
2007), 72 FR 45850 (August 15, 2007) (SR-NYSEArca-2007-76) 
(approving listing on the Exchange of the streetTRACKS Gold Trust); 
Securities Exchange Act Release No. 56041 (July 11, 2007), 72 FR 
39114 (July 17, 2007) (SR-NYSEArca-2007-43) (order approving listing 
on the Exchange of iShares COMEX Gold Trust).
    \5\ See Securities Exchange Act Release No. 50603 (October 28, 
2004), 69 FR 64614 (November 5, 2004) (SR-NYSE-2004-22) (order 
approving listing of streetTRACKS Gold Trust on NYSE); Securities 
Exchange Act Release No. 51058 (January 19, 2005), 70 FR 3749 
(January 26, 2005) (SR-Amex-2004-38) (order approving listing of 
iShares COMEX Gold Trust on the American Stock Exchange LLC).
    \6\ See Securities Exchange Act Release Nos. 53520 (March 20, 
2006), 71 FR 14977 (March 24, 2006) (SR-PCX-2005-117) (approving 
trading on the Exchange pursuant to UTP of the iShares Silver 
Trust); 51245 (February 23, 2005), 70 FR 10731 (March 4, 2005) (SR-
PCX-2004-117) (approving trading on the Exchange of the streetTRACKS 
Gold Trust pursuant to UTP).
    \7\ See Securities Exchange Act Release Nos. 58956 (November 14, 
2008), 73 FR 71074 (November 24, 2008) (SR-NYSEArca-2008-124) 
(approving listing on the Exchange of the iShares Silver Trust)).
    \8\ See Securities Exchange Act Release No. 53521 (March 20, 
2006), 71 FR 14967 (March 24, 2006) (SR-Amex-2005-72) (approving 
listing on the American Stock Exchange LLC of the iShares Silver 
Trust).
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    The Trust will issue Shares which represent units of fractional 
undivided beneficial interest in and ownership of the Trust. The 
investment objective of the Trust is for the Shares to reflect the 
performance of the price of palladium, less the expenses of the Trust's 
operations.\9\ ETFS Services USA LLC is the sponsor of the Trust 
(``Sponsor''), The Bank of New York Mellon is the trustee of the Trust 
(``Trustee'') \10\, and HSBC Bank USA, N.A. is the custodian of the 
Trust (``Custodian'').\11\
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    \9\ See Amendment No. 2 to the Registration Statement for the 
ETFS Palladium Trust on Form S-1, filed with the Commission on 
October 20, 2009 (No. 333-15830) (``Registration Statement''). The 
descriptions of the Trust, the Shares and the palladium market 
contained herein are based on the Registration Statement.
    \10\ The Trustee is generally responsible for the day-to-day 
administration of the Trust, including keeping the Trust's 
operational records. The Trustee's principal responsibilities 
include (1) transferring the Trust's palladium as needed to pay the 
Sponsor's Fee in palladium (palladium transfers are expected to 
occur approximately monthly in the ordinary course), (2) valuing the 
Trust's palladium and calculating the NAV of the Trust and the NAV 
per Share, (3) receiving and processing orders from Authorized 
Participants to create and redeem Baskets and coordinating the 
processing of such orders with the Custodian and DTC, (4) selling 
the Trust's palladium as needed to pay any extraordinary Trust 
expenses that are not assumed by the Sponsor, (5) when appropriate, 
making distributions of cash or other property to Shareholders, and 
(6) receiving and reviewing reports from or on the Custodian's 
custody of and transactions in the Trust's palladium.
    \11\ The Custodian is responsible for safekeeping for the Trust 
palladium deposited with it by Authorized Participants in connection 
with the creation of Baskets. The Custodian is also responsible for 
selecting the Zurich Sub-Custodians and its other direct sub-
custodians, if any. The Custodian facilitates the transfer of 
palladium in and out of the Trust through the unallocated palladium 
accounts it will maintain for each Authorized Participant and the 
unallocated and allocated palladium accounts it will maintain for 
the Trust. The Custodian is responsible for allocating specific 
plates or ingots of physical palladium to the Trust's allocated 
palladium account. The Custodian will provide the Trustee with 
regular reports detailing the palladium transfers in and out of the 
Trust's unallocated and allocated palladium accounts and identifying 
the palladium plates or ingots held in the Trust's allocated 
palladium account.
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    The Exchange represents that the Shares satisfy the requirements of 
NYSE Arca Equities Rule 8.201 and thereby qualify for listing on the 
Exchange.\12\
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    \12\ With respect to application of Rule 10A-3 (17 CFR 240.10A-
3) under the Securities Exchange of 1934 (``Act'') (15 U.S.C. 78a), 
the Trust relies on the exemption contained in Rule 10A-3(c)(7).
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    The investment objective of the Trust is for the Shares to reflect 
the performance of the price of physical palladium, less the Trust's 
expenses. The Shares are intended to constitute a simple and cost-
effective means of making an investment similar to an investment in 
palladium. An investment in physical palladium requires expensive and 
sometimes complicated arrangements in connection with the assay, 
transportation, warehousing and insurance of the metal. Although the 
Shares will not be the exact equivalent of an investment in palladium, 
they provide investors with an alternative that allows a level of 
participation in the palladium market through the securities market.
Platinum Group Metals
    Platinum and palladium are the two best known metals of the six 
platinum group metals (PGMs). Platinum and palladium have the greatest 
economic importance and are found in the largest quantities. The other 
four--iridium, rhodium, ruthenium and osmium--are produced only as co-
products of platinum and palladium.
    PGMs are found primarily in South Africa and Russia. Russia is the 
largest producer of palladium and most production is concentrated in 
the Norilsk region. South Africa is the world's leading platinum 
producer and the second largest palladium producer. All of South 
Africa's production is sourced from the Bushveld Igneous Complex, which 
hosts the world's largest resource of PGMs. Together, South Africa and 
Russia accounted for 78% of total platinum group metals supply in 2008.
Suppliers of Palladium
    The main supplier of palladium is Russia. However, its contribution 
has fallen from 65% in 1999 to 44% of total supply in 2008. South 
Africa is the second largest source of supply, accounting for 29% of 
total supply in 2008. Similar to platinum, Russia's contribution to 
palladium supply has been variable while South Africa has consistently 
increased over the past ten years. North America contributes 
approximately 11% to supply while the recovery of palladium from 
autocatalysts has increased more than five-fold over the past ten years 
to account for 13% of supply in 2008.
Demand for Palladium
    Autocatalysts are the largest component of palladium demand, with 
total demand increasing to 55% of total supply by the end of 2008. 
Industrial demand (electronics, dentistry, and chemical) has fallen to 
a low of 23% of total demand in 2001 to 28% of total demand in 2008. 
Jewelry demand for palladium has increased by the largest of all the 
key sectors, rising by 232% over the past ten years and contributing a 
total of 9% of total demand in 2008.\13\
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    \13\ The Registration Statement includes a table with data 
regarding World Palladium Supply and demand 1999-2008. According to 
the Registration Statement, the table illustrates that the palladium 
supply over the past ten years has averaged 8.1 million ounces with 
the majority of production from Russia. Production from Russia, on 
average accounts for approximately 50% of total production from 1999 
to 2008. There is a 24% increase in palladium supply when comparing 
the average five-year periods ended 2003 and 2008, at 7.3 million 
ounces and 9.0 million ounces, respectively. The biggest source of 
demand for palladium output over the period shown has come from the 
autocatalyst sector which has accounted for an approximate average 
of 58% of all demand from 1999 to 2008. However, autocatalyst demand 
has decreased in 2008 from its 2001 peak of 72% of total demand to 
55% by 2008. The annual demand for palladium over the past 10 years 
has averaged approximately 7.5 million ounces.
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    The investment sector for palladium includes the investment and 
trading activities of both professional and private investors and 
speculators. These participants range from large hedge and mutual funds 
to day-traders on futures exchanges, and retail-level coin collectors. 
The fabrication and manufacturing sector for palladium represents all 
the commercial and industrial users of palladium for whom palladium is 
a daily part of their business. The auto catalyst and jewelry 
industries are the largest users of palladium.
    Physical palladium prices performed strongly in early 2008, rising 
from an opening $370 to a peak of $588 in March--the highest prices 
since 2001. However, speculative fund interests in the palladium market 
were amply demonstrated in the third quarter as large fund sales sent 
the price of physical palladium spiraling to only $199 per ounce at the 
close of the quarter, the lowest price since October 2005. Prices 
continued at these low levels as the price of palladium ended

[[Page 59285]]

the year at $184 per ounce in December 2008.
Operation of the Palladium Market
    The global trade in palladium consists of Over-the-Counter (OTC) 
transactions in spot, forwards, and options and other derivatives, 
together with exchange-traded futures and options. The OTC market 
trades on a 24-hour per day continuous basis and accounts for most 
global palladium trading.
    Market makers, as well as others in the OTC market, trade with each 
other and with their clients on a principal-to-principal basis. All 
risks and issues of credit are between the parties directly involved in 
the transaction. Market makers include the market-making members of the 
The London Platinum Palladium Market (``LPPM''), the trade association 
that acts as the coordinator for activities conducted on behalf of its 
members and other participants in the LPPM. The four market-making 
members of the LPPM are: J.Aron & Company (a division of Goldman Sachs 
International), Engelhard Metals Limited, HSBC Bank USA, N.A. (through 
its London branch), and Standard Bank. The OTC market provides a 
relatively flexible market in terms of quotes, price, size, 
destinations for delivery and other factors. Bullion dealers customize 
transactions to meet clients' requirements. The OTC market has no 
formal structure and no open-outcry meeting place.
    According to the Registration Statement, the main centers of the 
OTC market are London, New York, Hong Kong and Zurich. Mining 
companies, manufacturers of jewelry and industrial products, together 
with investors and speculators, tend to transact their business through 
one of these market centers. Centers such as Dubai and several cities 
in the Far East also transact substantial OTC market business, 
typically involving jewelry and small plates or ingots (1 kilogram or 
less) and will hedge their exposure by selling into one of these main 
OTC centers. Precious metals dealers have offices around the world and 
most of the world's major bullion dealers are either members or 
associate members of the London Bullion Market Association and/or the 
LPPM. In the OTC market, the standard size of palladium trades between 
market makers is 1,000 ounces.
    Liquidity in the OTC market can vary from time to time during the 
course of the 24-hour trading day. Fluctuations in liquidity are 
reflected in adjustments to dealing spreads--the differential between a 
dealer's ``buy'' and ``sell'' prices. The period of greatest liquidity 
in the palladium market generally occurs at the time of day when 
trading in the European time zones overlaps with trading in the United 
States, which is when OTC market trading in London, New York and other 
centers coincides with futures and options trading on the NYMEX. This 
period lasts for approximately four hours each New York business day 
morning.
The London Palladium Market
    Although the market for physical palladium is distributed globally, 
most OTC market trades are cleared through London. In addition to 
coordinating market activities, the LPPM acts as the principal point of 
contact between the market and its regulators. A primary function of 
the LPPM is its involvement in the promotion of refining standards by 
maintenance of the ``London/Zurich Good Delivery Lists,'' which are the 
lists of LPPM accredited melters and assayers of palladium.\14\ The 
LPPM also coordinates market clearing and vaulting, promotes good 
trading practices and develops standard documentation.
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    \14\ Terms relating to the Trust and the Shares referred to, but 
not defined, herein are defined in the Registration Statement.
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    Palladium is traded generally on a loco Zurich basis, meaning the 
precious metal is physically held in vaults in Zurich or is transferred 
into accounts established in Zurich. The basis for settlement and 
delivery of a loco Zurich spot trade is payment (generally in U.S. 
dollars) two business days after the trade date against delivery. 
Delivery of the palladium can either be by physical delivery or through 
the clearing systems to an unallocated account.
    The unit of trade in London is the troy ounce, whose conversion 
between grams is: 1,000 grams is equivalent to 32.1507465 troy ounces, 
and one troy ounce is equivalent to 31.1034768 grams. A London/Zurich 
good delivery plate or ingot is acceptable for delivery in settlement 
of a transaction on the OTC market. Typically referred to as Good 
Delivery, a plate or ingot must contain between 32 and 192 troy ounces 
of palladium with a minimum fineness (or purity) of 999.5 parts per 
1,000 (99.95%), be of good appearance, and be easy to handle and stack. 
The palladium content of a palladium plate or ingot is calculated by 
multiplying the gross weight (expressed in units of 0.025 troy ounces) 
by the fineness of the plate or ingot. A Good Delivery plate or ingot 
must also bear the stamp of one of the melters and assayers who are on 
the LPPM approved list. Unless otherwise specified, the palladium spot 
price always refers to that of Good Delivery Standards. Business is 
generally conducted over the phone and through electronic dealing 
systems.
    Twice daily during London trading hours there is a fix which 
provides reference palladium prices for that day's trading. Many long-
term contracts will be priced on the basis of either the morning (a.m.) 
or afternoon (p.m.) London fix, and market participants will usually 
refer to one or the other of these prices when looking for a basis for 
valuations. The London fix is the most widely used benchmark for daily 
palladium prices and is quoted by various financial information 
sources.
    Formal participation in the London fix is traditionally limited to 
four members, each of which is a bullion dealer and a member of the 
LPPM. The chairmanship now rotates annually among the four member 
firms. The morning session of the fix starts at 9:45 a.m. London time 
and the afternoon session starts at 2 p.m. London time. The members of 
the LPPM fixing are currently: J.Aron & Company (a division of Goldman 
Sachs International), Engelhard Metals Limited, HSBC Bank USA N.A. 
(London branch), and Standard Bank London Limited. Any other market 
participant wishing to participate in the trading on the fix is 
required to do so through one of the four palladium fixing members.
    Orders are placed either with one of the four fixing members or 
with another precious metals dealer who will then be in contact with a 
fixing member during the fixing. The fixing members net-off all orders 
when communicating their net interest at the fixing. The fix begins 
with the fixing chairman suggesting a ``trying price,'' reflecting the 
market price prevailing at the opening of the fix. This is relayed by 
the fixing members to their dealing rooms which have direct 
communication with all interested parties. Any market participant may 
enter the fixing process at any time, or adjust or withdraw his order. 
The palladium price is adjusted up or down until all the buy and sell 
orders are matched, at which time the price is declared fixed. All 
fixing orders are transacted on the basis of this fixed price, which is 
instantly relayed to the market through various media. The London fix 
is widely viewed as a full and fair representation of all market 
interest at the time of the fix.
Futures Exchanges
    The most significant palladium futures exchanges are the NYMEX and 
the Tokyo Commodity Exchange (``TOCOM''). The NYMEX is the largest 
exchange in the world for trading precious metals futures and options 
and

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has been trading palladium since 1974. The TOCOM has been trading 
palladium since 1982. Trading on these exchanges is based on fixed 
delivery dates and transaction sizes for the futures and options 
contracts traded. The NYMEX operates through a central clearance 
system. On June 6, 2003, TOCOM adopted a similar clearance system. In 
each case, the exchange acts as a counterparty for each member for 
clearing purposes.
Market Regulation
    The global palladium markets are overseen and regulated by both 
governmental and self-regulatory organizations. In addition, certain 
trade associations have established rules and protocols for market 
practices and participants. In the United Kingdom, responsibility for 
the regulation of the financial market participants, including the 
major participating members of the LPPM, falls under the authority of 
the Financial Services Authority (``FSA'') as provided by the Financial 
Services and Markets Act 2000 (``FSM Act''). Under this act, all UK-
based banks, together with other investment firms, are subject to a 
range of requirements, including fitness and properness, capital 
adequacy, liquidity, and systems and controls.
    The FSA is responsible for regulating investment products, 
including derivatives, and those who deal in investment products. 
Regulation of spot, commercial forwards, and deposits of palladium not 
covered by the FSM Act is provided for by The London Code of Conduct 
for Non-Investment Products, which was established by market 
participants in conjunction with the Bank of England.
    The TOCOM has authority to perform financial and operational 
surveillance on its members' trading activities, scrutinize positions 
held by members and large-scale customers, and monitor the price 
movements of futures markets by comparing them with cash and other 
derivative markets' prices. To act as a Futures Commission Merchant 
Broker, a broker must obtain a license from Japan's Ministry of 
Economy, Trade and Industry (METI), the regulatory authority that 
oversees the operations of the TOCOM.
    The Trust will not trade in palladium futures contracts on the 
NYMEX or on any other futures exchange. The Trust will only take 
delivery of physical palladium that complies with the NYMEX palladium 
delivery rules or the LPPM palladium delivery rules. Because the Trust 
will not trade in palladium futures contracts on any futures exchange, 
the Trust with not be regulated by the Commodity Futures Trading 
Commission (``CFTC'') under the Commodity Exchange Act \15\ (``CEA'') 
as a ``commodity pool,'' and will not be operated by a CFTC-regulated 
commodity pool operator.
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    \15\ 7 U.S.C. 1 et seq.
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Custody of the Trust's Palladium
    Custody of the physical palladium deposited with and held by the 
Trust will be provided by the Custodian at its London, England vaults, 
by Zurich Sub-Custodians selected by the Custodian in their Zurich 
vaults and by other sub-custodians on a temporary basis only. The 
Custodian is a market maker, clearer and approved weigher under the 
rules of the LPPM. The Custodian is the custodian of the physical 
palladium credited to Trust Allocated Account in accordance with the 
Custody Agreements. The Custodian will segregate the physical palladium 
credited to the Trust Allocated Account from any other precious metal 
it holds or holds for others by entering appropriate entries in its 
books and records, and will require any Zurich Sub-Custodian it 
appoints to also segregate the physical palladium of the Trust from the 
other palladium held by them for other customers of the Custodian and 
the Zurich Sub-Custodian's other customers. The Custodian will require 
any Zurich Sub-Custodian it appoints to identify in such Zurich Sub-
Custodian's books and records the Trust as having the rights to the 
physical palladium credited to its Trust Allocated Account.
    The Custodian, as instructed by the Trustee, is authorized to 
accept, on behalf of the Trust, deposits of palladium in unallocated 
form. Acting on standing instructions specified in the Custody 
Agreements, the Custodian will or will require a Zurich Sub-Custodian 
to allocate palladium deposited in unallocated form with the Trust by 
selecting plates or ingots of physical palladium for deposit to the 
Trust Allocated Account. All physical palladium allocated to the Trust 
must conform to the rules, regulations, practices and customs of the 
LPPM.
    The process of withdrawing palladium from the Trust for a 
redemption of a Basket will follow the same general procedure as for 
depositing palladium with the Trust for a creation of a Basket, only in 
reverse. Each transfer of palladium between the Trust Allocated Account 
and the Trust Unallocated Account connected with a creation or 
redemption of a Basket may result in a small amount of palladium being 
held in the Trust Unallocated Account after the completion of the 
transfer. In making deposits and withdrawals between the Trust 
Allocated Account and the Trust Unallocated Account, the Custodian will 
use commercially reasonable efforts to minimize the amount of palladium 
held in the Trust Unallocated Account as of the close of each business 
day.
    According to the Registration Statement, the Trust is not 
registered as an investment company under the Investment Company Act of 
1940 \16\ and is not required to register under such act. The Trust 
will not hold or trade in commodity futures contracts regulated by the 
CEA, as administered by the CFTC. The Trust is not a commodity pool for 
purposes of the CEA, and neither the Sponsor nor the Trustee is subject 
to regulation by the CFTC as a commodity pool operator or a commodity 
trading advisor in connection with the Shares.
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    \16\ 15 U.S.C. 80a.
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Sponsor's Estimate of Expected Size of the Trust
    The Sponsor has made representations to the Commission regarding 
the expected size of the Trust and the expected impact of the offering 
of the Shares on the global palladium market.\17\ In the May 15, 2009 
Letter, the Sponsor has stated its expectation that the Trust's assets 
under management (``AUM'') would be between $100 million and $200 
million after three years of the Trust's operation, and using the 
palladium spot market price of $242.00 per ounce as of May 8, 2009, the 
Trust would be expected to be acquiring between approximately 138,000 
to 275,000 ounces of palladium on an annual basis.\18\ The Sponsor has 
represented that it does not believe that the currently expected size 
of the Trust will have a meaningful effect on the global supply or 
demand for palladium, and that the Trust's highest forecast palladium 
acquisitions would represent 3.4% and 3.6%, respectively, of the 10-
year average annual supply and demand for palladium through the end of 
2008.\19\ The Sponsor, therefore, has stated its belief that, in view 
of the amount of Shares sought to be registered, the Trust believes 
there will be a market neutral impact given that the Shares can be a

[[Page 59287]]

current source of supply at then current prices through 
redemptions.\20\
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    \17\ See Supplemental Comment Response regarding the Trust, 
dated May 15, 2009, from Peter J. Shea, Katten Muchin Rosenman LLP, 
to the Commission (submitted via EDGAR) (``May 15, 2009 Letter'').
    \18\ The Exchange notes that ETF Securities Ltd., the Sponsor's 
parent entity, has sponsored ETFS Palladium ETP, traded on the 
London Stock Exchange (ticker symbol: PHPD), which had AUM of 
approximately $61.4 million as of May 8, 2009.
    \19\ See note 13, supra.
    \20\ The Sponsor states that it intends to recast its analysis 
each time it seeks to register additional Shares of the Trust in the 
future to ensure that additional Trust offerings will not be 
disruptive to palladium supply and demand. May 15, 2009 Letter at p. 
4. As stated in the May 15, 2009 Letter, the Registration Statement 
seeks to register 12,880,000 Shares, and that, at an estimated 
palladium acquisition rate of 275,000 ounces per year, the Trust 
would complete its Share offering in approximately 4.7 years.
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    In the May 15, 2009 Letter, the Sponsor also states that it expects 
that the offering of the Shares will not have a meaningful impact on 
the global palladium market, founded on the Sponsor's belief that the 
present Share offering is limited to an appropriate size and that 
arbitrage opportunities between palladium market prices and the Trust's 
net asset value together with the low cost creation and redemption 
process utilizing physical metal will neutralize any impact of the 
Trust on the broader palladium market.\21\
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    \21\ May 15, 2009 Letter at p. 5.
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    According to the Registration Statement, since there is no limit on 
the amount of palladium that the Trust may acquire, the Trust, as it 
grows, may have an impact on the supply and demand of palladium that 
ultimately may affect the price of the Shares in a manner unrelated to 
other factors affecting the global market for palladium.
Secondary Market Trading
    While the Trust's investment objective is for the Shares to reflect 
the performance of palladium, less the expenses of the Trust, the 
Shares may trade in the secondary market on the NYSE Arca at prices 
that are lower or higher relative to their net asset value (``NAV'') 
per Share. The amount of the discount or premium in the trading price 
relative to the NAV per Share may be influenced by non-concurrent 
trading hours between the NYSE Arca and the NYMEX and London. While the 
Shares will trade on the NYSE Arca until 8 p.m. New York time, 
liquidity in the global palladium market will be reduced after the 
close of the NYMEX at 1 p.m. New York time. As a result, during this 
time, trading spreads, and the resulting premium or discount, on the 
Shares may widen.
Trust Expenses
    The Trust's only ordinary recurring expense is expected to be equal 
to the Sponsor's Fee. In exchange for the Sponsor's Fee, the Sponsor 
has agreed to assume the following administrative and marketing 
expenses incurred by the Trust: The Trustee's monthly fee and out-of-
pocket expenses, the Custodian's fee, Exchange listing fees, SEC 
registration fees, printing and mailing costs, audit fees and up to 
$100,000 per annum in legal expenses. The Sponsor will also pay the 
costs of the Trust's organization and the initial sale of the Shares, 
including the applicable SEC registration fees.
    The Sponsor's Fee will accrue daily at an annualized rate equal to 
a specified percentage of the adjusted net asset value of the Trust and 
will be payable monthly in arrears. The Sponsor, from time to time, may 
temporarily waive all or a portion of the Sponsor's Fee at its 
discretion for a stated period of time.
    The Trust will deliver palladium to the Sponsor to pay the 
Sponsor's Fee and sell palladium to raise the funds needed for the 
payment of all Trust expenses not assumed by the Sponsor. The purchase 
price received as consideration for such sales will be the Trust's sole 
source of funds to cover its liabilities. The Trust will not engage in 
any activity designed to derive a profit from changes in the price of 
palladium.
Creation and Redemption Procedures
    The Trust will create and redeem Shares in one or more Baskets (a 
Basket equals a block of 50,000 Shares). The creation and redemption of 
Baskets will only be made ``in-kind'' in exchange for the delivery to 
the Trust or the distribution by the Trust of the amount of palladium 
and any cash represented by the Baskets being created or redeemed, the 
amount of which will be based on the combined NAV of the number of 
Shares included in the Baskets being created or redeemed determined on 
the day the order to create or redeem Baskets is properly received. The 
creation and redemption of Baskets may occur daily.
    Authorized Participants are the only persons that may place orders 
to create and redeem Baskets. Authorized Participants must be (1) 
registered broker-dealers or other securities market participants, such 
as banks and other financial institutions that are exempt from 
registration as broker-dealers to engage in securities transactions and 
(2) participants in DTC. To become an Authorized Participant, a person 
must enter into an Authorized Participant Agreement with the Sponsor 
and the Trustee. The Authorized Participant Agreement provides the 
procedures for the creation and redemption of Baskets and for the 
delivery of the palladium and any cash required for such creations and 
redemptions.
    According to the Registration Statement, certain Authorized 
Participants are expected to have the facility to participate directly 
in the physical palladium market and the palladium futures market. In 
some cases, an Authorized Participant may from time to time acquire 
palladium from or sell palladium to its affiliated palladium trading 
desk, which may profit in these instances. Certain Authorized 
Participants will be regulated under federal and state banking laws and 
regulations. Each Authorized Participant will have its own set of rules 
and procedures, internal controls and information barriers as it 
determines is appropriate in light of its own regulatory regime. 
Shareholders who are not Authorized Participants will only be able to 
redeem their shares by an Authorized Participant.
    All palladium will be delivered to the Trust and distributed by the 
Trust in unallocated form through credits and debits between Authorized 
Participant Unallocated Accounts and the Trust Unallocated Account. 
Palladium transferred from an Authorized Participant Unallocated 
Account to the Trust in unallocated form will first be credited to the 
Trust Unallocated Account. Thereafter, the Custodian will allocate 
specific plates or ingots of palladium representing the amount of 
palladium credited to the Trust Unallocated Account (to the extent such 
amount is representable by whole palladium plates or ingots) to the 
Trust Allocated Account. The movement of palladium is reversed for the 
distribution of palladium to an Authorized Participant in connection 
with the redemption of Baskets.
    All physical palladium represented by a credit to any Authorized 
Participant Unallocated Account and to the Trust Unallocated Account 
and all physical palladium held in the Trust Allocated Account with the 
Custodian must be of at least a minimum fineness (or purity) of 999.5 
parts per 1,000 (99.95%) and otherwise conform to the rules, 
regulations practices and customs of the LPPM, including the 
specifications for a Good Delivery plate or ingot.
Creation Procedures
    On any business day, an Authorized Participant may place an order 
with the Trustee to create one or more Baskets. Creation and redemption 
orders will be accepted on ``business days'' when the NYSE Arca is open 
for regular trading. Settlements of such orders requiring receipt or 
delivery, or confirmation of receipt or delivery, of palladium in the 
United Kingdom, Zurich or another jurisdiction will occur on ``business 
days'' when (1) banks in the United Kingdom, Zurich or such other 
jurisdiction and (2) the London/Zurich

[[Page 59288]]

or such other palladium markets are regularly open for business. If 
such banks or the London/Zurich palladium markets are not open for 
regular business for a full day, such a day will only be a ``business 
day'' for settlement purposes if the settlement procedures can be 
completed by the end of such day. Settlement of palladium deliveries, 
which occur loco Zurich, may be delayed for longer than three business 
days. Settlement of orders requiring receipt or delivery, or 
confirmation of receipt or delivery, of Shares will occur, after 
confirmation of the applicable palladium delivery, on ``business days'' 
when the NYSE Arca is open for regular trading. Purchase orders must be 
placed by 4 p.m. or the close of regular trading on the NYSE Arca, 
whichever is earlier. The day on which the Trustee receives a valid 
purchase order is the purchase order date.
    By placing a purchase order, an Authorized Participant agrees to 
deposit palladium with the Trust, or a combination of palladium and 
cash, as described below. Prior to the delivery of Baskets for a 
purchase order, the Authorized Participant must also have wired to the 
Trustee the non-refundable transaction fee due for the purchase order.
Determination of Required Deposits
    The total deposit required to create each Basket (Creation Basket 
Deposit) will be an amount of palladium and cash, if any, that is in 
the same proportion to the total assets of the Trust (net of estimated 
accrued but unpaid fees, expenses and other liabilities) on the date 
the order to purchase is properly received as the number of Shares to 
be created under the purchase order is in proportion to the total 
number of Shares outstanding on the date the order is received. The 
Sponsor anticipates that in the ordinary course of the Trust's 
operations a cash deposit will not be required for the creation of 
Baskets.
    The amount of the required palladium deposit is determined by 
dividing the number of ounces of palladium held by the Trust by the 
number of Baskets outstanding, as adjusted for estimated accrued but 
unpaid fees and expenses as described in the next paragraph.
    The amount of any required cash deposit is determined as follows. 
The estimated unpaid fees, expenses and liabilities of the Trust 
accrued through the purchase order date are subtracted from any cash 
held or receivable by the Trust as of the purchase order date. The 
remaining amount is divided by the number of Shares outstanding 
immediately before the purchase order date and then multiplied by the 
number of Shares being created pursuant to the purchase order. If the 
resulting amount is positive, this amount is the required cash deposit. 
If the resulting amount is negative, the amount of the required 
palladium deposit will be reduced by the number of fine ounces of 
palladium equal in value to that resulting amount, determined at the 
price of palladium used in calculating the NAV of the Trust on the 
purchase order date. Fractions of a fine ounce of palladium smaller 
than 0.001 of a fine ounce which are included in the palladium deposit 
amount are disregarded. All questions as to the composition of a 
Creation Basket Deposit will be finally determined by the Trustee. The 
Trustee's determination of the Creation Basket Deposit shall be final 
and binding on all persons interested in the Trust.
Delivery of Required Deposits
    An Authorized Participant who places a purchase order is 
responsible for crediting its Authorized Participant Unallocated 
Account with the required palladium deposit amount by the third 
business day in Zurich following the purchase order date. Upon receipt 
of the palladium deposit amount, the Custodian, after receiving 
appropriate instructions from the Authorized Participant and the 
Trustee, will transfer on the third business day following the purchase 
order date the palladium deposit amount from the Authorized Participant 
Unallocated Account to the Trust Unallocated Account and the Trustee 
will direct DTC to credit the number of Baskets ordered to the 
Authorized Participant's DTC account.
    Acting on standing instructions given by the Trustee, the Custodian 
will transfer the palladium deposit amount from the Trust Unallocated 
Account to the Trust Allocated Account by transferring palladium plates 
and ingots from its inventory to the Trust Allocated Account. The 
Custodian will use commercially reasonable efforts to complete the 
transfer of palladium to the Trust Allocated Account prior to the time 
by which the Trustee is to credit the Basket to the Authorized 
Participant's DTC account; if, however, such transfers have not been 
completed by such time, the number of Baskets ordered will be delivered 
against receipt of the palladium deposit amount in the Trust 
Unallocated Account, and all Shareholders will be exposed to the risks 
of unallocated palladium to the extent of that palladium deposit amount 
until the Custodian completes the allocation process.
    The Trustee may reject a purchase order or a Creation Basket 
Deposit if such order or Creation Basket Deposit if [sic] not presented 
in proper form as described in the Authorized Participant Agreement or 
if the fulfillment of the order, in the opinion of counsel, might be 
unlawful.
Redemption Procedures
    According to the Registration Statement, the procedures by which an 
Authorized Participant can redeem one or more Baskets will mirror the 
procedures for the creation of Baskets. On any business day, an 
Authorized Participant may place an order with the Trustee to redeem 
one or more Baskets. Redemption orders must be placed by 4 p.m. or the 
close of regular trading on the NYSE Arca, whichever is earlier. A 
redemption order so received is effective on the date it is received in 
satisfactory form by the Trustee. The redemption procedures allow 
Authorized Participants to redeem Baskets and do not entitle an 
individual Shareholder to redeem any Shares in an amount less than a 
Basket, or to redeem Baskets other than through an Authorized 
Participant.
    By placing a redemption order, an Authorized Participant agrees to 
deliver the Baskets to be redeemed through DTC's book-entry system to 
the Trust not later than the third business day following the effective 
date of the redemption order. Prior to the delivery of the redemption 
distribution for a redemption order, the Authorized Participant must 
also have wired to the Trustee the non-refundable transaction fee due 
for the redemption order.
Determination of Redemption Distribution
    The redemption distribution from the Trust will consist of (1) a 
credit to the redeeming Authorized Participant's Authorized Participant 
Unallocated Account representing the amount of the palladium held by 
the Trust evidenced by the Shares being redeemed plus or minus (2) the 
cash redemption amount. The cash redemption amount is equal to the 
value of all assets of the Trust other than palladium less all 
estimated accrued but unpaid expenses and other liabilities, divided by 
the number of Baskets outstanding and multiplied by the number of 
Baskets included in the Authorized Participant's redemption order. The 
Trustee will distribute any positive cash redemption amount through DTC 
to the account of the Authorized Participant as recorded on DTC's book 
entry system. If the cash redemption amount is negative, the credit to 
the Authorized Participant

[[Page 59289]]

Unallocated Account will be reduced by the number of ounces of 
palladium equal in value to the negative cash redemption amount, 
determined at the price of palladium used in calculating the NAV of the 
Trust on the redemption order date. The Sponsor anticipates that in the 
ordinary course of the Trust's operations there will be no cash 
distributions made to Authorized Participants upon redemptions. 
Fractions of a fine ounce of palladium included in the redemption 
distribution smaller than 0.001 of a fine ounce are disregarded. 
Redemption distributions will be subject to the deduction of any 
applicable tax or other governmental charges which may be due.
Delivery of Redemption Distribution
    The redemption distribution due from the Trust will be delivered to 
the Authorized Participant on the third business day following the 
redemption order date if, by 9 a.m. New York time on such third 
business day, the Trustee's DTC account has been credited with the 
Baskets to be redeemed. Terms relating to the Trust and the Shares 
referred to, but not defined, herein are defined in the Registration 
Statement.
    The Custodian will transfer the redemption palladium amount from 
the Trust Allocated Account to the Trust Unallocated Account and, 
thereafter, to the redeeming Authorized Participant's Authorized 
Participant Unallocated Account.
    The Trustee may, in its discretion, and will when directed by the 
Sponsor, suspend the right of redemption, or postpone the redemption 
settlement date, (1) for any period during which the NYSE Arca is 
closed other than customary weekend or holiday closings, or trading on 
the NYSE Arca is suspended or restricted or (2) for any period during 
which an emergency exists as a result of which delivery, disposal or 
evaluation of palladium is not reasonably practicable.
    The Trustee will reject a redemption order if the order is not in 
proper form as described in the Authorized Participant Agreement or if 
the fulfillment of the order, in the opinion of its counsel, might be 
unlawful.
Creation and Redemption Transaction Fee
    To defray the costs incurred by the Trustee in providing services 
for processing the creation and redemption of Baskets, an Authorized 
Participant will be required to pay a transaction fee to the Trustee of 
$500 per order to create or redeem Baskets. An order may include 
multiple Baskets. The transaction fee may be reduced, increased or 
otherwise changed by the Trustee with the consent of the Sponsor. The 
Trustee shall notify DTC of any agreement to change the transaction fee 
and will not implement any increase in the fee for the redemption of 
Baskets until 30 days after the date of the notice.
    Additional information regarding the Shares and the operation of 
the Trust, including termination events, risks, and creation and 
redemption procedures, are described in the Registration Statement.
Termination Events
    The Trustee will terminate and liquidate the Trust if the aggregate 
market capitalization of the Trust, based on the closing price for the 
Shares, was less than $350 million (as adjusted for inflation) at any 
time after the first anniversary after the Trust's formation and the 
Trustee receives, within six months after the last of those trading 
days, notice from the Sponsor of its decision to terminate the Trust. 
The Trustee will terminate the Trust if the CFTC determines that the 
Trust is a commodities pool under the CEA. The Trustee may also 
terminate the Trust upon the agreement of the owners of beneficial 
interests in the Shares (``Shareholders'') owning at least 75% of the 
outstanding Shares.
    The Trust expects to create and redeem the Shares from time to 
time, but only in one or more Baskets (a Basket equals a block of 
50,000 Shares). The creation and redemption of Baskets requires the 
delivery to the Trust or the distribution by the Trust of the amount of 
palladium and any cash represented by the Baskets being created or 
redeemed, the amount of which will be based on the combined NAV of the 
number of Shares included in the Baskets being created or redeemed. The 
initial amount of palladium required for deposit with the Trust to 
create Shares is 5,000 ounces per Basket. The number of ounces of 
palladium required to create a Basket or to be delivered upon the 
redemption of a Basket will gradually decrease over time, due to the 
accrual of the Trust's expenses and the sale or delivery of the Trust's 
palladium to pay the Trust's expenses. Baskets may be created or 
redeemed only by Authorized Participants, who will pay a transaction 
fee for each order to create or redeem Baskets and may sell the Shares 
included in the Baskets they create to other investors.
    Additional information regarding the Shares and the operation of 
the Trust, including termination events, risks, and creation and 
redemption procedures, are described in the Registration Statement.
Valuation of Palladium, Definition of Net Asset Value and Adjusted Net 
Asset Value (``ANAV'')
    As of the London p.m. Fix on each day that the NYSE Arca is open 
for regular trading or, if there is no London p.m. Fix on such day or 
the London p.m. Fix has not been announced by 12 noon New York time on 
such day, as of 12 noon New York time on such day (Evaluation Time), 
the Trustee will evaluate the palladium held by the Trust and determine 
both the ANAV and the NAV of the Trust.
    At the Evaluation Time, the Trustee will value the Trust's 
palladium on the basis of that day's London p.m. Fix or, if no London 
p.m. Fix is made on such day or has not been announced by the 
Evaluation Time, the next most recent London palladium price fix (a.m. 
or p.m.) determined prior to the Evaluation Time will be used, unless 
the Sponsor determines that such price is inappropriate as a basis for 
evaluation. In the event the Sponsor determines that the London p.m. 
Fix or such other publicly available price as the Sponsor may deem 
fairly represents the commercial value of the Trust's palladium is not 
an appropriate basis for evaluation of the Trust's palladium, it shall 
identify an alternative basis for such evaluation to be employed by the 
Trustee. Neither the Trustee nor the Sponsor shall be liable to any 
person for the determination that the London p.m. Fix or last prior 
London palladium price fix is not appropriate as a basis for evaluation 
of the Trust's palladium or for any determination as to the alternative 
basis for such evaluation provided that such determination is made in 
good faith.\22\
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    \22\ The Exchange, pursuant to NYSE Arca Equities Rule 7.12, has 
the discretion to halt trading in the Shares if the London Fix is 
not determined or available for an extended period based on 
extraordinary circumstances or market conditions.
---------------------------------------------------------------------------

    Once the value of the palladium has been determined, the Trustee 
will subtract all estimated accrued but unpaid fees, expenses and other 
liabilities of the Trust from the total value of the palladium and all 
other assets of the Trust (other than any amounts credited to the 
Trust's reserve account, if established). The resulting figure is the 
ANAV of the Trust. The ANAV of the Trust is used to compute the 
Sponsor's Fee.
    To determine the Trust's NAV, the Trustee will subtract the amount 
of estimated accrued but unpaid fees computed by reference to the ANAV 
of the Trust and to the value of the palladium held by the Trust from 
the ANAV of the Trust. The resulting figure

[[Page 59290]]

is the NAV of the Trust. The Trustee will also determine the NAV per 
Share by dividing the NAV of the Trust by the number of the Shares 
outstanding as of the close of trading on the NYSE Arca (which includes 
the net number of any Shares created or redeemed on such evaluation 
day).
    The NAV of the Trust is the aggregate value of the Trust's assets 
less its liabilities (which include estimated accrued but unpaid fees 
and expenses). In determining the NAV of the Trust, the Trustee will 
value the palladium held by the Trust on the basis of the price of an 
ounce of palladium as set by the afternoon session of the twice daily 
fix of the price of an ounce of palladium which starts at 2 p.m. 
London, England time (London p.m. Fix) and is performed by the four 
members of the London Platinum and Palladium Market (LPPM). The Trustee 
will determine the NAV of the Trust on each day the NYSE Arca is open 
for regular trading, at the earlier of the London p.m. Fix for the day 
or 12 noon New York time. If no London p.m. Fix is made on a particular 
evaluation day or has not been announced by 12 noon New York time on a 
particular evaluation day, the next most recent London palladium price 
fix (a.m. or p.m.) will be used in the determination of the NAV of the 
Trust, unless the Sponsor determines that such price is inappropriate 
to use as basis for such determination. The Trustee will also determine 
the NAV per Share, which equals the NAV of the Trust, divided by the 
number of outstanding Shares.
    The Shares will be book-entry only and individual certificates will 
not be issued for the Shares.
Liquidity
    The Shares may trade at, above or below the NAV per Share. The NAV 
per Share will fluctuate with changes in the market value of the 
Trust's assets. The trading price of the Shares will fluctuate in 
accordance with changes in the NAV per Share as well as market supply 
and demand. The amount of the discount or premium in the trading price 
relative to the NAV per Share may be influenced by non-concurrent 
trading hours between the NYSE Arca and the major palladium markets. 
While the Shares will trade on the NYSE Arca until 8 p.m. New York 
time, liquidity in the market for palladium will be reduced after the 
close of the major world palladium markets, including London and the 
NYMEX. As a result, during this time, trading spreads, and the 
resulting premium or discount, on the Shares may widen.
Availability of Information Regarding Palladium Prices
    Currently, the Consolidated Tape Plan does not provide for 
dissemination of the spot price of a commodity, such as palladium, over 
the Consolidated Tape. However, there will be disseminated over the 
Consolidated Tape the last sale price for the Shares, as is the case 
for all equity securities traded on the Exchange (including exchange-
traded funds). In addition, there is a considerable amount of palladium 
price and palladium market information available on public Web sites 
and through professional and subscription services.
    Investors may obtain on a 24-hour basis palladium pricing 
information based on the spot price for an ounce of palladium from 
various financial information service providers, such as Reuters and 
Bloomberg. Reuters and Bloomberg provide at no charge on their Web 
sites delayed information regarding the spot price of palladium and 
last sale prices of palladium futures, as well as information about 
news and developments in the palladium market. Reuters and Bloomberg 
also offer a professional service to subscribers for a fee that 
provides information on palladium prices directly from market 
participants. An organization named EBS provides an electronic trading 
platform to institutions such as bullion banks and dealers for the 
trading of spot palladium, as well as a feed of live streaming prices 
to Reuters and Moneyline Telerate subscribers. Complete real-time data 
for palladium futures and options prices traded on the NYMEX are 
available by subscription from Reuters and Bloomberg. The NYMEX also 
provides delayed futures and options information on current and past 
trading sessions and market news free of charge on its Web site. There 
are a variety of other public Web sites providing information on 
palladium, ranging from those specializing in precious metals to sites 
maintained by major newspapers, such as The Wall Street Journal. In 
addition, the London a.m. Fix and London p.m. Fix are publicly 
available at no charge at http://www.lbma.org.uk/statistics_
current.htm or http://www.thebulliondesk.com.
    The Trust Web site will provide an intraday indicative value 
(``IIV'') per share for the Shares, updated at least every 15 seconds, 
as calculated by the Exchange or a third party financial data provider, 
during the Exchange's Core Trading Session (9:30 a.m. to 4 p.m., New 
York time). The IIV is calculated by multiplying the indicative spot 
price of palladium by the quantity of palladium backing each Share. The 
Trust Web site will also provide the NAV of the Trust as calculated 
each business day by the Sponsor. In addition, the Web site for the 
Trust will contain the following information, on a per Share basis, for 
the Trust: (a) The NAV as of the close of the prior business day and 
the mid-point of the bid-ask price \23\ at the close of trading in 
relation to such NAV (``Bid/Ask Price''), and a calculation of the 
premium or discount of such price against such NAV; and (b) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. The Web site 
for the Trust will also provide the following information: the Creation 
Basket Deposit, the Trust's prospectus, and the two most recent reports 
to stockholders. Finally, the Trust Web site will also provide the last 
sale price of the Shares as traded in the US market. The Exchange will 
provide on its Web site (http://www.nyx.com) a link to the Trust's Web 
site. In addition, the Exchange will make available over the 
Consolidated Tape quotation information, trading volume, closing prices 
and NAV for the Shares from the previous day.
---------------------------------------------------------------------------

    \23\ The bid-ask price of the Trust is determined using the 
highest bid and lowest offer on the Consolidated Tape as of the time 
of calculation of the closing day NAV.
---------------------------------------------------------------------------

Criteria for Initial and Continued Listing
    The Trust will be subject to the criteria in Rule 8.201(e) for 
initial and continued listing of the Shares.\24\
---------------------------------------------------------------------------

    \24\ See e-mail from Michael Cavalier, Chief Counsel, NYSE 
Euronext, to David Liu, Assistant Director, Christopher W. Chow, 
Special Counsel, and Andrew Madar, Special Counsel, Commission, 
dated November 9, 2009.
---------------------------------------------------------------------------

    A minimum of 100,000 Shares will be required to be outstanding at 
the start of trading.\25\ The minimum number of shares required to be 
outstanding is comparable to requirements that have been applied to 
previously listed shares of the streetTRACKS Gold Trust, the iShares 
COMEX Gold Trust, the iShares Silver Trust and exchange-traded funds. 
It is anticipated that the initial price of a Share be approximately 
$22.00. The Exchange believes that the anticipated minimum number of 
Shares outstanding at the start of trading is sufficient to provide 
adequate market liquidity.
---------------------------------------------------------------------------

    \25\ Id.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Fund subject to the Exchange's existing rules 
governing the trading of

[[Page 59291]]

equity securities. Trading in the Shares on the Exchange will occur in 
accordance with NYSE Arca Equities Rule 7.34(a). The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. The minimum trading increment for Shares on the 
Exchange will be $0.01.
    Further, NYSE Arca Equities Rule 8.201 sets forth certain 
restrictions on ETP Holders acting as registered Market Makers in the 
Shares to facilitate surveillance. Pursuant to NYSE Arca Equities Rule 
8.201(h), an ETP Holder acting as a registered Market Maker in the 
Shares is required to provide the Exchange with information relating to 
its trading in the underlying palladium, related futures or options on 
futures, or any other related derivatives. NYSE Arca Equities Rule 
8.201(i) prohibits an ETP Holder acting as a registered Market Maker in 
the Shares from using any material nonpublic information received from 
any person associated with an ETP Holder or employee of such person 
regarding trading by such person or employee in the underlying 
palladium, related futures or options on futures or any other related 
derivative (including the Shares).
    As a general matter, the Exchange has regulatory jurisdiction over 
its ETP Holders and their associated persons, which include any person 
or entity controlling an ETP Holder, as well as a subsidiary or 
affiliate of an ETP Holder that is in the securities business. A 
subsidiary or affiliate of an ETP Holder that does business only in 
commodities or futures contracts would not be subject to Exchange 
jurisdiction, but the Exchange could obtain information regarding the 
activities of such subsidiary or affiliate through surveillance sharing 
agreements with regulatory organizations of which such subsidiary or 
affiliate is a member.
    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 conditions in the underlying palladium 
market have caused disruptions and/or lack of trading, 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 will be subject to trading halts caused by 
extraordinary market volatility pursuant to the Exchange's ``circuit 
breaker'' rule.\26\
---------------------------------------------------------------------------

    \26\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (including Commodity-Based 
Trust Shares) 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 and applicable federal securities laws.
    The Exchange's current trading surveillance focuses on detecting 
securities trading 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. Also, pursuant to NYSE 
Arca Equities Rule 8.201(h), the Exchange is able to obtain information 
regarding trading in the Shares and the underlying palladium, palladium 
futures contracts, options on palladium futures, or any other palladium 
derivative, through ETP Holders acting as registered Market Makers, in 
connection with such ETP Holders' proprietary or customer trades which 
they effect on any relevant market. In addition, the Exchange may 
obtain trading information via the Intermarket Surveillance Group 
(``ISG'') from other exchanges who are members of the ISG.\27\ NYMEX is 
an ISG member.
---------------------------------------------------------------------------

    \27\ A list of ISG members is available at http://
www.isgportal.org. The Exchange notes that TOCOM is not an ISG 
member and the Exchange does not have in place a comprehensive 
surveillance sharing agreement with such market. In addition, the 
Exchange does not have access to information regarding palladium-
related OTC transactions in spot, forwards, options or other 
derivatives.
---------------------------------------------------------------------------

Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Bulletin will discuss the following: (1) The procedures for 
purchases and redemptions of Shares in Baskets (including noting that 
Shares are not individually redeemable); (2) NYSE Arca Equities Rule 
9.2(a), 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; (3) how information regarding the IIV is disseminated; (4) 
the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (5) the possibility that trading spreads 
and the resulting premium or discount on the Shares may widen as a 
result of reduced liquidity of palladium trading during the Core and 
Late Trading Sessions after the close of the major world palladium 
markets; and (6) trading information. For example, the Information 
Bulletin will advise ETP Holders, prior to the commencement of trading, 
of the prospectus delivery requirements applicable to the Trust. The 
Exchange notes that investors purchasing Shares directly from the Trust 
(by delivery of the Creation Basket Deposit) will receive a prospectus. 
ETP Holders purchasing Shares from the Trust for resale to investors 
will deliver a prospectus to such investors.
    In addition, the Information Bulletin will reference that the Trust 
is subject to various fees and expenses described in the Registration 
Statement. The Information Bulletin will also reference the fact that 
there is no regulated source of last sale information regarding 
physical palladium, that the Commission has no jurisdiction over the 
trading of palladium as a physical commodity, and that the CFTC has 
regulatory jurisdiction over the trading of palladium futures contracts 
and options on palladium futures contracts.
    The Information Bulletin will also discuss any relief, if granted, 
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \28\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\29\ in particular, because it is 
designed 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 and perfect the 
mechanisms of a free and open market and to protect investors and the 
public interest. The Exchange believes that the proposed rule change 
will facilitate the listing and trading of an additional type of 
commodity-based product that will enhance competition among market 
participants, to the benefit of investors and the marketplace.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b).
    \29\ 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 will 
impose

[[Page 59292]]

any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

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

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2009-94 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2009-94. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the 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-2009-94 and should 
be submitted on or before December 8, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-27494 Filed 11-16-09; 8:45 am]

BILLING CODE 8011-01-P
