
[Federal Register: February 10, 2010 (Volume 75, Number 27)]
[Notices]               
[Page 6758-6760]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe10-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61496; File No. SR-NYSEArca-2009-113]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change To List and Trade the Sprott 
Physical Gold Trust

February 4, 2010.

I. Introduction

    On December 15, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade units \3\ of the Sprott Physical 
Gold Trust (the ``Trust'') pursuant to NYSE Arca Equities Rule 8.201. 
The proposed rule change was published for comment in the Federal 
Register on January 4, 2010.\4\ The Commission received no comments on 
the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Each unit represents an equal, fractional, undivided 
ownership interest in the net assets of the Trust attributable to 
the particular class of units.
    \4\ See Securities Exchange Act Release No. 61236 (December 23, 
2009), 75 FR 170 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade units (``Units'') of the 
Trust under NYSE Arca Equities Rule 8.201. Sprott Asset Management LP 
is the sponsor or manager of the Trust (``Sponsor'' or ``Manager'').\5\ 
RBC Dexia Investor Services Trust is the trustee of the Trust. The 
Royal Canadian Mint is the custodian for the physical gold bullion 
owned by the Trust and RBC Dexia serves as the custodian of the Trust's 
assets other than physical gold bullion.
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    \5\ The Manager is a limited partnership existing under the laws 
of Ontario, Canada, and acts as manager of the Trust pursuant to the 
Trust's trust agreement and the management agreement. The Manager 
provides management and advisory services to the Trust. Additional 
details regarding the Trust are set forth in the Registration 
Statement on Form F-1 for the Sprott Physical Gold Trust, filed with 
the Commission on December 9, 2009 (No. 333-163601) (``Registration 
Statement'').
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    The Units will be issued in an initial public offering. The Trust 
may issue additional Units: (i) In future offerings if the gross 
proceeds received by the Trust per Unit is not less than 100% of the 
most recently calculated net asset value (``NAV'') or (ii) by way of a 
distribution in Units in connection with an income distribution. The 
Trust will not issue Units on an ongoing or daily basis. At the start 
of trading, the Trust will issue a minimum of 1,000,000 Units to at 
least 400 holders (``Unitholders''). The Exchange states that the Units 
satisfy the remaining criteria of NYSE Arca Equities Rule 8.201 and 
thereby qualify for listing on the Exchange.\6\
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    \6\ With respect to application of Rule 10A-3 under the Act, the 
Trust relies on the exemption contained in Rule 10A-3(c)(7).
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    The Trust's investment objective is for the Units to reflect the 
performance of the price of gold bullion, less the expenses of the 
Trust's operations. The Trust expects to own only London Good Delivery 
physical gold bullion. The Trust is not actively managed and does not 
engage in any activities designed to obtain a profit from, or to 
ameliorate losses caused by, changes in the price of gold bullion.
    The Exchange states that the Trust does not intend to create 
additional Units. The Units will be redeemable monthly at the option of 
the holder for physical gold bullion or for cash subject to the certain 
conditions. Generally, Units redeemed for physical gold will

[[Page 6759]]

be entitled to a redemption price equal to 100% of the NAV of the 
redeemed Units on the last business day of the calendar month in which 
the redemption request is processed, less redemption and delivery 
expenses. Units redeemed for cash will be entitled to a redemption 
price equal to 95% of the lesser of: (i) The volume-weighted average 
trading price of the Units traded on the NYSE Arca or, if trading has 
been suspended on NYSE Arca, the trading price of the units traded on 
the Toronto Stock Exchange, for the last five business days of the 
month in which the redemption request is processed and (ii) the NAV of 
the redeemed Units as of 4 p.m., Toronto time, on the last business day 
of such month.\7\
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    \7\ See Notice and the Registration Statement, supra notes 4 and 
5, respectively, for additional information.
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    Additional information regarding the Trust, the Units, the Trust's 
investment objectives, strategies, policies, and restrictions, fees and 
expenses, creation and redemption of Units, the gold market, 
availability of information, trading rules and halts, and surveillance 
procedures, among other things, can be found in the Notice and in the 
Registration Statement, as applicable.\8\
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    \8\ Id.
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III. Discussion and Commission's Findings

    The Commisison has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \9\ and the rules and regulations thereunder applicable to a 
national securities exchange.\10\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\11\ 
which requires, among other things, that the Exchange's rules be 
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.
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    \9\ 15 U.S.C. 78f.
    \10\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal to list and 
trade Units on the Exchange is consistent with Section 11(a)(1)(C)(iii) 
of the Act,\12\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the protection of investors to 
assure the availability to brokers, dealers and investors of 
information with respect to quotations for and transactions in 
securities. Quotation and last-sale information for the Units will be 
available via the Consolidated Tape Association. The Trust's Web site 
will provide an intraday indicative value (``IIV'') per share for the 
Units, as calculated by 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 will be calculated based on a price of gold derived from 
updated bids and offers indicative of the spot price of gold.\13\ In 
addition, the Web site for the Trust will contain the following 
information, on a per Unit basis, for the Trust: (a) The mid-point of 
the bid-ask price \14\ at the close of trading in relation to the NAV 
as of the time the NAV is calculated (``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 Trust's prospectus, as 
well as the two most recent reports to stockholders. Finally, the Trust 
Web site will provide the last sale price of the Units as traded in the 
U.S. market. In addition, the Exchange will make available over the 
Consolidated Tape quotation information, trading volume, closing prices 
and NAV for the Units from the previous day.
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    \12\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \13\ The IIV on a per Unit basis disseminated during the Core 
Trading Session should not be viewed as a real-time update of the 
NAV, which is calculated once a day.
    \14\ 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.
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    The Commission further believes that the proposal to list and trade 
the Units is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Units appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. Under NYSE Arca Equities Rule 7.34(a)(5), if the Exchange 
becomes aware that the NAV is not being disseminated to all market 
participants at the same time, it must halt trading on the NYSE 
Marketplace until such time as the NAV is available to all market 
participants. The Commission notes that the Exchange has received a 
representation from the Trust that, prior to listing, the NAV would be 
calculated daily and made available to all market participants at the 
same time.\15\ Additionally, if the IIV is not being disseminated as 
required, the Exchange may halt trading during the day in which the 
disruption occurs; if the interruption persists past the day in which 
it occurred, the Exchange will halt trading no later than the beginning 
of the trading day following the interruption.\16\ Further, the 
Exchange will consider suspension of trading pursuant to NYSE Arca Rule 
8.201(e)(2) if, after the initial 12 month period following 
commencement of trading: (1) The value of gold is no longer calculated 
or available on at least a 15-second delayed basis from a source 
unaffiliated with the Sponsor, Trust, custodian or the Exchange stops 
providing a hyperlink on its Web site to any such unaffiliated 
commodity value; or (2) if the IIV is no longer made available on at 
least a 15-second delayed basis. With respect to trading halts, the 
Exchange may consider all relevant factors in exercising its discretion 
to halt or suspend trading in the Units. These may include: (1) The 
extent to which conditions in the underlying gold 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 Units will be 
subject to trading halts caused by extraordinary market volatility 
pursuant to the Exchange's ``circuit breaker'' rule.\17\
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    \15\ See supra note 4.
    \16\ See e-mail, dated February 4, 2010, from Tim Malinowski, 
NYSE Arca, to Steve Varholik, Special Counsel, Division of Trading 
and Markets, Commission.
    \17\ See NYSE Arca Equities Rule 7.12.
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    In addition, NYSE Arca Equities Rule 8.201 sets forth certain 
requirements for ETP Holders acting as Market Makers in the Units. 
Pursuant to NYSE Arca Equities Rule 8.201(h), an ETP Holder acting as a 
registered Market Maker in the Units is required to provide the 
Exchange with information relating to its trading in the underlying 
gold, 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 Units 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 gold, related futures or options 
on futures or any other related derivative (including the Units).
    In support of this proposal, the Exchange has made representations 
including:

[[Page 6760]]

    (1) The Units will be subject to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.201.
    (2) The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Units in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws. Pursuant to NYSE Arca Equities Rule 8.201(h), the 
Exchange is able to obtain information regarding trading in the Units 
and the underlying gold, gold futures contracts, options on gold 
futures, or any other gold 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.\18\
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    \18\ The Exchange notes that the New York Mercantile Exchange, 
of which the COMEX is a division, is an ISG member, however, the 
Tokyo Commodity Exchange, Inc. (``TOCOM'') is not an ISG member and 
the Exchange does not have in place a comprehensive surveillance 
sharing agreement with such market.
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    (3) 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 Units. 
Specifically, the Information Bulletin will discuss the following: (1) 
The procedures for purchases and redemptions of Units; (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 Units; (3) how information regarding the IIV is 
disseminated; (4) the requirement that ETP Holders deliver a prospectus 
to investors purchasing newly issued Units prior to or concurrently 
with the confirmation of a transaction; (5) the possibility that 
trading spreads and the resulting premium or discount on the Units may 
widen as a result of reduced liquidity of gold trading during the Core 
and Late Trading Sessions after the close of the major world gold 
markets; and (6) trading information.
    This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \19\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \19\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NYSEArca-2009-113) be, and 
it hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2951 Filed 2-9-10; 8:45 am]
BILLING CODE 8011-01-P

